Magnum and Its Cash

Blogged on this stock a couple of times. Past blog postings: magnum fall out of favour! , magnum again. , reminiscences of a stock mumbler: iv and About Magnum Again.

Today I noted an interesting comment from RHB Research, which commented that Magnum's subsidiary, "Magnum 4D had acquired 13.4m shares or 0.88% of Sarawak Enterprise Corporation (SEC - from 2 Jun 06 to 20 Nov 06) for RM16.6m or at an average price of RM1.235 per share."

As rightly pointed out by RHB, this investment "is a small investment outlay in view of Magnum’s net cash position of RM710m and Magnum 4D’s cash reserve of RM440m (no debt) as at Sep 06."

But...

Consider this issue. If you were an investor purchasing Magnum because of its net cash position in hope that you benefit from this cash factor, surely you would have been disappointed.

And the following are the concerns mentioned by RHB in their writeup.

• . However, this move further raises concerns about its cash management policy and may undermine the recent positive developments (cancelling of treasury shares, higher dividend and sale of land in Sepang). Moreover, SEC is considered a related company given that Magnum’s parent, MPHB, has a 18% stake in the East Malaysia utility company.
  
  . Maintain Underperform. We remain wary about its opaque cash management policy as well as other non-operational risks and the higher luck factor risk. Fair value is pegged at RM1.90 or a 25% discount to SOP of RM2.53.

See the concerns raised?

Yes, the piggy bank cash is extremely healthy but one really does not know what the management will do with the cash.

OPAQUE CASH MANAGEMENT POLICY!!!!

Buying shares in another listed company is like dabling into the stock market. Do the management reckon that they are a Warren Buffett? Or a Bill Miller?

And worse of all... and in fact it really stinks that the fact Magnum’s parent, MPHB, has a 18% stake in SEC!!

Sigh!