Essential Things to Know About Share Split
A share split is one type of corporate exercise. Corporate exercises fall into two categories:
- 1. Mandatory corporate exercise – Everyone is involved, no exceptions.
- 2. Voluntary corporate exercise – You can choose whether to subscribe or not.
A share split occurs when a company wants to multiply the number of its shares.
Your shares will increase according to the ratio set by the company.
For example, if you hold 200 units of shares, when a share split with a ratio (old:new) of 1:2 takes place, your share units will become 400 units.
Impressive, right?
However, share splits are quite rare and only certain companies are able to carry them out.
As explained above, your shares will increase in quantity.
For example, if you hold 100 units of shares priced at RM1 per unit.
After a share split with a ratio (old:new) of 1:2, the price becomes 50 sen with a total of 200 units of shares.
3. Market Capitalisation Remains Unchanged
Market Capitalisation = Total Shares X Share Price
• This is different from a share consolidation
The purpose of a share split is to lower the share price.
It encourages more investors, especially retail investors like us, to buy shares in the company.
- • Shares in the market become more abundant
- • More liquid (easier to trade)
- • The price per unit of shares becomes lower
- 1. When is the ex-date?
- 2. What is the conversion ratio?
- 3. How many shares will I have?
- 4. What will the share price be?
When Is the Ex-Date?
What does the ex-date mean?
The ex-date is the last day shares are counted before the share split takes effect.
For example, the ex-date is 1 December 2020.
So if you buy shares on or after 1 December 2020, you will not be subject to the share split.
What Is the Conversion Ratio?
The conversion ratio depends on the company. Typically, the ratio (old:new) is 1:2 or 1:3.
If you hold 100 units of shares and the ratio (old:new) set by the company is 1:2, then your new number of shares will be 200 units.
If the ratio (old:new) is 1:3, then your new number of shares will be 300 units.
As explained earlier, the share price will decrease.
- • The number of shares will increase
- • The share price will decrease
- • After the decline, the share price ''usually'' recovers
When the price of a share becomes lower, more people have the opportunity to buy it because the trading price is still affordable for ordinary folks like us.
The more people who buy the shares, the higher the share price will climb.
But whatever happens, the most important thing is to do your research before buying or selling shares.
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Frequently Asked Questions (FAQ)
What is a share split and how does it work?
A share split is a division of shares where one unit of shares is split into several new units according to a specific ratio. For example, a 1:2 share split means every 1 old share unit becomes 2 new share units, whilst the price per unit is halved.
Does a share split benefit existing investors?
A share split does not change the total value of your share holdings. However, it can be advantageous because a lower price per unit makes it easier for more retail investors to buy, thereby increasing liquidity and potential demand for the shares.
What is the difference between a share split and a share consolidation?
A share split divides shares into smaller units (price goes down, units increase), whilst a share consolidation combines shares into larger units (price goes up, units decrease). Neither changes the company''s market capitalisation.
When will my shares change after a share split announcement?
After a company announces a share split, there is an ex-date set by Bursa Malaysia. On that date, the price and quantity of shares in your portfolio will be automatically adjusted by your broker according to the announced split ratio.
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