iCapital And Swee Joo

Here's another interesting issue on iCapital and its investment in the stock called Swee Joo.

I wrote about Swee Joo back on 27th November 2008. Shipper Swee Joo Announces Losses

I am going to reproduce the posting in full.

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Local shipping company announced its earnings tonight.

I will borrow these old notes I received from a friend back in 2007. The notes describes what Swee Joo does.

• [Updated on 20/07/2007 15:41:00]
  
  Principal activities: Shipping & related businesses
  Major shareholder/s: Leonard Linggi Anak Jugah,Goodlink S/B, Limar Management Services S/B
  
  The principal activities of Swee Joo Bhd (SJB), an East Malaysian group that is fast catching the headlines, comprise mainly shipping services, shipping agencies and shipping-related services like haulage, distribution, warehousing, container handling and repairs.
  
  The shipping services provided by SJB are mainly domestic and some regional routes. Domestic refers to routes between East, Peninsular Malaysia and Brunei and coast to coast refers to Sarawak while the regional shipping liner covers Bangkok, Ho Chi Minh City, Jakarta, Surabaya, and Singapore. Currently, one of the strengths of SJB lies in its comprehensive coverage of the East Malaysian ports. Domestic shipping services contribute the bulk of the group's revenue and earnings. In 2001, SJB formed an alliance with a large global shipper, Evergreen Marine Corp. The tie-up with Evergreen increases its revenue with the trans-shipment of goods from international to domestic routes. SJB is allowed free use of Evergreen's containers for 30 days. Presently, the feeder freight revenue contribution from Evergreen makes up 4.3% of SJB's sales. The group's revenue is primarily denominated in Ringgit, while a substantial portion of its cost is in US$. Unfortunately, the group does not undertake currency hedging. Due to the rise in oil price, bunker costs have been rising but this event affects all shippers.
  
  The two main 100% owned subsidiaries of the group are, Johan Shipping Sdn Bhd (Johan) and Swee Joo Coastal Shipping S/B (SJ Coastal). Johan, which provides domestic container shipping services, started business in 1983. It offers scheduled shipping services between west Malaysia and Singapore to East Malaysia and Brunei. In addition, Johan also provides regional shipping services to Indonesia, Bangkok, and Ho Chi Minh City. Johan expanded its shipping services to Ho Chi Minh City and Bangkok in 2003. In 2006, Johan recorded a turnover of RM206.5 mln with a net profit of RM20.3 mln. On the other hand, SJ Coastal provides scheduled services between the various towns in Sarawak. In 2006, it recorded revenue of RM36.5 mln with net profit of RM2.33 mln.
  
  SJB also provides services such as warehousing, container depot, consolidation and deconsolidation of cargoes at Port Klang, Pasir Gudang, and in the major parts of Sarawak. Repair and maintenance of container services are done at Port Klang. The group has 54 prime movers and 189 trailers. The haulage business had sales of RM8 mln in 2006 and net profit of RM0.11 mln.
  
  Presently, SJB operates a fleet of 14 container vessels, 10 general cargo ships and backed by 7 support vessels. No single client, market segment or industry dominates in terms of revenue or profit contribution to the group. In 2007, Johan is adding one 713-TEU container vessel, 1 dual-purpose CPO/container barge and 1 general cargo vessel for transporting rice and is entering the Myanmar and East India markets. SJ Coastal would be adding one 2,400-tonne CPO barge in 2008. Asia Bulkers Sdn Bhd, which mainly transports palm oil products and logs, will be adding one 7,000-tonne product tanker, and 2 sets of tug and CPO barge in 2008.
  
  Conclusion & Advice
  
  Imagine a company that has proven management, earnings that have grown rapidly and are expected to continue growing rapidly and with some of its businesses enjoying strong market positions, how much would you be willing to pay for such a company? Although the shipping business is capital intensive and the company has high borrowings, the current market valuation of RM278 mln for SJB seems to be on the low side. Hence, i Capital rates Swee Joo a Buy for the longer-term.
  
  Disclosure of interest (required under the Securities Industry Act) : The publisher and associates have an interest in Swee Joo.

Remember that above set of comments were OUTDATED comments.

Anyway, here is the link to Swee Joo's quarterly earnings reported tonight.

Quarterly rpt on consolidated results for the financial period ended 30/9/2008

It reported losses of 2.4 million.

The below screenshot shows the CLEAR declining set of earnings. ( I wonder if the investment advisor warned its readers about the deteriorating earnings or not! Or perhaps not due to the vested interests!)

Straight away one see the weakness. Receivables are up, cash balances down.

And more weakness can be see in their liabilities.



Loans are increasing and they are HUGE! And trade payables are on the increase!

And this is what the company had to say in its notes.

• For the current quarter ended 30 September 2008, the Group recorded an increase of 26.5 % on turnover compared to same quarter of previous year (from RM 82.8 million in 4th Quarter 2007 to RM 104.7 million in 4th Quarter 2008). However the profit before taxation decreased from a profit of RM10.3 million to a loss of RM1.5 million when compared to 4th quarter of 2007. The decrease in profit before taxation during the current quarter under review compared to same quarter last year was mainly due to the combination of the following factors:
  
  (i) Increase on cost of sales resulted from escalating fuel prices;
  (ii) Higher finance expenses due to additional borrowing to finance the expansion in property, plant and equipment; and
  (iii) Strong appreciation of USD against MYR during the current quarter under review
  resulting in a substantial exchange loss.

Swee Joo last traded at 61 sen.

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8th July 2009

Key issue for now is the disclaimer.

• The publisher and associates have an interest in Swee Joo.

I will come back to it later.

Now let's look at iCapital.biz 2008 annual report announced on 11th July 2008, Annual Report 2008.

• In the year ending 31 May 2008, your Fund made a number of purchases. New investments were Boustead, Hai-O Enterprise, Suria Capital, Swee Joo, Telekom Malaysia and TM International.

And here is the snapshot of the portfolio as at 11 June 2008.

iCapital.biz had purchased some 2,083,100 million shares worth some 2,858,552 million. This works out to 1.37.

Now iCapital's 2008 fiscal year runs from 1st June 2007 to 31st May 2008. Somewhere in between these dates, iCapital is said to have invested in Swee Joo at an average cost of 1.37.

Let's look at Swee Joo's historical earnings and events.

It was listed back in Oct 2006.

First yet of earnings I would use is what Swee Joo reported on Feb 2007. Quarterly rpt on consolidated results for the financial period ended 31/12/2006. Swee Joo made 12.571 million.

May 2007. Quarterly rpt on consolidated results for the financial period ended 31/3/2007 Swee Joo made only 5.043 million. Less than more than half of what it made the previous quarter.

Only these 2 set of earnings and less than 2 months later, on 20th July 2007, iCapital investment advisory makes a buy for longer term call! And yes, it declared the vested interests!

Hmm.. let's repeat again.... Now iCapital's 2008 fiscal year runs from 1st June 2007 to 31st May 2008. Somewhere in between these dates, iCapital is said to have invested in Swee Joo at an average cost of 1.37.

Here now is the chart. The top section with all the foot prints denotes the time frame between 31st May 2007 and 30th May 2008. This is where iCapital 'might' have purchased Swee Joo at an average cost of 1.37.

Aug 2007, Quarterly rpt on consolidated results for the financial period ended 30/6/2007 Swee Joo's earnings increased to some 9 million. (This could explains for the huge run up in Swee Joo's share price to around 1.79 in Oct 2007.)

Nov 2007, Quarterly rpt on consolidated results for the financial period ended 30/9/2007 Swee made 8.590 million. (a slight decrease in q-q earnings)

And that quarter marked the end of Swee Joo's fiscal 2007 earnings. It made 35.185 million for its fiscal year since listing.

(Hmm... some true value investors would question why an investment is made so soon for there is just not enough investment data for anyone to make any intelligent form of investing. And as you can see above, from the earnings perspective, the best one could do is make q-q comparisons. And as many would know, just on q-q comparison is not sufficient because one would need to understand the y-y comparison numbers too )

Feb 2008. Quarterly rpt on consolidated results for the financial period ended 31/12/2007. Swee Joo made 9.250 million. Previous year same quarter it made 12.571 million. Early sign of weakness, perhaps?

May 2008. Quarterly rpt on consolidated results for the financial period ended 31/3/2008 Swee Joo made only 4.005 million. Previous year it made 5.043 million. Weakness shown on a q-q and y-y comparison. Another warning sign?

Aug 2008. Quarterly rpt on consolidated results for the financial period ended 30/6/2008 Swee Joo made only 2.729 million. Previous year it made 9.013 million. Drastic weakness now!!! Terrible weakness on q-q and y-y comparisons!!

And look at the above chart again. The market is acknowledging the weakness in Swee Joo's fundamentals.

It's so rather clear, no?

Nov 2008. Quarterly rpt on consolidated results for the financial period ended 30/9/2008 Swee Joo lost 2.406 million!!!!

That was when I blogged Shipper Swee Joo Announces Losses

Feb 2009, Quarterly rpt on consolidated results for the financial period ended 31/12/2008 Swee Joo's losses increased to 3.761 million!!

Remeber the blog posting Shipper Swee Joo Announces Losses? Look at the balance sheet again. Look at the cash versus debts. Despite the huge debts, Swee Joo still insisted on a First and Final Dividend.

A First & Final dividend of 1 (one) sen per share, tax exempt for the year ended 30 September 2008

1 sen???!!!!

Makes one wonder eh? Why bother? Balance sheet is so weak and the company is struggling with losses and yet it wants to pay shareholders one big sen in dividend!

Sorry I have to laugh.

Makes one wonder if the dividend is made so that Swee Joo can be classified as a dividend paying stock!

May 2009. Quarterly rpt on consolidated results for the financial period ended 31/3/2009. Earnings turned around. Swee Joo made some 5.135 million. Many thanks to a gain of 3.474 made from disposal of assets (property, plant, equipment)

Swee Joo has cash balances of some 32 million (boosted by disposal of assets amounting to 13.272 million) and total debts stands at a huge 476.640 million.

Swee Joo last traded 0.695. Its buy/sell quote reads 0.655/0.75 currently.

Based at a price of 0.695, if my calculation is not wrong, iCapital's investment in Swee Joo is worth some 1,447,754. Its cost is 2,858,552 million.

Another huge loss in terms of percentage!

Now this comes back to the issue of iCapital's recommendation on 20th July 2007.

Armed with only two set of quarterly earnings, iCapital investment advisory makes a bold buy call on Swee Joo. And what sticks out like sore thumb was the vested interest declared.

The publisher and associates have an interest in Swee Joo.

And with iCapital.Biz purchasing this stock around the same period, don't you think the above disclaimer statement is rather imbiquious?

Who were the ones that had the vested interest in Swee Joo back on 20th July 2007?

Was it iCapital.biz? If it was, some would have mixed feeling because it would meant that after iCapital.biz the stock, purchased the stock between 31st May 2007 and 20th July 2007, the investment advisory quickly issues the buy call!

Hmm... fund buys the stock, the advisory quickly supports the buy by issuing a buy call!

And even if iCapital.biz purchased the stock after that recommendation, some would have even more questions. For it meant that iCapital.biz purchased the stock despite the fact that its so-called associates have vested interes in the stock!

Hmm.. would this be deemed as a conflict of interest?

And needless to say who is the said associates?