Yahoo Finance How to Make the Most Out of Annual General Meetings
Singapore’s Annual General Meeting (AGM) season is winding down.
The good news is physical events are back again after a three-year hiatus.
There is a difference though.
Gone are the days of large buffet spreads typically found in high-end hotels. In its place are bento boxes.
But as an investor, attending AGMs should be more than just filling up your tummy.
Instead, you should be thinking about how to load up on the latest business developments and find out how a company plans to grow.
After all, this is the key reason you are a shareholder.
What is desired are higher profits, cash flow, and dividends, which will, in turn, translate into a steadily-rising share price, providing you with capital gains which grow your wealth.
AGMs are perfect for meeting the people running the company and clarifying any doubts you have about corporate strategy or any aspects of the business.
These events are also a once-a-year opportunity for you to query management on their plans for the business and find out how they plan to tackle challenges or headwinds.
Here is what you can do to maximise your time there.
Sizing up the business
When you buy a stock, you are taking part-ownership in a business.
Hence, your main objective in attending an AGM should be to understand the business better.
In that vein, it is useful to come prepared with questions to ask or doubts to clarify.
Currently, most companies request shareholders to write in before the AGM proper
The answers to these questions are consolidated and posted up on the company’s website and SGXNet.
There is, however, no fixed rule as to how these queries should be tackled.
It is up to management’s discretion whether to provide a detailed response, or simply a cursory, generic answer.
Some of these replies may even be superficial and fail to provide any insight on the state of the business or future growth strategies.
By attending the AGM, shareholders can ask questions face to face which the CEO and board of directors will have to answer on the spot.
For instance, at the recent AGM for Mapletree Industrial Trust (SGX: ME8U), a unitholder delved into the fall in valuations for specific properties within the annual report.
Management proceeded to explain the rationale behind the fall for each property queried, leaving the shareholder satisfied with the reply.
AGMs also provide the chance to clarify specific aspects of the annual report such as accounting treatments, assumptions, and areas that may require further explanation.
It is much easier to clarify a response given in real-time as shareholders cannot provide feedback or respond to the written replies from the management.
Hence, the importance of shareholder engagement cannot be understated as it allows shareholders who own a slice of the business to clarify their doubts and obtain satisfactory responses from the people who are running the show.
Management may also shed light on why they undertook certain corporate decisions such as acquisitions, mergers, or divestments.
These explanations help to elucidate the rationale behind these major corporate moves and allow shareholders to understand management’s thought process.
The AGM is also a good venue to challenge management on issues that you feel strongly about.
For instance, the company could be loading on more debt at a time when interest rates are soaring to multi-year highs.
Shareholders can question management and ask them to justify this move as it may not seem prudent.
If you are displeased with the response, you may choose to pare down your stake or even exit the investment entirely.
Hence, the AGM helps you to refine your investment process and to dig into issues that management may otherwise skip over.
Tackling problems and challenges
Next, AGMs are a good place to assess how management deals with tough questions.
In the corporate world, things sometimes go wrong even with the best of intentions.
Possible mistakes could include a failed new product launched or an acquisition that went sour.
Management needs to deal with shareholder frustration by detailing what went wrong, the lessons learnt, and what is being done to address and not repeat the problem.
Back in 2011, Boustead Singapore (SGX: F9D) had to pull out of Libya due to an outbreak of civil war.
During this time, the conglomerate had to evacuate its staff from Al Marj and restructure its joint venture.
At Boustead’s AGM that year, CEO Wong Fong Fui provided a detailed explanation of what went wrong and what the company did to salvage the situation.
The explanation went a long way in assuring shareholders that management had tackled it expediently and in a professional manner with staff safety being always prioritised.
A more recent example was when DBS Group (SGX: D05) suffered a disruption to its digital services on 29 March that lasted most of the day.
At the company’s AGM just two days later, both CEO Piyush Gupta and Chairman Peter Seah apologised and promised to set up a special committee to investigate what happened.
Chairman Peter Seah also bowed to shareholders in apology while the CEO called the incident “sobering”, underscoring how sorry they were over this incident.
These examples demonstrate how candour and being contrite can help to reassure shareholders.
Management may make mistakes, but their attitude will demonstrate that they are professional enough to recognise these errors and take corrective action to make things better.
Strategic plans and targets
Finally, AGMs are a great place to find out about management’s plans and strategies for growing the business.
You should treat this as a once-a-year chance to pick management’s brains.
Before the pandemic, Raffles Medical Group’s (SGX: BSL) AGM saw CEO Loo Choon Yong mention that he plans to expand further into China, a view that was echoed in an interview that he gave with CNBC in early 2020.
During that interview, he projected that revenue from China will eventually take up half of the group’s revenue.
For Mapletree Industrial Trust, CEO Tham Kuo Wei communicated the management’s intention to raise the data centre proportion within the REIT’s portfolio (currently, it is at 56% post-acquisition of a Japanese data centre) although no timeline was given on when this can be achieved.
Another useful reason for attending an AGM is to compare management’s promises against actual results.
But to do so, you will have to attend several consecutive AGMs while closely observing the business.
If you find out that management consistently over-promises but under-delivers or fails to carry out initiatives it had promised, it could be time to part with the stock.
The people behind the business
Ultimately, stocks are more than just prices jumping up and down a screen.
They represent part-ownership in businesses that sell goods and services.
Allocating money to a stock means that you implicitly need to trust that the people running it are competent and can make good capital deployment decisions.
They should also be prudent stewards of shareholders’ capital.
AGMs help you to find out more about management’s intentions for the business, how they hedge against risks, and their reasons for various corporate initiatives.
Armed with the right questions and an inquisitive attitude, you can maximise your time at any AGM and be endowed with additional knowledge that will help you to become a Smarter Investor.
Note: An earlier version of this article appeared in The Business Times.
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Disclosure: Royston Yang owns shares of DBS Group, Boustead Singapore, Mapletree Industrial Trust and Raffles Medical Group.
The post How to Make the Most Out of Annual General Meetings appeared first on The Smart Investor.
