Mieco announced its earnings last night.
Mieco announced that it had made a net profit of 2.682 million for its 2006 Q3 earnings (2006 Q2 it reported a net profit of 2.891 million).
So are we looking at a turnaround case here?
anyway this is what the company said in its notes..
- Quarter on Quarter review
Group revenue increased from RM77.8 million to RM90.8 million in the current quarter due mainly to favourable sales price of chipboard and related products.
Group operating profit before financial cost, depreciation and amortisation increased by RM6.0 million to RM11.7 million from RM5.7 million in the same quarter last year due mainly to higher sales of chipboard and related products and higher production output, though adversely affected by increase in raw material prices.
anyway regarding the turnaround issue...
it's rather simple.. the past 2 quarters, Mieco showed profits instead of losses (although cash flow is still terrible). Q2 Mieco earned 2.9 and yesterday, it reported its q3 earnings to be 2.7 (rounded up).
So we are looking at a company which should be earning around 2.7-3.0 mil per quarter.
Which i find it totally incredible because back in the GOOD days.. the days when Mieco was a so-called an investment grade stock, Mieco was earning some 8-9 million per quarter, and it was a company in nett cash position of 182 million (see mieco's 2003 q2 earnings). Blogged on this here: Mieco and i think in that posting i compiled a table of Mieco's earnings (reload/refresh the page of the msn group if ur browser says the page cannot be found).
Anyway... the main cause of this is the huge capex as mentioned in that blog posting.
- Anywayyy… let’s consider the following chain of events.
As noted, the first sign of weakness in the company’s earnings happened when Mieco announced its 03 q4 earnings on 24th May 2005. Price of Mieco then was 2.89. It was trading around an earnings multiple of 19x based on trailing earnings.
There was a huge increase in the company’s borrowings. Now this one is debatable cause Mieco’s borrowings was incurred because it wanted to built a brand new factory. Capex was estimated at around 300 million.
How? Big money was used to build that brand new, state of the art factory. And the end results, surely it's not justifiable at all. Earnings around 2.9 million per quarter is no way close to what the company was earning back in 2003, in which Mieco was earning around 8-9 million. Company is now in a huge debt when previously it was in such an enviable position of a nett cash of 180++ million.
I think this is a good case study here... In Mieco's case, perhaps the capex was way too huge for itself (classical example of perhaps the hat became too small for the management) and if the announced capex sounds too ambitious, then perhaps the investor should exercise extreme prudence.
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