Last Tuesday (April 18), Malaysian Genomics Resource Centre Bhd (MGRC) proposed a private placement to raise up to RM3.85 million that would be used for future viable investment and working capital.

The ACE Market-listed genomics and biopharmaceutical company had undertaken a private placement in 2021 to raise RM24.2 million, and then another in 2022, which saw it raising RM4.03 million.

Currently, MGRC has outstanding shares of 130.21 million. With the latest private placement exercise involving seven million shares, its share base will be expanded by 5.38% to 137.21 million shares.

The private placement, which may be implemented in several tranches within six months, is expected to be completed by the fourth quarter.

To be fair, despite the fact that MGRC is planning to undertake a private placement exercise in three consecutive years, its current share base of 130.21 million and its expanded share base of 137.21 million shares are not extremely high compared with many other penny stock companies, which have billions of issued shares.

Still, one wonders how these private placement exercises can help improve MGRC’s financial performance.

For perspective, it had a share base of 94.1 million shares when it was listed on Bursa Malaysia in October 2010. Back then, the company had a market capitalisation of about RM88 million.

Fast forward to today, MGRC’s share base has been expanded by 38%, but its market capitalisation has declined to RM71.6 million.

It is worth noting that MGRC’s earnings performance has been lumpy since its listing. Over the past 12 financial years, the group reported profits for five financial years and was in the red for seven.

In the first half ended Dec 31, 2022, MGRC slipped into a net loss of RM353,000, compared to a net profit of RM1.25 million a year ago.

Given their faster execution process compared with other fundraising methods, private placements have become the method of choice in recent years. However, what awaits minority shareholders who are not included in the fundraising process is an imminent earnings dilution.

There is also the risk of future speculation on the shares and minority shareholders often do not know to whom the shares are placed.

This leaves the question, how many private placement exercises does MGRC really need to be on a steady earnings path?