MANAGEMENTS of most companies are probably up to their necks right now preparing for their respective annual general meeting (AGM), a time when companies are often inundated with tough questions, and sometimes feisty shareholders.
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Notably, this season could prove to be significantly more stressful for companies with exposure to Japan and the Middle-East as prospective AGMs are likely to be marked by a spike of earnings-related questions following Japan's nuclear scare and Libya's unrest as the events remain vividly imprinted on the minds of shareholders.
However, bearing the main brunt of shareholders' fury would probably be the management of Chinese counters, otherwise known as S-chips.
Shareholders of S-chips are likely to leave no stone unturned during this timely 'firing' session following the recent spate of accounting irregularities at China Gaoxian, China Hongxing and Hongwei Technologies.
Last week, China Gaoxian disclosed that its auditors Ernst & Young could not verify or confirm the bank balances for its two Chinese subsidiaries for the fiscal year ended Dec 31, 2010.
Likewise, auditors at China Hongxing and Hongwei Technologies were unable to finalise their audits for the last financial year as they too could not ascertain certain cash balances.
With S-chips now in the hot seat, analysts advise shareholders to always scrutinise the balance sheet of respective companies before investing in them. They highlight potential red flags that could lead to possible issues include companies purportedly reporting huge balances of cash but yet withhold dividend distribution in the absence of any significant acquisition trail.
But perhaps one should not be quick to conclude that birds of a feather flock together?
Soh Chun Bin, partner at Stamford Law Corporation, said: 'Investors should be prudent when it comes to investing in S-chips. But when a blow-up happens, investors should not be too quick to judge its remaining peers as there are legitimate reasons to hold on to cash.'
For one, saving for a 'rainy day' could be one of the reasons why companies hoard cash. After all, it is widely known that companies in net cash positions better weather the stormy conditions during downturns.
That said, shareholders should not shy away from asking management whether the company's cash is safely stored in established and reputable financial institutions and undergo proper audit procedures.
In addition, it is also good to pay attention to a company's debt maturity profile and plans for subsequent debt financing.
But should shareholders be only jotting down questions pertaining to potential accounting irregularities?
Let us revisit the China Gaoxian case again.
As a result of its auditors not being able to verify the bank balances of its subsidiaries, China Gaoxian shares have been suspended from trading since Tuesday last week.
However, prior to the trading halt, the counter had plummeted more than 20 per cent the previous day on abnormally high volume.
Could this potentially point to an asymmetry in information distribution?
In general, sophisticated investors and institutional investors do not attend AGMs as they typically secure all the requisite information they need from management or the company's respective investor relations company or staff directly.
Ideally, disclosures should be made fairly to all, be it to a majority shareholder or a shareholder that holds just one lot.
Sadly, this would be hard to achieve in reality as institutional investors remain updated by companies throughout the financial year and have the liberty to pose questions at their will.
On the flip-side, retail investors are only entitled to the once-a-year session to voice any concerns that they might have.
Basically, nothing is really fair in this world.
Our advice? On top of preparing a list of questions to dart at management, skip breakfast and go enjoy the plethora of gastronomic delights offered during an AGM, compliments of the company.
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