Monday, November 26, 2007

Cymao IV

Cymao reported it's earnings on Friday. It was not pretty at all. It reported a loss of 1.612 million, bring ytd losses to 7.023 million.

And what interested me most was the copy of the OSK report I received this morning.

I had blogged on it before based on OSK report back in Aug 2007:
Cymao III

And this was my comments to its report back in Aug 2007.

  • Ses, I do not understand it. They understand that earnings will be bad and they acknowledge the fact that the US housing market depression will have an impact on Cymao.

    And incredibly, they had slashed their FY 2007 earnings by a whopping 86%!


    So, if they can slash their earnings by 87%, from 15.3 million to a mere 2.1 million, does Cymao deserves a HOLD recommendation with a TP of 1.30??

    Oh.. Cymao is currently trading at 1.02, down 12 sen!

Cymao is currently traded at 0.79.

If one owned Cymao, listening to OSK's Hold recommendation was pretty damaging to one's portfolio, yes?

And here is what they wrote this morning:

  • 3Q07 results continued to be disappointed. A loss of RM1.6m was incurred, compared to a RM5.7m loss incurred in the preceding quarter. Although shipment volume was 16% lower, average selling prices were 5% higher and average log cost was 11% lower q-o-q, which resulted in a slightly better margin. We downgrade the stock to a Sell, given its high exposure to the US market, which is currently facing a recession in the housing sector. We think the US housing activities will take some time to recover. Adding to that, the continuous weakening of the US$ will also negatively affect the company. Due to the small operating scale of Cymao, its bargaining power of pricing and ability to withstand adversity will be relatively weaker compared to other bigger timber players. Our fair value for Cymao is revised down to RM0.46 based on FY08 7x PE.

    Below. Cymao’s 3Q07 net earnings fell below our estimates. Against 2Q07, shipment volume was 16% lower but average selling prices were 5% higher and average log cost was 11% lower. This resulted in a slightly better gross margin at 7%. No dividend was declared for the quarter. We do not expect the company to pay any dividend this year given its poor earnings.

    High exposure to the US market. We are pessimistic on the company’s performance going forward given its >60% exposure to the US market. Plywood volume as well as pricing has been dampened by the depression in the US housing sector. With the US housing starts continued to slump by 33% in the month of Sept 07, we do not think the sector will recover anytime soon.

    Negative impact from weakening US$. In addition, the continuous sliding US$ currency will also have an adverse impact to the company’s turnover as almost all the sales are denominated in US$. However, only 10-20% of operating costs are denominated in US$, hence unable to offset the negative effect.

    Downgrade to Sell, TP: RM0.46. We remain cautious on the performance of small timber players. Given the relatively smaller scale of operation, bargaining power of pricing is unlikely to be strong. The ability to cushion adversity will also be weaker compared to bigger timber players. As the company is surrounded by various negative factors which are unlikely to turnaround at anytime soon, we downgrade the stock to a Sell.


From a Hold of 1.30 to a SELL with a TP of 46 sen?

Holy COW!

Ok.. some has mentioned that I am highly critical of analyst(s)... but... look at this Cymao example and ask if it's justifiable or not? The HOLD recommendation back in Aug was terrible in my opinion. It should have been a SELL. And the SELL recommendation this morning, seriously, isn't the TP of 46 sen way too drastic? In a space of 3 months, this stock went from a hold of 1.30 to a sell with a TP of 46 sen!

Now this is a WOW to me!