Thursday, May 18, 2006

eB Capital II

Boyplunger raised the following issue on eB Capital.

  • I noted Redtone Technology Sdn Bhd has been accummulating EB Cap. Currently owning about 1.9m or 7% -8%.

    Why is Redtone buying the shares of this company? That is interesting. Did i miss out something on the company's history.

Yes, I do understand that Redtone International has been buying shares into this company.

Why is RedTone buying shares into a company that has real problem in making a profit?

I have no idea.

And yes, I do understand your thinking rational. Because the justification is if RedTone International is willing to buy shares into the company, surely there must be something in the company that RedTone sees as value. And surely no sane company would want to buy a company if there is no profit to be made. Right?

Hence, the argument is of course, perhaps one should follow and mimmick what RedTone does!

But if that is the case, isn't one implying that when one company or one individual purchases a share of another company, the buyer(s) reasoning to buy the share is always correct?

But do we or would we ever know the true motives or intentions in such share purchases? Would we ever have the privilege to evaluate their reasonings in their share purchase? If no, then aren't we making one huge assumption, which is the buyer(s) of the share(s) is always deemed correct?

Can such strategy go wrong?

Let me give some examples on what could go wrong.

Take the series of past postings on Karensoft. Well, the boss has always been constantly buying back shares in the company. So is the boss deemed correct in his actions? Well as everyone is well aware, Karensoft has just been re-classified as the first GN3 stock in the Messdaq listing. Which is rather dead serious since this classification states that Karensoft financial health is in a utter dire straits. So was there 'value' in the share purchase? Or perhaps the boss was buying for personal reasoning, which sadly is the 'value of being a listed stock'. So if one had followed Karensoft boss actions in the market, how then? See the danger?

Or how about the infamous purchase of a controlling stake in the huge congolomerate, DRB-Hiccom? How much was the share purchase back then? Wasn't it around 3.50 or so? Ahh.. I am sure that you are aware that some argued that because since the controlling stake was sold at such a high price valuation, then surely there must be value in the stock since the stock was selling around 2.00 back then. And what's the price of DRB-Hiccom today? Would a follow you, follow me strategy work in this case?

On the other hand, there were success stories in stocks like Transmile.

Ah, I am sure you understand what I am trying to say.

There's simply no gurantees in such strategy.

Sometimes it works but sometimes it can be dead wrong.

So how?

What's the best gauge?

Look at eB Capital.

eB Capital supposedly specialises in wireless broadband technology.

There'e 2 things one can gauge it on since it's listing. Look at these past compilations I had made on EB Capital .

The first news clip.

  • With a current local market share of 0.54% in terms of broadband subscription, more efforts would be devoted to marketing its products and services to enlarge its share, he added.
    Meanwhile, eB Capital's historical earnings demonstrate its strong growth.
    The company registered a pre-tax profit of over RM1mil last year and an after-tax profit of RM560,000.
    Revenue increased to RM8.3mil in 2004 from RM2.5mil in the preceding year

And the next article...

  • Wireless Internet broadband provider eB Capital Bhd (eBCap) expects its subscriber base to grow in multiples of 10,000 over the next two to three years as it embarks on an aggressive recruitment drive after its listing on Mesdaq.

See how b4 listing, eB Capital boasted about its great potential and its track record.

After listing, eB Capital showed it true self.

How do you value such a company?

Secondly, take a look at eB Capital last reported earnings. Do you like what you see?

If you don't then... should you be bothered with what RedTone does?

And if I have to guess, perhaps RedTone wants to go into the wireless broadband industry.

By the way, based on current price of 1.70, do you reckon that eB Capital business is worth what the market is pricing it?


Anonymous said...

Hi Moola,

I was surprised to see Redtone buying into EB Cap. Thought something was brewing or it could be silly mistake that Redtone made during its early investments. Now looking at EB Cap's fundamentals, I won't touch it. Interestingly, I believe not a single analysts or broker have mentioned about this.

Anyway, Redtone as a company shouldn't be mendling in the stock market. Althought this is the subsi of the holding co, that doesn't give them the excuse to dap in the market. Can get killed one you know. Unless they know how Canggih EB Cap's technology is then that is an investment worth taking. But who is EB Cap? no one really knows. tO BE CONTINUE....

Till then, keep the articles flowing. Enjoy reading them. Cheers!


Anonymous said...

Hi Moola

I like your mumblings and your apparent objectivity.

However, I am puzzled why you did not mention that Karensoft reported a Q1/2006 profit ?

I downloaded the Q1/2006 and the 2005 accounts and running through the GN3 Guidelines, I cannot understand why Karensoft was clasified as a GN 3 company as they pass all the tests as a Group and should not be classified GN 3.

The only thing that could hit them would be 2.1 (b) & (c) where the accounts of the listed company alone are considered. I noticed that there was an impairment loss of about 9 Million charged to the P/L of the holding company and not the group. As far as I know, FRS 136 on Impairment of Investments should only be efffective 1/1/06

Could it be that Karensoft has been penalsied for early compliance with FRS 136 ?

Anonymous said...

redtone has now owned eB Capital.

the only reason that i know for redtone to buy eB is, the wireless license that eB owned.

eB own a couple of 3.5Ghz wireless band license. that alone already made eB worth noticing if a company wish to venture into wireless technology.