Is there a hidden mystery behind the "*" after the stock name?

        Have you ever noticed that some companies have an additional "*" symbol after their names when buying and selling Taiwanese stocks? This seemingly inconspicuous symbol represents that it is a company that adopts a "flexible face value" policy, and should be carefully evaluated before buying to avoid being misled by stock prices. This issue of 'Finance Column' introduces the design mechanism of these 'star stocks' and investment related matters.

        The origin of star stocks (elastic denomination)

                On December 23, 2013, the Financial Supervisory Commission revised and issued the "Guidelines for the Handling of Stock Affairs of Publicly Issued Companies", removing the restriction that the face value of publicly issued company stocks should be NTD 10. Instead, the face value of each share issued by the company should be uniform, that is, the face value of each share of each publicly issued company and listed and emerging companies is no longer limited to NTD 10, but can be NTD 5, NTD 1 or other (hereinafter referred to as flexible face value), but still must have a certain face value. In other words, the same company's stock "cannot" have two different face values at the same time. For the identification of investors, if the face value of the stock is not NTD 10, the stock abbreviation must be followed by a "*" symbol.

        Why use elastic denominations?

        1. Beneficial for start-up companies to raise funds

        Article 140 of the Company Law stipulates that companies that adopt shares with a face value shall not issue shares at a price lower than the face value; If stocks are issued at a lower face value, it can help lower the fundraising threshold for enterprises and improve the efficiency of obtaining funds for new or high wave industries.

        2. Increase stock liquidity and activate trading volume

        Share capital (capital amount)=number of issued shares x face value of shares, for example: if the company's share capital is NTD 100 million, and the face value of each share is NTD 10, then 10 million shares will be issued; If the face value drops to NTD 1, 100 million shares will be issued (with a tenfold increase in the number of outstanding shares). In other words, with the same share capital, the face value of the stocks will decrease, and the total number of shares will increase, which is beneficial for improving the liquidity of the stocks outside the market.

        3. Attract more people to buy stocks

        The market value of a company is equal to the number of shares issued multiplied by the stock price. Therefore, when the face value of a stock decreases and the number of shares issued increases, while the original market value of the company remains unchanged, the unit stock price will synchronously decrease proportionally in the market, making the stock price appear more "affordable" and attracting small bourgeoisie who previously thought the stock price was too expensive to buy it.

        Investors should pay attention to the following matters

        1. Elastic denomination does not equal low price and cannot be directly compared with non "*" stocks

        Assuming that the share capital and profit situation of Company A and Company B are the same, Company A's stock has a face value of NTD 1 and a lower stock price, while Company B's stock has a face value of NTD 10 and a higher stock price. If investors do not know that the price benchmark is different due to face value factors, they will mistakenly believe that Company A's stock is cheaper than Company B.

        2. Avoid using a single financial information as the basis for investment analysis

        Many investors are accustomed to using earnings per share (EPS) and net asset value per share as the basis for evaluating a company's profitability; However, if a flexible face value system is adopted, the company's earnings per share (EPS) and net asset value per share will not be comparable due to inconsistent face values. Investors should combine other data for comprehensive evaluation (such as price to earnings ratio, stock price to net asset ratio, return on equity, dividend yield, etc., as their calculation methods are not affected by face value) to increase their understanding of the company's actual operating conditions.

        3. Pay attention to the announcement date and the stock exchange benchmark date

        During the period when old stocks cease trading, they cannot be bought or sold. After the number of shares changes, it is necessary to confirm the inventory holdings.

        Where to search for star stocks?

        As of now, there are over 30 companies marked with an "*" symbol in the listed, over-the-counter, and emerging markets. The face value per share of each company is not the same, and some even have no face value. A detailed list can be viewed at the OTC Purchasing Center (OTC Purchasing Center>OTC Listing>OTC Company Information>OTC Company Information with Flexible Face Value); If a listed company is about to change its face value, it will also appear in the Taiwan Stock Exchange Corporation's change of face value forecast table (Taiwan Stock Exchange Corporation>Market Announcement>Change of Face Value>Change of Face Value Forecast Table).

        In addition, the public information website also has a dedicated section for companies with flexible denomination (non NTD 10 per share) to facilitate investor inquiries. (Public Information Observatory>Theme Zone>Investment Zone>Flexible denomination companies)

        Conclusion

        The size of the face value affects the number of issued stocks and has no correlation with whether the stock price can continue to rise. The rise and fall of the stock price ultimately returns to the market's expectations of the company and whether the financial report meets market expectations. Therefore, before investing in star stocks, investors should carefully evaluate the company's revenue, profitability, and governance structure, understand the reasons behind its adoption of flexible face value, rather than just focusing on the "cheap stock price" after changing face value, in order to protect their own rights and interests.

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        *Image source: freepik

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