Friday, February 29, 2008

GHL Reported Quarterly Losses

GHL announced its earnings. Rather bad.

Quarterly rpt on consolidated results for the financial period ended 31/12/2007

This what they said.

  • For the quarter ended 31 December 2007, the Group recorded revenue of RM12.69 million, representing a decrease of approximately 24.91% as compared to RM16.90 million achieved in the preceding year’s corresponding quarter. The decrease was contributed by stiff competition in the local and regional market. The Group incurred a loss before taxation of RM3.18 million as compared to profit before taxation of RM3.62 million in the preceding year’s corresponding quarter ended 31 December 2006. The loss before taxation was contributed mainly by a significant increase in operational costs due to the extensive expansion of the group in the overseas market couple with a shift in lower profit margin sales mix which comprising mainly sales of hardware equipment, lower composition of rental revenue of EDC and software solution sales.

    For the year ended 31 December 2007, the Group recorded revenue of RM51.34 million, representing an increase of 7.16% as compared to RM47.91 million achieved in the preceding year’s corresponding period. The profit before taxation of the Group for the current twelve month period is RM0.47 million, which is a drop from a profit before taxation of RM9.18 million in the previous year corresponding period. The decrease in profit before taxation was contributed mainly by the increase of operational costs in line with the extensive expansion in overseas market couple with a lower profit margin sales mix comprising substantially with sales of hardware equipment, lower compositions of rental of EDC and software solution sales.

End of the good times for GHL?

What do you think?

Mems Technology Will Be Suspended

Mems made two announcements tonight: MEMS TECHNOLOGY BERHAD (“MEMS” or the “Company”) - STATUS OF ISSUANCE OF AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY 2007 (“AUDITED FINANCIAL STATEMENTS”) AND UNAUDITED QUARTERLY REPORT FOR THE FINANCIAL PERIOD ENDED 31 OCTOBER 2007 (“UNAUDITED QUARTERLY REPORT”) (COLLECTIVELY REFERRED TO AS THE “OUTSTANDING FINANCIAL STATEMENTS”)

  • The Board of Directors of MEMS (“Board”) wishes to announce that the Company is still in the process of deliberating the special audit report by Messrs Atarek Kamil Ibrahim & Co. with its external auditors. As a result, the Company is unable to issue the Outstanding Financial Statements on 29th February 2008. The Board will use its best endeavours to ensure that the Company finalises and issues the Outstanding Financial Statements as soon as possible.

    As the Company is unable to issue the Audited Financial Statements on 29 February 2008 (being 3 months from 30 November 2007), in addition to any enforcement action that Bursa Malaysia Securities Berhad (“Bursa Securities”) may take, Bursa Securities shall suspend trading in the securities of the Company. The suspension shall be effected on the market day following 29th February 2008 and shall be uplifted on the market day following the issuance of the Outstanding Financial Statements unless otherwise determined by Bursa Securities.

And MEMS-IMPOSITION OF SUSPENSION

  • Pursuant to Rule 9.26(4) of the MMLR, if a listed company fails to issue the outstanding financial statements within 3 months from the expiry of the timeframes stated in Rules 9.22 and 9.24 of the MMLR ("Relevant Timeframes") (the last day of the 3 months period shall hereinafter be referred to as "Suspension Deadline"), in addition to any enforcement action that Bursa Securities may take, Bursa Securities shall suspend trading in the securities of such listed company. The suspension shall be effected on the market day following the expiry of the Suspension Deadline.

    In view of the above, kindly be advised that the trading in the above Company’s securities will be suspended with effect from 9.00 am, Monday, 3 March 2008 until further notice.

    Pursuant to Rule 9.26(6) of the MMLR, if a listed company fails to issue the outstanding financial statements within 6 months from the expiry of the Relevant Timeframes, in addition to any enforcement action that Bursa Securities may take, de-listing procedures shall be commenced against such listed company.

Suspended until further notice!!!!

Whatever happened to the said article on Mems that was published on the Edge Weekly that states that...

  • For the first time since accounting problems emerged at MEMS Technology Bhd, new information has surfaced indicating that the company may soon get out of the quagmire it is in.

    The much-awaited special audit report, which was commisioned by MEMS and done by Atarek Kamil Ibrahim & Co, has been completed and presented to MEMS' external auditors KPMG.


    According to MEMS' chairman and controlling shareholder Datuk Ahmad Kabeer Nagoor, the (external) auditors have some queries on the report. He says these are being discussed by MEMS' independent committee. Ahmad Kabeer declined to elaborate, saying that more details will be revealed soon.

How?

Look at the chain of events. A huge write-up in the Edge Weekly which sees the stock then surges a whopping 42% and NOW THIS. WOW!

So...

Why isn't Mems able to issue their financial statements?

And just what's so complicating in their accounts?

How?

Anyway warnings were given earlier : What now for Mems Technology? , The said article on Mems , Unnamed Sources Strikes On Mems! , Update on Mems Accounting Issue , More on Mems Restating of Its Earnings , Regardings Mems Again.. and OSK comments on Mems

More On Green Packet

Blogged yesterday: Green Packet Earnings

I wrote the following.



This morning, I noted two huge articles on Green Packet.

On Business Times: Green Packet aims to regain sales momentum

  • Higher operating cost at its WiMAX business shrinks Green Packet's full-year earnings by 45 per cent to RM30.2 million

    TELECOMMUNICATIONS service provider Green Packet Bhd aims to regain its footing and at least double revenue this year, after posting weaker fourth quarter and full-year results.

    The company's fourth quarter net profit shrank 98 per cent and full-year earnings fell 45 per cent to RM277,000 and RM30.2 million respectively, mainly because of higher operating cost at its local WiMAX business.

    It has allocated capital expenditure of up to RM300 million this year, mainly for WiMAX infrastructure.

    The company, through unit Packet One, will launch fast-speed wireless broadband services by mid-year. It hopes to sign up 100,000 WiMAX users by year-end.

    Managing director Puan Chan Cheong said that in terms of profitability, the company's solution business ought to contribute "good double-digit" net profit growth this year, while its WiMAX business will still be in "investment mode".

    "Nevertheless, we expect the WiMAX business to be ebitda (earnings before interest, taxes, depreciation and amortisation ) break-even this year," he told the media in Kuala Lumpur yesterday.

    Green Packet's fourth quarter sales were 38.6 per cent lower at RM26.46 million compared with RM43.13 million a year ago.

    Full-year sales, however, rose 24.2 per cent to RM122.84 million, a "sub-par" performance considering that the company is used to triple-digit revenue growth.

    Weaker sales were caused mainly by China's delay in awarding a third-generation (3G) spectrum as Chinese phone companies do not want to spend heavily on infrastructure and solutions until the spectrum is awarded.

    "We expect sales in China to be slow during the first half, and eventually to pick up in the second half once the 3G is awarded. The delay is only a temporary setback. We expect the 3G spectrum to be awarded before the Olympics.

    "Should there be any further delays, we still can achieve triple-digit revenue growth; if not, very close," Puan said.

    He added that this year's revenue growth would be contributed mainly by the Middle East and Malaysia.

    The Middle East market, which contributed six per cent to revenue last year, is expected to represent 16 per cent of total sales this year as the company expands its sales network.

    The Malaysian market, driven mainly by Packet One's WiMAX business, is expected to contribute 47 per cent to group sales. China will likely account for 26 per cent of total revenue.

    Puan said the company is also considering selling entire or partial stakes in some of its non-performing investments.

    "It depends on whether the investment brings strategic value to us. We should be able to make the decision by the first half of this year," he said.

Triple Digit growths?

On the Star Biz: Green Packet sees 100% growth in revenue this year

  • Green Packet sees 100% growth in revenue this year

    KUALA LUMPUR: Green Packet Bhd, which reported 24% higher revenue of RM122.84mil for the year ended Dec 31 (FY07), expects a 100% growth in revenue this year as its diversification plans start to bear fruit.

    Group managing director and chief executive officer Puan Chan Cheong was confident of the “achievable” target, as the company had diversified its markets to cushion the impact of a slowdown in any one region.

    “We are pleased with our diversification strategy in terms of markets, customer base and solution offerings.

    “As a result, the dip in our solutions business in China has been substantially offset by strong growth in both the Middle East and North Africa (MENA) and Asia-Pacific regions,” he said in a briefing on the company's FY07 results yesterday.

    According to Puan, the China market is projected to contribute 26% to group revenue this year against 41% last year, while revenue contribution from the Middle East and South-East Asia is expected to increase to 16% and 10% from 5% and 5% respectively.

    He said the commercial launch of WiMAX services by June would boost the company’s revenue.

    Despite the higher revenue in FY07, Green Packet's pre-tax profit fell almost 90% to RM30.99mil against RM58.56mil in FY06.

    Puan said the drop in earnings towards the second half of last year was due to a slowdown in sales in China and continued heavy investment to build the converged telecommunications business of its unit, Packet One Networks (M) Sdn Bhd.

    It was also attributed to share of losses from non-core businesses via associated companies and higher provision of costs made in the discounted telephony subsidiaries.

    On reports that the company’s revenue is affected by slower sales to China due to regulatory delays on the award of 3G spectrum, Puan said China would remain an important market for Green Packet due to the sheer size and high growth potential of its telecommunications sector.

    “Solution sales from China are expected to regain momentum in the second half. We see this slowdown as no more than a hiccup due to external risk factors.

    “However, plans have been in place since early 2006 to mitigate the risks associated with over-dependency on any single market,” he said.

    Puan also said Green Packet would further rationalise its business operations to pursue opportunities in two major growth regions – Asia-Pacific and MENA.

    “We are looking at divesting our interest in non-core, loss-making associates that do not contribute strategic value to the company,” he said.

    He said Green Packet planned to break into the Singapore market and would finalise a partnership with a prominent telco there next month.

How?

At least you have the give this company credit for despite their poor earnings, they certainly know how to market themselves to the news media!

Thursday, February 28, 2008

Green Packet Earnings

Ok, I had blogged about Green Packet's share buybacks: Regarding Green Packet's Share Buybacks and Update on Green Packet's Share Buybacks

Firstly, Green Packet was featured rather aggressively in the news: 4 Feb 2008: Corporate: Taking a chance on Green Packet and 25 Feb 2008: Corporate: 'Transformation year' for Green Packet.

So when I saw Green Packet had announced its earnings, I was rather excited. Believe or not but I was guessing for a weak set of earnings!

And weak it was!





A quarterly net earnings of only 277k???

Rather ironic if you look at the chain of events.

You have the stock collapsing.

And then you have the company buying back their shares aggressively.

And next you have the stock actively featured in the weekly financial news.

And now... showtime! A net quarterly earnings of only 277k!

How?

AirAsia earnings

I was looking at the following news article published on Star Business: AirAsia profit rises to RM246mil


  • PETALING JAYA: AirAsia Bhd’s net profit for the quarter ended Dec 31 expanded 73% to RM245.72mil from RM142.05mil in the previous corresponding quarter due to higher yields and contained unit cost.

    Revenue rose 43% to RM632.72mil from RM442.84mil previously. This was attributed to 21% growth in passenger volume, 17% higher average ticket sales and 49% growth in ancillary income.

    Group chief executive officer Datuk Tony Fernandes said demand for low fares remained strong and load factors were at high levels despite significant capacity addition of 40%.

    “Ancillary income rose 49% to RM41.53mil. This reflects the increased service penetration and the success of our travel insurance and greater number of hotel rooms booked through our website.

    “Due to the higher average fares and ancillary income, yield was 11% higher than the previous corresponding period,” he said in a statement.

    Unit cost was 3.43 US cents per available seat kilometre, which was 7% higher due to unit fuel price increasing 31% to US$101 per barrel in the period.

    Fernandes said fuel hedge had partially mitigated the impact of rising fuel prices with a net contribution of RM17mil in the quarter.

    The budget carrier also recorded its highest profit margin so far in comparison with other airlines worldwide. Based on revenue of RM1.92bil and earnings before interest, taxes, depreciation/amortisation and rent (Ebitdar) of RM671.02mil for the full 12 months of 2007, margin was 34.9%.

    In comparison, airlines such as VirginBlue, EasyJet and Ryanair had Ebitdar margin of 25.3%, 16.6% and 29.3% respectively.

    Beginning this year, AirAsia changed its financial year-end to Dec 31 from June 30.

    Fernandes forecast 20% growth in passenger volume for 2008.

    “The bulk of new capacity will be injected into international routes, which are relatively longer-distance sectors. Based on the expectation that some routes will mature and continuous strong contribution from ancillary income, we expect yields to remain largely flat for the year.

    “Cost items, excluding fuel, are expected to reduce further due to the induction of cost-efficient Airbus A320 aircraft into the fleet and productivity drivers,” he said.

    With the assumption that WTI oil prices remained above US$90 per barrel, 30% of AirAsia’s fuel requirements were hedged from January to June at an equivalent price of US$79.50 per barrel.

    Despite worry of a slowdown in the world economy, tightening credit and rising cost of aircraft and fuel, Fernandes remained “bullish and optimistic” of the airline industry for the next five years.

    “These factors are seen as doom and gloom for airlines but it is an opportunity for AirAsia. If there is an economic recession, airlines such as us, which focus on value and low fares, would benefit,” he told StarBiz.

    On the possibility of AirAsia consolidating or forming partnership with local or foreign airlines, Fernandes said he believed in organic growth as the airline had grown without acquisition.

So I decided to have a look at their earnings report posted on Bursa Malaysia website. Here's a screen shot of their earnings.



Look at the candies placed in the screen shot.

Was I impressed? I mean if I were to compare to what's published, I wasn't hardly impressed at all.

Firstly, look at the Financial Income line. It showed a +75.799 million. And if you read the financial income, you would see the following reasoning.


See the massive gain caused by forex exchange? You see, currently Air Asia has around 3.4 billion in debt securities. And they are all denominated in USD and Euro. Hence the massive forex gain recorded.

And then you have the deferred tax gains. (Ahem!)

And if I add up gains from these two issues, Air Asia profits were boosted by some 219 million this fiscal year.

Now let's look at the very first line of that news article again.

  • AirAsia Bhd’s net profit for the quarter ended Dec 31 expanded 73% to RM245.72mil from RM142.05mil in the previous corresponding quarter due to higher yields and contained unit cost.

See why I am hardly impressed?

More on what the folks at JP Morgan said about Gamuda

Many are rather shocked at the low valuation given by JP Morgan on Gamuda.

I was fortunate enough to get a copy of that report in my mail.

Here is a snippet of what's said.




  • What are the implications?
    We are extremely doubtful of the company’s future, and highlight all the uncertainties pertaining to the business operations going forward:

    • Who will be running the company going forward? The absence of a significant shareholding in the company will not act as an incentive for the managing director to secure more contracts / adding value to the company. His role as an advisor / board member will be rather pointless from the perspective of a minority shareholder. After all, if he is hypothetically still able to deliver value by serving as an advisor/director, why should he dispose of his stake? We also see no significant figures among internal management who can carry on the legacy of the company.

    • Could the exit jeopardize all of Gamuda’s ventures in Vietnam? Gamuda has a total of GDV exposure of c.M$15 billion in Vietnam, of which the Yen So project makes up c.M$11 billion (after revaluation), and the remaining balance being in the Long An Project, with a potential GDV of c.M$4 billion. Given the long gestation period of all these projects, as well as the uncertainties surrounding the execution risks, we question the materialization of these projects in Vietnam

    • Any risk on the existing construction orderbook? With an existing outstanding orderbook of c.M$10.5 billion, we highlight the possibility of certain contracts either being reneged / revoked. For instance, the M$2 billion project to develop the Laos Nam Theun Hydropower Plant has been stalled for several years, and may not even take-off eventually.

    • Could there be problems in the Double-tracking project? The M$12.5 billion Double-tracking project was secured on a fixed-price basis, implying that any cost escalation relating to materials will be absorbed by the contractors. While we are not aware of any hedging programmes to cap the cost of materials, we see a strong potential for margin compression, on the back of cement, steel, coal and fuel price hikes. Furthermore, the pressure from the Malay Chamber of Commerce Malaysia (MCCM) to apportion 30% of the subcontracting to bumiputra-contractors could also pose more risk to the entire project execution.

    • Any chance of project replenishment in the future? We believe that the chances of securing federal-funded Malaysian projects as well as foreign projects moving forward will be very slim, given the absence of the well-connected founder.

    So what’s next?
    Given that there is no immediate successor within the internal management of Gamuda (at least no one of the caliber of the ex-founder); we see a limited shelf life in the company going forward.

    However, we see three events that could materialize subsequent to the exiting of the founder.

    1. Another major shareholder selling? Based on the most recent disclosure on Bursa, dated 21 February 2008, Raja Dato’ Seri Eleena Azlan Shah still has an effective stake of 7.84% in Gamuda. Being an active partner to Dato’ Lin, there could be a possibility of her disposing of her stake in the company as well.

    2. A takeover in the brewing? Could it be that the founder cashed out in anticipation of a hostile takeover? Even in the absence of a hostile takeover, Gamuda is still a good acquisition target, in our view, given that it is well supported by the infrastructure assets (three toll highways and a water concession in Malaysia), an exciting Vietnam property story, as well as a robust construction orderbook. However, this hypothesis banks on the emergence of value in the company, which at a CY08 P/E of 22x is still a major hurdle for most companies.

    3. Talent-pinching from other companies? The new talent to replace Dato’ Lin would have to be equally as “connected” in order to replicate the success of Gamuda, especially in securing construction projects both in Malaysia and overseas. However, we attach a low probability for this to happen.

    Maintain earnings for now, but the uncertainties warrant a discount

    Theoretically, the company should cease to be valued as a ‘going concern” given the uncertainty of the future. The earnings growth outlook remains bleak for Gamuda, and even the high dividend yield is premised on a steady income stream from existing operations. We foresee the business to undergo an inflection point, and there is no certainty of business continuity going forward.

    Theoretically, the company should now cease to be valued as a “going concern” given the uncertainty of the future. We reduce our Jul-08 PT to M$3.30, applying a 25% discount to our SOTP of M$4.40, to penalize the company for an absence of business direction. We maintain our earnings estimates for now, as we seek more guidance from management on the firmness of the orderbook and property launches.

    While a potential M&A deal could be an upside risk, we reiterate Gamuda as a top stock to avoid for 2008.

That's their resoning given. They fear the uncertainties and more importantly they feel that perhaps there is a lack of business direction.

How? Do you reckon that their reasonings for concern were valid?

One thing to note though, I would like to expand on the issue about another shareholder disposing their shares. Yes, Raja Dato’ Seri Eleena Azlan Shah has been disposing her shares but if one would track the historical records of the announcements made on Bursa Malaysia, one would have clearly noted that she has been disposing her shares in small bits forever.

For example, here is her most recent disposal announcement: Changes in Sub. S-hldr's Int. (29B) - Raja Dato' Seri Eleena Azlan Shah, in which she disposed only 700,000 shares.

And the other disposal of shares this year was Changes in Sub. S-hldr's Int. (29B) - Raja Dato' Seri Eleena Azlan Shah, where she disposed 200,000 shares.

A total of 900,000 shares. A lot?

And here are some transactions recorded in 2007.

This was on Oct 2007. Changes in Sub. S-hldr's Int. (29B) - Raja Dato' Seri Eleena Azlan Shah (it indicated the amount of bonus shares she received)

Her disposal in Oct 2007 Changes in Director's Interest (S135) - Raja Dato' Seri Eleena Azlan Shah, she disposed a total of 500,000 shares.

Her disposal in June 2007. Changes in Director's Interest (S135) - Raja Dato' Seri Eleena Azlan , she disposed a total of 300,000 shares.

Another disposal in June 2007. Changes in Director's Interest (S135) - Raja Dato' Seri Eleena Azlan Shah, where she disposed another 200,000 shares.

I could go on and on. And one of the older ones in 2002, inidcated she disposed 220,000 shares in the following announcement. Changes in Sub. S-hldr's Int. (29B) - Raja Dato' Seri Eleena Azlan Shah

How?

Would you read too much in her disposal of shares?

Here is a snapshot of that said report.


Meanwhile, the StarBiz carried the following interview: Gamuda starts working on succession plan

  • Describing Gamuda’s prospects as “good”, Lin is confident the group would be able to meet all “the guidance that it had given to analysts earlier”.

    He denied market talk that his share sale was due to any adverse changes on the group’s fundamentals or earnings prospects.

    “I brought up the company over the past 25 years. I certainly don’t intend to have an abrupt exit ... we will ensure that over the next five years or longer, there will be a smooth transition,” Lin told StarBiz yesterday.

    He said he could foresee the day Gamuda would be run by professional managers who were not shareholders.

    “There are two or three names who have the potential (to take over the top executive positions),” he added.

    Lin trimmed his stake to 1.7% from 5.2% last week. The shares were placed out to global institutional investors.

    The share sale sparked heavy sell down on Gamuda shares amid worries that the group’s prospects would not be as rosy if Lin exited. HLG Securities anlayst Teoh Paul Keng noted that the rate Gamuda replenished its order book had decelerated. “The group has not secured anything substantial besides the double tracking project,” he said.

    The group’s order book ballooned to RM11bil after it bagged the double tracking project together with MMC Corp Bhd.

    The share price tumbled to a low of RM3.20 – down nearly 40% from its recent high of RM5.30. It closed at RM3.92, up six sen yesterday.

    “I didn’t expect the (market) reaction to be so strong,” Lin said.

    Lin noted it was “unfortunate” that investors perceived the “18-month lock-in period” for his remaining stake as a sign that he would only stay on for that period.

    He pointed out that this was the fourth time he sold down his stake in Gamuda.

    “Over the last 16 years, it (the selling down) hasn’t affected my commitment to grow the company and make it a success,” he said.

    Lin stressed he had never been the controlling shareholder. He was holding about 16% stake when Gamuda floated its shares on Bursa Malaysia.

    “There are lots of rumours flying around, such as our Vietnam project is not doing well and I have health problems.

    “My plan to sell shares has nothing to do with what is being speculated. It is mainly for estate planning purposes,” said Lin, adding that the share sale was to diversify his personal wealth.

    “But I suppose for the investors, there is never (a good) time for the CEO to sell shares,” he quipped.

    Lin refuted market talk that he sold shares because Gamuda was under pressure from the Malay Chamber of Commerce in terms of distributing 30% of the sub-contracts to bumiputra contractors. “That issue has been resolved to our (Gamuda’s) satisfaction,” he said.

    On the outlook of the construction sector, Lin said it would still be “quite good” for the next few years and there was no sign of a downturn.

    But in terms of the number of jobs being dished out, Lin opined it would be the same as in the past two years.

    “The slowdown in the US would trigger the need for the Government to pump prime (the economy) a bit more.

    “You will have some big ticket items to be rolled out from the development of the economic corridors,” he added.

And the BusinessTimes carried the following speculation: Gamuda may sell Splash stake, privatise Litrak and in another article on Business Times, Gamuda not under probe: SC

Wednesday, February 27, 2008

OSK's commentary on CrestBuilder

Crest Builder reported its earnings last night. And if one looks at Crest Builder's most recent quarterly performance, it does look mighty impressive.

The following is a screenshot from Star website.



However, if one reads the earnings notes, one would realized that this superb performance was aided by revaluation of a property gain of 38.5 million.


  • At the same time, during the financial period, a gain arising from changes in the fair value of investment properties amounting to RM38.5 million was recognised in the income statement. Fair value is arrived by reference to market evidence of transaction prices for similar properties and is performed by registered independent valuers having appropriate recognised professional qualification and recent experience in the location and category of the properties being valued.

Now if you strip out this gain from the earnings, Crest Builder's earnings would only be around 6.3 million only. Which is a far cry from the gain of 12 million it made the previous quarter. Isn't this a huge question mark on Crest Builder's q-q performance?

Today, I received two copies of report on this stock, one from KN and one from OSK.

KN recognized the issue with Crest Builder's q-q weakness and stated the following.

  • QoQ, revenue and EBITDA fell 12.1% and 39.6% respectively, mainly due to slower recognition of revenue for new construction projects and lower contribution from 3 2 Square as the property was fully completed in 3Q07. 4Q pre-tax however soared 209.6% to RM46.9m, spurred by the exceptional gain as aforementioned.



Now OSK on the other hand, decided not to mention this issue instead. I mean, surely a simple word or two explaining the q-q weakness would be only be right, yes?


OSK wrote the following.

  • Do Not Underestimate the Little One
    FY07 earnings displayed a 70.4% growth on back of a 14% rise in revenue. We do not expect its recent orderbook replenishment rate to slow down as it is still eyeing for projects under the 9MP. In our view, CBH’s share price has yet to reflect its recent performance and future prospects. Current cheap valuations should provide a good level to accumulate the stock. Maintain BUY with a TP of RM2.02.

    Nice growth. CBH recorded a net profit of RM72.6m (+263% y-o-y). However, included in this amount was a gain on revaluation of its investment properties (RM38.5m). Stripping off this revaluation gain, FY07 earnings still grew by an impressive 70.4%. This is on back of a 14% revenue growth. Relative to our forecast of RM33.1m, core earnings were within expectations, coming in at RM34.1m.

    Property boosting margins. The core earnings growth was driven by (i) lower effective tax rate (27% FY07 vis-à-vis 36% FY06) and (ii) margin expansion. Better contributions from the property division were the main source behind this margin expansion. EBIT margins for the property division stood at a whopping 65.6% (56.5% in FY06). However, construction margins were less than attractive at 5.4% (EBIT level)

    Further boost from construction? Management has indicated to us that they are eyeing at more projects under the 9MP mainly related to the education segment. It is likely that these targeted projects would involve the construction of universities or schools. We understand CBH is currently undergoing negotiations with the related parties regarding the terms. Thus far, CBH has been replenishing its orderbook very well. Within the past 3 months, the company had secured 2 projects with a combined value of RM382m. We foresee more to come from this little contractor.

    Rental income remains good. We were guided that 80% of its corporate offices in Three 2 Square have been rented out. The rental rates vary between RM3.30 to RM4 per sq ft. It will soon be operating a car park in the similar vicinity. On its property development, we were told that the S&P agreement to purchase the land has yet to be completed. The Mont Kiara development is also awaiting approvals from the relevant authorities.

    Maintain BUY. Current valuations are running very low, at 3.4x and 2.7x FY08 and FY09 earnings respectively. We recommend investor’s to accumulate this stock before it narrows the valuation gap. Our target price of RM2.02 is based on 6x FY08 earnings.

See how OSK decided to judge Crest Builder on what they did for the year. No explanation was made on why if one strips out the revaluation gains, on a q-q basis, Crest Builder's net earnings plunged from 12 million to just 6.3 million!

How?

Low PE Means the Stock is Cheap?

Came upon this interesting posting, Do low multiples mean the market is undervalued?

Posted almost a week ago, Mr. Turley pointed out the following fact.

  • S&P 500 is trading at low price multiple to expected earnings, 13.7 according to WSJ. The historical forward P/E has been in the range of 14-16, depending on how far you look back. With interest rates incredibly low, 3.88% on the 10-year, should make the fair-value multiple even higher.

    According to my calculations, the S&P 500’s mean P/E = 14.2 and median = 13.2. Thirteen companies were excluded due to negative earnings. The highest P/E was 90, and only ten firms had multiples greater than 30. The chart shows the frequency distribution of the individual firm’s P/Es constituting the index.

    So is the market cheap? The low price multiples suggest that it is.

I like the way Mr. Turley argues against this notion.

  • In my opinion, that magnitude of growth is wildly optimistic. The Market isn’t buying it either. It’s not that the market is cheap, it’s that investors believe consensus estimates are too high. Why do I think that? Because if the market had full confidence in the forecasted numbers, I doubt the market would trade at these multiples. Hence, investors are pricing in lower earnings than the consensus forecasts thus making multiples higher.

And Mr. Turley continues

  • In my opinion, stocks are not as cheap as forward multiples suggest. Earnings estimates are too high and are likely to come down. In addition, the ERP has increased pinching multiples. However, if the economic slowdown begins to appear less severe as the Market is expecting, then stocks would be rather cheap. That would mean that analysts are not overestimating future earnings. However, given the turmoil in the housing market and the relationship to consumer spending, it’s likely the coming quarters will be weak.

When one uses forward multiples, stocks can always appear cheap when the earnings estimates are too high caused by wildly optimistic growth projections!

And I can certainly see it around us here. The way our local analyst projects earnings estimates is as if growth grew on trees!

Tuesday, February 26, 2008

Gamuda and its Rich Earnings Multiples

I thought I do a simple exercise on Gamuda and its earnings.

Earnings as it is, is complex and can be view and in many forms. There are 4 basic forms for me.

A. Previous Fiscal Year earnings.

Gamuda recorded earnings of only 185 million. Based on 2,002.594 million shares, that's an eps of around 9 sen.

B. Current tweleve month or trailing earnings

Trailing earnings is around 226 million. Based on 2,002.594 million shares, thats an eps of around 11 sen.

C. Annualised earnings.

Using Q1 earnings of 88 million as a guide, then annualised earnings is around 350 million or an eps of 17 sen.

D. Projected earnings.

The projected earnings for Gamuda this year that I have seen from brokerage houses range from 360-390 million. So we are talking about an average projected eps between 17 to 19 sen.

On 14th Jan 2008, Gamuda traded at a price of 5.80.

If you use an trailing eps, Gamuda stock's traded earnings multiples is way up in the sky! 52x mulitples!

If you use projected earnings of 19 sen (I will use the higher eps to give it a benefit of a doubt), Gamuda was trading at a very rich multiple of 30.5x.

* At around a price of 4.60, the 70 million shares were placed out at an earnings multiples of 24 times based on projected earnings or at earnings multiples of 41x based on current earnings! 4.60 ain't a shabby price to place out the shares, eh?

** Do note, considering that Gamuda only made 185 million for its last fiscal year. The projected earnings is at 360-390 million. If one uses 390 million, the market is expecting more than 100% growth in earnings for the company. Some would simply argue as simply too rich!

*** Given the fact that the boss placed out his shares at an extremely attractive price it had such negative implications. Those prices were at a discount to the market price, the size of the placement was rather huge leaving the boss with a rather much smaller holding and ultimately that created an extremely huge float and most importantly, what was the intent of the placement?

** Gamuda had always been a stock that was highly regarded by the market but the placement has clearly created a negative impact on the stock. A sure recipe for a market sell down given the already poor market sentiments.

How?

Gamuda last closed at 3.66.


As an investor, sell downs represents opportunities. Do you reckon that this is an opportunity? Would you want to use earnings valuations to gauge an investing opportunity in this stock? 15x multiples? Or do you reckon that there are simply too much uncertainties? Yes, how could one invest when there's so much unknowns caused by the boss disposal of shares. What's the real intent of the disposal? Is there something really bad in the horizon? Or does the boss really think that the stock was trading at such rich valuations, that he decided to profit from it? How? I do think that the boss needs to instill back market sentiments first by giving a much better explanation on his share disposal.

Or would you want to be a trader and just look for a trading opportunity? The shares rebounded sharply yesterday after hitting an intra-day low of 3.20 before closing at 3.66. Were you in or were you IN the stock? Would yesterday's intra-day technical rebound continue?

How?

Si Lembu do not know but Si Lembu was told that one Mr. Tua has all the answers!

Cheers!




* blogged last year: Looking Back: Gamuda *

Monday, February 25, 2008

What the folks at JP Morgan said about Gamuda.

Got a copy of the report that the folks at JP Morgan said about Gamuda. (Do pay attention to the date of the report! Sorry, it's kinda out-dated!)





Note the 4 issues raised by the analyst.
  1. Could his exit jeopardize all of Gamuda’s ventures in Vietnam? [Gamuda has a total GDV exposure of c.M$15 billion in Vietnam]
  2. Could his exit jeopardize the execution of the existing construction orderbook? [Gamuda has a total outstanding orderbook of c.M$10.5 billion]
  3. Could the timing imply that more negative newsflow will surface in the near future?
  4. What are Gamuda’s chances of securing more federalfunded projects moving forward, in the absence of the well-connected founder?

How?

What now for Mems Technology?

No news is rather bad, isn't it?!

Previously blogged on Feb 12th,
Unnamed Sources Strikes On Mems! , it was noted that Mems surged some 42% on the 11th feb 2008. And the article that was the catalyst for the stock surge was published on the Edge weekly, The said article on Mems


  • For the first time since accounting problems emerged at MEMS Technology Bhd, new information has surfaced indicating that the company may soon get out of the quagmire it is in.

    The much-awaited special audit report, which was commisioned by MEMS and done by Atarek Kamil Ibrahim & Co, has been completed and presented to MEMS' external auditors KPMG.

    According to MEMS' chairman and controlling shareholder Datuk Ahmad Kabeer Nagoor, the (external) auditors have some queries on the report. He says these are being discussed by MEMS' independent committee. Ahmad Kabeer declined to elaborate, saying that more details will be revealed soon.

The following trading data highlights what has happen before and after the said article was published.



Stock had went from 13 sen to a high of 21 sen. All thanks to one single article! And on the day after the article was published, the stock surged 42%! The power of our financial press.

And since there has been zero news on the stock.

Which is rather nerve wrecking for the minority investors of Mems. ( Given all the current issues, I wonder why the still want to be a long term investor in this company? Do they still trust the company?) This is because as stated by the company, the company will be suspended if it fails to release their Audited Financial Statements by 29th Feb 2008.
  • Nonetheless, if the Company fails to issue the Audited Financial Statements by 29 February 2008 (being 3 months from 30 November 2007) and Unaudited Quarterly Report by 31 March 2008 (being 3 months from 31 December 2007), in addition to the enforcement action that Bursa Malaysia Securities Berhad (“Bursa Securities”) may take, Bursa Securities shall suspend the trading in the securities of the Company. The suspension shall only be uplifted, unless otherwise determined by Bursa Securities, on the market day following the issuance of the above financial statements
And this morning, Mems is currently down a whopping 18.7% at 13 sen!

How?

Do you think Mems would be able to release their Audited Financial Statements in time?

Makes me wonder about that Edge Weekly article yet again.

For example, if Mems is in the clear and that there is absolutely nothing wrong with their financial statements, surely Mems would want to release it as soon as possible, right? And the longer it takes, the longer its share price would be in the doldrums, yes?

How?

Saturday, February 23, 2008

Is Japan Holding The Rest of the Sub-Primes?

Posted on the UK Telegraph on the 13th Feb 2008: Japan is the next sub-prime flashpoint

Mr.Ambrose Evans-Pritchard writes that..

  • The nagging fear is that Japan's lenders - the conduit for the world's greatest stash of savings - have taken on a far bigger chunk of mortgage securities, collateralised loans obligations and other exotica from America's structured credit boom than they have yet revealed

According to Mr. Ambrose,

  • Americans and Europeans have so far confessed to $130bn of the estimated $400bn to $500bn of wealth that has vanished into the sub-prime hole. Somebody, somewhere, must be sitting on a vast nexus of undisclosed losses. We may find out soon enough whether the hold-outs are in Japan. The banks have to come clean under the country's strict new audit codes by the end of the tax year in March.

    "We think this is where the next big problem is going to pop up," said Hans Redeker, currency chief at BNP Paribas.

    "We know from Bank of Japan's lending survey that the banks are already tightening hard, so something is brewing. Right now, we are in the lull before the second storm in global markets, and Asia is going to be the source of the nasty surprises," he said.

How? Do you think that this is a possibilty?

Mr. Ambrose then continues..

  • There is not much monetary ammo left. Interest rates are 0.5 per cent. So it's back to zero, and helicopters of central bank cash ("quantitative easing"), those peculiar hallmarks of Japan's past battle with deflation. The brief attempt to "normalise" Japan Inc has already failed.

    We tend to forget that Japan remains the world's top creditor nation by far, the shy master of fate. The country's net foreign assets of $3,000bn roughly match the net debts of the US.

    The yen "carry trade" - borrowing cheap in Tokyo to chase yields from New Zealand, to Brazil, Iceland, and above all Britain - has juiced the global asset boom this decade by $1,000bn. It is perhaps the biggest liquidity pump of them all, yet it stopped pumping in August. Indeed, it is sucking the money back out again. The yen is soaring.

    Where have the Japanese recycled the quarter trillion dollars they earn each year from their surplus? Official data shows that their holdings in US Treasury bonds have not risen.

    The Swiss offer us a clue, says Redeker. They are Europe's Japanese, champion savers looking for returns abroad. They devoured US sub-prime debt on a much bigger scale per capita than the Americans. Hence the $24bn in write-downs by UBS.

    So far, Japan's biggest three banks have admitted to just $4.7bn in total losses between them. The figure is rising. Mitsubishi, the biggest, has just raised its tally to 12 times the sum admitted in November. This looks like a replay of the early 1990s when fear of losing face delayed the awful news. ( read the whole article
    here )

Friday, February 22, 2008

Gamuda: Breaking The Last Straw

Market commentary from Inside Asia on yesterday's trading, Negative sentiment drags market lower

  • Gamuda was the most heavily traded stock for the day. The share saw one of its worst sell off in recent memory, falling 78 sen or 16% to RM4.20. Investors apparently dumped the shares following news that its managing director, and one of the company's primary driving forces, reduced his stake from 5.2% to just 1.7%. The market was spooked by what the move may signify. Given the already jittery market conditions, it is unsurprising that investors are opting to err on the side of caution.

Market commentary from the Edge, 22-02-2008: Bursa succumbs to selling pressure

  • PETALING JAYA: The Kuala Lumpur Composite Index fell 2.45% or 34.2 points to 1,360.56 in the morning session today, in line with losses at regional indices after Wall Street closed almost 1.2% lower overnight.

    Trading volume was relatively thin with 474.8 million shares valued at RM1.04 billion. There were 57 gainers and 781 losers.

    Yesterday, the Dow Jones Industrial Average fell 142.96 points to 12,284.3 after the Philadelphia Federal Reserve reported that regional manufacturing fell more than predicted, sparking worries of a recession.

    Also, the US Federal Reserve cut its economic growth forecast for the economy Wednesday and suggested that more rate cuts could be on the way to combat further weakness.

    Over at the regional markets, the Shanghai A Shares Index fell 2.99% or 142.23 points to 4,608.31, Hong Kong's Hang Seng Index down 1.84% to 23,188.25 while Japan's Nikkei 225 lost 1.61% to 13,468.53.

    South Korea's Kospi Index fell 1.51% to 1,678.54 and Singapore's Straits Times Index was down 1.2% to 3,018.06.

    CIMB Research head of research Terence Wong said the KLCI was playing catch-up with other markets, and that he would not be surprised if foreign funds were withdrawing their investments.

    "The KLCI bucked the trend and performed better than the other regional indices earlier. So it is not surprising that it is falling in tandem with them. Also, Asian markets including the KLCI tend to normally follow the trading pattern at Wall Street," he said.

    He said the heavy sell down on Gamuda Bhd yesterday might have also spooked foreign investors, prompting these funds to make an exit.

    "But we do not know for certain how much has flowed out," said Wong.

    At the Bursa Malaysia this morning, Gamuda continued to take a pounding and was the most actively traded counter with more than 30.44 million shares done. It fell 30 sen to RM3.90.

    Gamuda tumbled more than 15% yesterday when its managing director Datuk Lin Yun Ling ceased to be a substantial shareholder after disposing of 70 million shares on Wednesday.

    The sell-down this morning was in spite of an assurance by Lin yesterday that he would retain his remaining stake for another 18 months at least.

Here is a screen shot on how Gamuda and the KLCI is faring.



Thursday, February 21, 2008

Gamuda Shares Falls

Gamuda's shares fell whopping 0.62 sen in the morning trade. The counter closed at 4.36.

Posted on FinanceAsia.com website.


  • Managing director sells shares in Malaysia's Gamuda
    By Anette Jönsson 21 February 2008

    The $100 million deal sees Dato Lin cut his stake to 1.7%, but he shows commitment to the company by agreeing to an 18-month lock-up.

    Dato Lin, the managing director of Malaysian infrastructure, construction and civil engineering company Gamuda, last night sold about two-thirds of his shareholding in the firm, raising M$322 million ($100 million).

    The sale, which will see Lin reduce his stake to about 1.7% from just over 5.2%, came as the share price has eased back slightly from a 52-week high of M$5.75 in early January. Yesterday the stock closed at M$4.98 after falling 3.3%. The share price spiked up from about M$4.94 in the final minutes of trading, however, which was believed to have led to a slightly wider discount than initially planned.

    The Credit Suisse-led deal comprised 70 million shares that were offered at a price between M$4.60 and M$4.69, or at a discount of 5.8% to 7.6%. Given that this is the first placement in a Malaysian company since mid-November and only the second block trade of size in Asia since the equity markets took another turn for the worse in mid-January, it is somewhat difficult to put the indicated discount into context. However, the fact that it was a top-level insider selling likely meant the discount had to be somewhat greater than if it had been new stock. advertisement

    The $132 million follow-on by Singapore-listed CapitaRetail Real Estate Investment Trust on January 25 was completed at a discount of 9.9%, or 7.5% when considering that the new shares were sold without the right to an earlier declared dividend.

    The Gamuda offering was priced at the bottom of the price range at a 7.6% discount, but sources say the deal attracted solid demand and was safely covered after about one hour. A good chunk of the deal was allocated to London-based accounts while the rest went to Asia-based investors. Not surprisingly, given that the markets remain jittery, the order book was dominated by long-only investors.

    The deal should be quite easy to absorb since it accounts for only about nine days of trading volume. However, Gamuda already has a free-float of about 75%, meaning it is quite easy to buy stock in the market.

    While there is likely to have been some concern about the identity of the seller, one source noted that Lin hasn’t sold any shares in the company since 2002. He is expected to make a statement today outlining the reasons for the sale - believed to be related to private wealth management issues – and confirming his commitment to the company. The latter was also evident by the fact that he agreed to an unusually long lock-up of 18 months following this transaction.

    But the price sensitivity in this deal was likely also due to the fact that Gamuda is already trading at rich valuations. According to Bloomberg data, yesterday’s closing price translates into a price-to-earnings ratio of 25.7 times for the fiscal year ending in July 2008, while the Kuala Lumpur Composite Index trades at 15.5 times forward earnings. However, the valuation isn’t totally unwarranted given projections of 70% EPS growth this year and 80% between 2008 and 2009. Of the 21 analysts who cover the stock, 14 have a buy recommendation on it, four have a hold and only three of them advise clients to sell.

    Some investors are keen on Gamuda because of its involvement with construction projects in Vietnam, which is seen as an important growth-driver for the future. In addition, Malaysia is one of the best performing stockmarkets in the region so far this year. Although it is down 2.13%, only Jakarta, Shenzhen and Karachi have fared better. Japan, Korea, Hong Kong, Singapore, India, Australia and the Philippines have all lost more than 10% of their market value since the beginning of this year. (source:
    here )

And here is from Dow Jones newsclip

  • Construction concern Gamuda (5398.KU) last down 8.4% at MYR4.56 in heavy volume, after filings indicate MD Lin Yun Ling cut his stake in group to 1.7% from 5.2% previously following sale of 70 million shares. "I am undertaking this partial disposal for estate planning purposes as I last sold shares in April 2002. I will retain approximately 33% of my shareholding prior to the transaction. I continue to be very optimistic about the prospects of Gamuda and have accordingly committed to an 18-month lock-up on my remaining shareholding," Lin says in press statement; adds will remain in present management position for foreseeable future. Dealers attribute early sell-down to panic selling following exchange filing; "it almost always a great concern when the founder and managing director of a company ceases to be a substantial shareholder. It's only a knee-jerk reaction. The stock is likely to recover some lost ground later in the day," says institutional dealer at bank-backed brokerage. Psychological support at MYR4.50, resistance at MYR4.98 (Oct.16 peak). (VGB)

*********

Here's a posting on Btimes this morning (22/2/08)

  • Gamuda MD cuts stake, stock tumbles

    By Sharen Kaur Published: 2008/02/21

    Datuk Lin Yun Ling will still be committed to his role as a managing director and no management reshuffling is likely to happen, says a company official

    SHARES of Gamuda Bhd, Malaysia's second biggest builder, suffered their biggest drop in 10 years yesterday, after managing director Datuk Lin Yun Ling reduced his stake in the company to 1.73 per cent from 5.23 per cent.

    Lin sold 70 million Gamuda shares through Credit Suisse (Hong Kong) Ltd on Wednesday, reducing his stake to 34.7 million shares from 104.7 million in a deal believed to be valued at around RM350 million.

    While the news came as a surprise to the industry, Lin reiterated that he will be retaining the remaining shares and his management position, which he has held since 1981.

    "I am undertaking this partial disposal for estate planning purposes as I last sold shares in April 2002," Lin said in a statement, without elaborating on his future plans.

    He also said he was optimistic on Gamuda's prospects and has committed to an 18-month lock-up on his remaining shareholding.

    A company official told Business Times that there will be no changes in Gamuda following the announcement.

    "Lin will still be committed to his role as a managing director. Work will go on as usual and no management reshuffling is likely to happen," the official said.

    Gamuda was the most actively traded counter on Bursa Malaysia yesterday, with 69.84 million shares changing hands.

    The stock closed 15.66 per cent, or 78 sen, lower at RM4.20, after falling to as low as RM4.12 in afternoon trading.

    Analysts contacted were not concerned about the share price drop as they felt that Gamuda was fundamentally strong with a good cash flow position.

    "Lin is like any other shareholders who want to cash out big-time to plan something ahead," one analyst said.

    TA Securities research head Kaladher Govindan said he did not see any reason for alarm as Gamuda still has strong growth fundamentals.

    "I don't think there will be any changes for the company. Lin stressed that he is still in the management with 1.7 per cent stake. This is a positive sign," he added.

    TA Securities is placing a "Buy" on Gamuda shares, after Lin's sell-down, with a target price of RM5.

    Shares of Gamuda had surged more than 80 per cent after it won a RM12.5 billion deal to build the double-tracking railway project in a partnership with MMC Corp Bhd.

Wednesday, February 20, 2008

Is The US Pre Market Futures A Good Indicator?

Here's an article worth reading. Posted on Spore Business-Times

  • Hang Seng outdrives Dow futures

    By R SIVANITHY

    REGULAR BT readers and close observers of stock-market movements would know of the reliance traders place on rises and falls in the futures market for US benchmarks, most notably the Dow Jones Industrial Average or the Dow futures for short.

    The idea here is that the Dow futures in theory captures the market's best guess of how Wall Street might perform when it opens about five hours after Singapore closes, so if the contract rises sharply, then chances are US stocks will be strong. Conversely, if the futures market is very weak, then caution might be the order of the day because it suggests a Wall Street fall.

    However, because volume traded in the Dow futures during Asian trading hours is generally low - only a few hundred contracts are typically done between 9am-5pm local time - observers have pondered the possibility that speculative funds might regularly manipulate the Dow futures in order to influence sentiment in local stocks.

    Adding to this notion is anecdotal evidence that the Dow futures tends to be a poor predictor of how Wall Street performs over the course of its own trading day - a jump in Asian trading does not necessarily translate every day into strong Wall Street closing.

    While possible, the idea that the Dow futures is rigged to sway sentiment in Asia is highly improbable. For one thing, even though volume appears low, it still requires a fair amount of financial muscle to rig the Dow futures.

    The contract is traded on the Chicago Board of Trade's electronic trading platform and is valued at US$10 per index point. An index value of 12,500 means that one contract is worth US$125,000. In yesterday's trades, some 650 contracts were done during the time the local stock market was open, which means the total value of trades done was around US$81.25 million - not a small amount by any means.

    Second, futures traders have no way of knowing whether the US economic reports to be released later in the day will be good or bad, or if US companies are about to announce strong or weak earnings. The Dow futures is illiquid in Asian trading because traders have no primary underlying market to refer to in terms of newsflows, and this is why the contract might appear to be a poor predictor of future Wall Street performance.

    Third and most important, the Dow futures plays only a supporting role to the main driver of Singapore stock prices - Hong Kong's Hang Seng Index. Close market watchers would know that it is gyrations in the Hang Seng that are much more influential in affecting sentiment and setting direction for local stocks than movements in the Dow futures.

    There are many reasons for the heavy dependence on Hong Kong but all rest on the fact that the former British colony is by far the largest and most liquid market in this part of the world. An institutional dealer summarised the reliance on Hong Kong nicely when she said 'people tend to follow liquidity and you don't get more liquid than Hong Kong'.

    Furthermore, Hong Kong is viewed as being a good proxy for future Wall Street movements, perhaps even better than the Dow futures itself.

    Daily survival in an environment as volatile as the current one is all about trying to anticipate how the US might move later in the day, so institutions which expect Wall Street to move in a certain direction are much more likely to try and capitalise on this expectation via the liquid Hong Kong market than the relatively illiquid Dow futures.

    Of course, in a globalised world where everything is connected to everything else, it isn't just Hong Kong that directs what happens in the Singapore market. Equally relevant in the early part of the day are movements in Australia and Japan, but especially the latter given its size and liquidity. Then there's China - traders will recall, for example, the turbulence here when China stocks suffered a mini-crash last year. And after Hong Kong closes at 4pm local time, movements in Europe become relevant during the final hour.

    All trading, however, boils down to trying to guess how the US might perform in the future and oddly enough, it's worth noting that it is Hong Kong which plays the most important role in this respect - even more so than the Dow futures.

Heavenly deal between Primus and Eon Capital?

Published on The Edge Weekly edition. 18 Feb 2008: Big Money: What's Primus up to at EON Capital?


  • 18 Feb 2008: Big Money: What's Primus up to at EON Capital?
    By P Gunasegaram

    What is it in EON Capital that makes Primus Pacific Partners pay a hefty RM9.55 a share, a near 60% premium on its trading price, to gain a non-controlling one-fifth of the bank and financial services holding company for a hefty RM1.34 billion?

    And importantly too, why is it that other shareholders, apart from DRB-Hicom, which sold that stake to Primus, don't get to participate in that largesse? Is it right that a strategic shareholder, if Primus is one, pay a premium price to one particular shareholder, who happens to be a key shareholder for all intents and purposes, and is not required to make an offer to other shareholders on the same terms?

    However, such premium prices for small stakes are not unheard-of in Malaysia. Ironically, control of DRB-Hicom itself, the vendor in this instance, passed to tycoon Tan Sri Syed Mokhtar Al-Bukhary who only had to gain control of a mere 15.8% stake to be vested with management control.

    But he paid a hefty RM3.60 a share, a 64% premium on market prices then, in a deal worth RM560 million, announced in 2004 and completed after some complications in 2005 with government support. The stake came from the estate of the late founder of the DRB-Hicom group, Tan Sri Yahya Ahmad, who died in a helicopter crash in the late 1990s.

    Syed Mokhtar has since consolidated his hold on the DRB-Hicom group by injecting his own assets in return for shares.

    Primus however denies, almost vehemently, that it has management control but is making very forward-looking remarks about how value can be created, how it should be done, and mentioning that it will seek to help the EON Cap board in these respects.

    Yes, on paper at least, Primus does not gain management control but it is clear that it intends to influence existing management in a substantial way. To quote Primus managing director Jeroen Nieuwkoop: "We want to support the management team in developing a detailed business plan that outlines the opportunities for expansion and value creation."

    But then Nieuwkoop added, and we quote: "We are investors and not managers, and we do not want to step into the management's shoes. We leave that to Albert Lau (CEO of EON Bank) and his team."

    He said further that he had met the other shareholders and that there was no issue with them. Reports said that Primus executives had met Rin Kin Mei @ Rin Kei Mei, currently said to be the key person at EON Bank, EON Cap's main unit.

    Rin reportedly holds 15.4% in EON Cap, which together with Primus' stake of 20.2%, makes it 35.6%. Rimbunan Hijau group chief Tan Sri Tiong Kiew King has 17.1%, Khazanah Nasional Bhd, 10%, and the Employees Provident Fund, 5.3%.

    While it may not be officially in control, Primus certainly seems to be making announcements, which should rightly be coming from the board of EON Cap, for instance, the business plan, although Nieuwkoop says that EON Bank will release it.

    At the very least, that must mean that Primus must have had a lot of engagement with the board and existing management at EON Bank. And if it pays a 60% premium, it must have some amount of confidence that it will have at least some of its ways with EON Bank.

    Otherwise, why risk it, especially when you can take stakes in a number of local financial institutions if you think the Malaysian financial sector is so vibrant instead of putting all your eggs in one little basket for a huge price?

    And who is Primus anyway and how can it contribute? What expertise has it in running or helping to run a bank?

    At a press luncheon recently, Nieukwoop refused to even give out name cards and declined subsequent emailed questions to their local public relations agency by this newspaper. He did not disclose Primus' fund size or elaborate on its shareholders. He only said they comprised Middle Eastern investors, Asian families, and investors from other parts of the world.

    Very little information is available on Primus anywhere. Reportedly, Primus, set up in 2005, invests primarily in financial services companies. The EON Cap stake is its second investment after New China Life.

    The question that arises is, should such a fund be allowed to take a significant stake in a local bank and permitted to have such a strong influence, although not outright control, over management?

    It is high time the authorities took a more serious view of small stakes of less than the 33% trigger level changing hands at huge premiums on market prices, while significant management and directional changes take place behind the scenes. And there have been many such situations in Malaysia.

    Permitting some shareholders to benefit and exit from a listed company with a high price without the same benefit to all other shareholders is inherently unfair and smacks of insider dealings, which are unhealthy for the development of an equitable equity market.That's a situation that must not continue.

Do you agree with what's said?

*****************

Recommended commentary made by Salvatore_Dali

http://malaysiafinance.blogspot.com/2008/02/primus-pleases-itself-moolah-said-what.html

Tuesday, February 19, 2008

MTouche Reports Its Quarterly Earnings!

Previously blogged: MTouche

Rather amazing if you asked me. In that posting, the company gave a huge reasoning why 2007 was poor. See
After a tough year


  • In defence of 2007

    No doubt, 2007 was a challenging year for the company. Up to the nine months to September 2007, the company recorded net profit of RM5.4mil.

    As indicated in its announcement to Bursa Malaysia, the poor results were largely due to higher expenses from its new subsidiaries, provision of doubtful debts and higher depreciation and amortisation of intellectual property.

    This is largely in relation to setting up new subsidiaries in Hong Kong, India, and Vietnam.

    The group has also spent over RM30mil expanding via acquisitions.

    These include a 20% stake in IdotTV Sdn Bhd, 51% stake in Singapore-based Inova Venture Pte Ltd, 30% in GMO Global Ltd, 10% in British-based Cellcast plc and a 70% stake in British Virgin Islands-based Rayson Management Ltd.

    Investors with short investment horizons didn't waste time off loading their shares in the company and this resulted in the counter falling off the radar screens of investors through much of last year.


    Another humbling point – its share price has slid to astounding levels; it is currently trading at 58 sen.

    Soon, Mtouche is set to announce its full year results (by mid February) and the picture may continue to look bleak.

    Its chief executive officer Eugene Goh however explains that much of the year was spent on keeping its house in order.

    “We expanded so fast in 2006 into many markets. So, in 2007, we streamlined our acquisitions. We put in our own people and our own expertise in these countries. It took time to do that.”

And the company even had an article on the Edge: 11 Feb 2008: Corporate: Worst is over, says mTouche

  • Yet, business-wise, Goh, who is also the CEO, describes 2007 as a "bad" and "difficult" year. That's no surprise. For one, it has yet to convince Japanese mobile phone companies to buy M-Bit. The same could be said of the company's stock price. From an all-time high of RM4.18 on Nov 15, 2006, investors sold down mTouche's shares to as little as 47 sen late last month, after earnings disappointed most of last year. Its recent rights issue was about 9% undersubscribed despite attracting excessive applications. It remains to be seen if 4Q2007 numbers — tentatively slated for release on Feb 15 — will be any different. Last Monday, the shares closed at 58 sen.

    "Last year was a bad year. Some acquisitions did not do as well as expected and I think we were also punished for over-expanding… We streamlined operations last year, took in new people, got rid of unhealthy parts that are not strategic to our growth going forward," Goh says.

Anyway, I just saw MTouche had just reported its earnings: Quarterly rpt on consolidated results for the financial period ended 31/12/2007

Well.. MTouche reported a whopping net loss of 15.7 million for the quarter!

How?

This what the company said in its notes

  • For the financial quarter ended 31 December 2007, the Group recorded a LBT of approximately RM18.7 million as compared to PBT of RM1.0 million from the previous quarter. The LBT for the current quarter is mainly due to the competitive market and regulatory environment in which the Group operated in that led to lower market share and lower gross profit margin. In addition, higher expenses incurred, as detailed below, also affected the overall results of the Group:

    i) Increased in cost of sales of Rayson Group and project cost over-run in Inova which led to declining margin and subsequently a gross loss of RM1.6 million;
    ii) provision for doubtful debts of RM8.5 million mainly for Inova Venture Pte Ltd (“Inova”), Rayson Management Limited and its subsidiaries (“Rayson Group”) and a Malaysian subsidiary;
    iii) professional fees incurred for due diligence exercise on potential acquisition which did not materialise amounting to RM0.6 million;
    iv) provision for Universal Service Provider Fund of RM0.8 million;
    v) provision for withholding tax of RM0.5 million;
    vi) increase in depreciation and amortisation of RM1.0 million due to a change in estimate as mention in A6 above and new acquisition of intellectual properties;
    vii) unrealised foreign exchange loss of RM0.9 million mainly in respect of the translation of foreign currency denominated Murabahah Loan Notes issued by GMO Limited;
    viii) provision for impairment of goodwill of RM2.5 million relating to investment in the Rayson Group; and
    ix) the Group’s share of loss from its associate company namely GMO Limited of approximately RM1.2 million.

MTouche last traded today at 0.54 sen

KN report on Wah Seong

I was given a heads up that Wah Seong (Waseong) had fallen drastically today.

Here's a snapshot of how Waseong traded half an hour ago.



What intrigued me was that I had just received a copy of KN report on Wah Seong a couple of minutes earlier!

Here's a snapshot their report.



Note the price marker put on the report. Trading Buy at 3.06.


Hmm... I found it so strange that KN decided to publish a report on Wah Seong after the stock has fallen some whopping 46 sen (Waseong opening reference price for today was 3.52) in the midst of trading day.

And what's more amazing was the Trading Buy price target is at 3.44. A price which is below today's opening reference price!! Hmm... a Trading Buy?

How?