Bonus Issue/ Share Split - good or bad??

Superlon is one of my potential Multi Baggers MB and it has just announced a share split of 1 into 2..wow, will it be my next MB??     I always find this topic interesting though it is nothing new, but still many discussions on whether there is actual value created out of this exercise.


Please allow me to go back to text book for a while:-  The market capitalisation of Superlon is at Rm257.6 mil (80 m shares @Rm3.22)   Assuming this is the fair value of Superlon on the day just before the ex-date, so after the share split, it should still be Rm257.6 mil.   Hence, the theoretical share price ex-split should be Rm1.61 because the value of the company does not change overnight. I believe all of us know this very well.                                                                                                                                                                                                                                  From what I understand, under the no par value regime, there is no difference between bonus issue and share split as bonus issue may not need to capitalise any reserve into share capital. Unlike previously, a company must capitalise reserve based on no of bonus shares x par value. 


If there is no real value created, why then do bonus issue or share split?
Some of the common reasons cited :-      1. increase liquidity   2. lower price to enhance marketability, especially to retail investors.  At times , bonus shares are issued in place of cash dividend, especially company which pay regular dividend and may be in need of cash. Hence, bonus issue is a way to continue to "reward" shareholders and preserve cash at the same time.   
To me, these are weak reasoning for bonus issue (not so much share split, but now there isn't real difference between the two except in bonus issue case, company can still opt for capitalisation of reserve ). Unless the share price is like Nestle (Rm79.88) where 100 shares (Rm8k) still can be quite an substantial amount to most retail investors, otherwise, does it really enhance marketability. For instance even a company with stock price trading below Rm1 are issuing billion of bonus shares to increase liquidity & enhance marketability? Warren Buffet will not bother to discuss this issue as Berkshire Hathaway never do any of this even its share price is at US$249,465.        


There is no point trying to draw an inference by referring to the share price performance on some of the recent share split or bonus issue as there is no definite direction when it goes ex... further more, there are just too many factors affecting its' short term price movement..the market sentiment, foreign exchange rate, etc etc.


Hey, what should I be bothered with the short term price fluctuation. I am more concerned with whether the new warehouse will further enhance its business in the long run and it can continue to increase its profitability and dividend. This has better chance to make Superlon my next MB rather than the share split exercise. Having said that, I am still an ordinary investor and deep in my heart, I welcome the share split because it makes me feel good with more shares in hand.