KUALA LUMPUR (June 18): Share buy-back activity in Malaysia is expected to pick up, particularly among mid-cap companies with strong balance sheets and dividend flexibility, said Kenanga Investment Bank Bhd.

Malaysia is among the more active markets in Asean for share buy-backs this year, with about 110 companies — or roughly 10% of listed firms — undertaking such exercises, compared with 43 in Thailand and 65 in Indonesia. 

“About 17% of companies on Bursa Malaysia over the past two years have done so. Locally, however, much more of the activity is concentrated in the mid-cap space, which in our view is still the low-hanging fruit area where we expect to see more companies exploring such a tool given healthy balance sheets and dividend payout ratio headroom,” Kenanga said in a note on Thursday.

The research house attributed this to Malaysia’s relatively flexible regulatory framework compared to regional peers which has no statutory restriction on the holding period for repurchased shares, although mandates must be renewed annually at shareholders’ meetings. Repurchased shares may be cancelled, used for dividends or fundraising, or allocated for employee share option schemes.

Kenanga also noted fewer constraints in terms of free float, estimating that the KLCI constituents have more than 40% free float on average based on Bloomberg data, supporting liquidity for buy-back activities.

 “As for large-caps, they already possess strong dividend payout ratios, but we see the ability to balance expectations of a sustained dividend payout ratio, while also mindful of reserving some capacity to provide support during temporary periods of under-valuation to provide a more enduring appeal to investors,” it added. 

Among the FBM KLCI stocks, AMMB Holdings Bhd (KL:AMBANK) is one of the more active users of buy-backs. Others include QL Resources Bhd (KL:QL), IJM Corporation Bhd (KL:IJM), PPB Group Bhd (KL:PPB) and Solarvest Holdings Bhd (KL:SLVEST). 

Share buy-backs involve companies repurchasing their own shares from the market, typically to return excess cash to shareholders and support share prices. The buy-backs can help stabilise markets and improve capital efficiency, particularly for companies with excess cash and limited reinvestment opportunities, in line with efforts to enhance shareholder returns.