Monday, May 07, 2007

How now for Megan?

Here's an interesting news article, Megan Media down on RM49m trade loan default

  • The company added “it was established that further impending maturities are also unlikely to be paid”.

    “MTSB and MJC are experiencing financial difficulties as a result of constraints on its current cash flow from its operations which are insufficient to service and repay amounts due to lenders. Principally, this has been due to an exceptional build-up of its trade debtors,” it said.

Exceptional build-up of its trade debtors, ie the RECEIVABLES issue mentioned in the posting The Receivables Issuie and Megan.

Hey, this is a dead serious issue!

At this moment of time, if one have this stock, it looks like one had made a poor stock selection or had probably listened to an extremely poor stock recommendation.

If one continue to hold it, what's one risk?

Reason it out.

The company, right now, cannot settle this rm47 million in loans. The company has total loans worth some rm880 million! Given the fact that company acknowledge that the main problem is due to the exceptional build-up of its trade debtors, then it's extremely likely there will be huge problems with its whopping receivables of rm430 million. How much of it will turn into bad loan? And when it does, it will be recorded as losses ( And the size of losses will erase Megan status as a cheap 'PE stock'! ). So one's need to address the risk of Megan reporting losses and with the huge debts hanging over its head then one has to ask evaluate the possibility of Megan could go under! And if the possibility of it is real, does it make sense to continue holding?

What's your reward? A turnaround? For a turnaround to happen, the receivables issue has to be dealt with. There's no escape. Bad debts have to be declared. Losses have to be recorded. How about its industry outlook? Is it promising enough to seduce buyers to rescue this company with debts totalling a whopping 880 million?

Yes, debts does matter!


I really see so much more pain before anything else!

Given current situation, I would sincerely reckon that acknowledge this investing mistake and move along is probably the wisest thing to do. There is still time now!

By not doing so, one is stubbornly hanging on and refusing to admit one is clearly wrong on a poor stock selection!