Monday, November 30, 2009

Why The Banking Sector Is Still Shakey

I was just reading Sprott Asset Management report on the banking sector.

You can read the full report here:
Don't Bank On The Banks

The table highlighted on page 3.



Page 4.

  • In Chart A we provide leverage levels for a few select banks that deserve special mention in our leverage discussion. These three banks were all bailed out by their respective governments. We’d like to draw your attention to their leverage ratios, prior and post-bailout, to emphasize the importance of leverage over time.

    We’ll start with Citigroup, which was de facto nationalized by the US government when it received $25 billion from the TARP program, a massive US government guarantee on $306 billion in residential and commercial loans and a $27 billion cash injection for preferred shares. You can see the impact these bailouts had on Citigroup’s leverage ratio over the years, moving it from 37:1 in 2007, increasing to 64:1 at the end of 2008 and back down to 17:1 after the government cash injections.
    The 64 to 1 ratio required a government bailout. One wonders if 17 to 1 is an appropriate level for Citigroup, given their exposure to high risk assets.

    The Royal Bank of Scotland makes Citigroup’s leverage look tame in comparison. Using our definition, we calculated an eye popping leverage ratio of 574:1 in 2007, implying that a mere 0.17% decrease in assets would have wiped out their tangible common equity. Is it any wonder then that the hiccup in the housing market blew them apart? RBS now holds the distinction as the world record holder for the largest bank bailout. The UK Government has earned a 70.3% shareholding in the bank after providing them with their second bailout in November 2009.10 In total, a whopping £53.5 billion has been injected into RBS by the British Government, which is now exposed to losses on £250 billion of RBS balance sheet assets. In return for the government support, RBS has agreed not to pay cash bonuses to any staff earning above £39,000 in 2009, and to defer executive bonuses until 2012. Although they’ve come down since 2007, RBS still maintains a very high leverage ratio. Hopefully two bailouts by the UK government will be enough.

    Our final example is Dexia. It was bailed out by three separate governments and its shareholders, receiving €6.4 billion in bailout money from France, Luxembourg and Belgium in September 2008. Dexia is the largest lender to local governments in France and Belgium. According to their latest financial filings, Dexia is operating at a leverage ratio of 116:1, which strikes us as very extreme in this environment. Again – at those leverage levels, the smallest asset decrease would wipe out all tangible common equity. That’s extremely risky for an institution as large as Dexia, and highlights the problems that still plague the global financial system.

    The examples above show that our leverage measurement is a good variable to review before making a common equity investment in a bank. The higher the leverage ratio, the greater the risk of losing your common equity. While we haven’t delved into the asset “quality” of any of these banks, we have been watching US bank failures for a market-based indication of the quality of their assets in a liquidation scenario. High profile examples include Colonial Bank, the largest US bank failure thus far in 2009, which had total assets of $25 billion and cost the FDIC $2.8 billion in losses - representing an 11% write-down on their assets. Also notable was Chicago’s Corus Bank, which cost the FDIC $1.7 billion on total assets of $7 billion - representing a 24% write-down. For Colonial, 10:1 leverage was too high, and in the case of Corus, a mere 4:1. Citing the most recent bank failures in the US, it would appear that most financial assets are still being written down by at least 10%. Although each bank is different and has its own specific asset allocation, this raises major cautionary flags for us, given that the banks listed above still utilize leverage ratios well above 20:1. For such a seemingly complicated industry, it surprises us that such a simple red flag continues to stump the regulators who oversee it.

    Given the discussion above, is it any wonder why we continue to see banks receive more government cash injections and asset guarantees? And is it any surprise that banks aren’t lending the cash they were given by the central banks? Of course it isn’t. The leverage in the banking system is still too high. Judging by recent comments by finance ministers and central bankers, it is clear to us that they have no plans to address leverage in their regulatory proposals, and until they do, we would advise that you invest in bank stocks with extreme caution. Don’t say you weren’t warned.

Makes you wonder about Citigroup. Their leverage is still 17:1???? Not a worry? Colonial Bank which went down, according to this report, had a leverage of only 10:1. And Corus Bank of Chicago had a leverage of only 4:1!

Hmmm.....

Then I was thinking of Dubai World.

Well two of the shakiest bank mentioned in Sprott Management report, was included in the list of Banks With The Biggest Exposure to The UAE!!!





On the UK Telegraph: Banks braced for record debt defaults in the New Year

  • January is traditionally the worst time of year for debt defaults, according to the credit checking company Experian. The recent surge in unemployment and personal insolvencies will make the first quarter "the busiest period ever", the company said.

    "Christmas is a catalyst for delinquency and bad debt, with credit card and overdraft debt traditionally peaking in the New Year," Simon Waller, Experian's head of collections for UK and Ireland, said.

    "Economic indicators and feedback from our collections clients suggests that the first quarter of 2010 could be the busiest period ever seen."

    Experian is anticipating the worst due to the 771,000 job losses in the first nine months of the year, a 94pc increase on 2008, and the record quarterly personal insolvency rate of 41,390 for the three months to September.

    Banks have also been cranking up their marketing to households in the run up to Christmas. The Call Prevention Registry has seen a 50pc increase in "nuisance calls" from debt management organisations in the past month trying to persuade customers to take out new loans.

    Mr Waller said: "With unemployment at its highest since 1996 and record numbers of redundancies and insolvencies, it is vital for collections departments to do everything to ensure that their people can cope with the influx of new cases."

And over at Jesse's Café: The Dangerous US Financial Sector Still Smoldering

Some Comments On Lion Forest

On Aug 26th it said it made some 28.190 million. Of course if one looks just at these numbers it looked so very impressive for it suggest an incredible earnings per same of some 12.2 sen. And the stock was trading around 1.00.

But one needs to understand how and where these net profits are derived from.

From the company's earnings notes.


  • The Group posted favourable results for the year under review compared to a year ago. Revenue was 57% higher at RM615.3 million, with profit from operations reported at RM52.0 million. The better performance was contributed mainly by the newly acquired Silverstone Berhad.

    After accounting for exceptional gain of RM147.5 million arising from the acquisition of Silverstone Corporation Berhad ("SCB"), the Group reported a significantly higher profit before taxation of RM185.0 million compared to a loss before taxation of RM8.4 million in the preceding year....

    For the quarter, all business segments improved their revenue as compared to last quarter. The Group's revenue improved by 15% to register at RM208.1 million, as improved market sentiment raised demand.

    Profit before taxation was RM32.2 million as compared to RM14.8 million in last quarter, due mainly to further recognition of a negative goodwill of RM14.6 million as a result of fair value adjustment in SCB.

Exception gains distorted Lion Forest bottom line.

Recently, Lion Forest said it made some 32 million.


And again, first impression was that it was impressive.

But in the earning notes, Lion Fib had again some exceptional gains boosting its bottom line.
  • For the quarter under review, a revenue of RM209.4 million was recorded representing approximately 77% increase over last year. The better performance was contributed mainly by the inclusion of Silverstone Berhad's results into the current quarter .

    Correspondingly, profit from operations was higher at RM20.2 million against RM3.2 million last year.

    After accounting for the share of profit from associates of RM21.3 million which arose from the disposal of its investment in China, a profit before taxation of RM39.0 million was recorded.

If you minus out the 21.3 million, the earnings from Lion Forest isn't as impressive anymore.

Saturday, November 28, 2009

Review Of CSC Steel Latest Earnings

CSC Steel recent announced quarterly earnings was rather decent.

But before I get into that, let's review the past postings.

In Feb 2009, I highlighted the massive losses posted by CSC Steel:
A Look At CSC Steel Latest Quarterly Earnings. Quarterly losses announced by CSC Steel were around some 42 million.

On 11th May 2009, CSC gave a profit warning saying that
flat steel products used in cars and home appliances had deteriorated since the fourth quarter of last year and expects its profit downtrend to continue because of falling steel prices and production cuts arising from lower demand. ( LOL! As you know, sometimes in a hot market, anything can and will happen! That very same morning, CSC Steel Soars Despite Profit Warning! )

A week later, on 18th May 2009, CSC announced its
2009 Q1 earnings. It made some 5.709 million. A turnaround perhaps.

From the company earnings notes.

  • B1. Review of performance
    The Group achieved revenue and profit before tax for the current quarter of RM173.2 million and RM7.5 million respectively. This represents a reduction of RM169.8 million or 49.5% lower in revenue than that of its corresponding quarter. As a result of the revenue contraction, profit before tax of RM27.1 million in the corresponding quarter was reduced by RM19.6 million or 72.5% to RM7.5 million.

    The significant drop in revenue is due to sales volume contraction and lower selling prices of our steel products. The lower profit before tax was mainly due to lower revenue achieved in the current quarter.

    B2. Variation of results against preceding quarter
    The Group’s revenue has decreased by 15.6%, from RM205.1 million in the preceding quarter to RM173.2 million in this quarter. The decrease in revenue is due to significant drop in the selling prices of our steel products.

    Despite the decrease in revenue, the Group’s profit before tax increased by RM66 million from a loss of RM58.5 million in the preceding quarter to a profit of RM7.5 million this quarter due to the absence of charges made in respect of inventory write-down and impairment loss on plant and equipment totalling RM65.6 million during the previous quarter and the recovery of doubtful debts of RM4.9 million during the quarter.
Aug 2009: Quarterly rpt on consolidated results for the financial period ended 30/6/2009. Net profit improved to 9.434 million. Half year earnings 15.142 million. Great quarter-to-quarter improvement again but like many other companies, these numbers paled in comparison to what CSC did the previous year. Previous year, CSC made 75.533 million.

13th November 2009, CSC announced its Q3 earnings. Most were impressed. The Edge Financial Daily had this article:
CSC Steel 3Q net profit up 42% to RM39m



  • CSC Steel 3Q net profit up 42% to RM39m
    Written by Joseph Chin
    Friday, 13 November 2009 19:57

    KUALA LUMPUR: CSC Steel Holdings Bhd posted net profit of RM38.89 million in the third quarter ended Sept 30, an improvement of 42% from RM27.32 million a year, mainly due to the absence of the write-down in inventories.

    It said on Friday, Nov 13 that revenue was RM261.48 million, down 31.4% from RM381.17 million a year ago. Earnings per share was 10.42 sen compared with 7.29 sen.

    "The significant drop in revenue is due to lower selling prices of our steel products although sale volume improved marginally," it said.

    "Despite the lower revenue, profit before tax increased by RM25.1 million or 88.2% to RM53.6 million. This is mainly due to the absence of the write-down of inventories to net realisable value amounted to RM30 million made in the corresponding quarter," it added.

    When compared with the second quarter ended June 30, 2009, the group's revenue rose 61.9% from RM161.6 million to RM261.5 million in 3Q.
    Profit before tax increased by RM41.1 million or 328% from RM12.5 million in 2Q.

    CSC Steel said the better performances in revenue and profit before tax were driven by both higher sales volume and favourable selling prices of its steel products.

    "The improved sale volume was supported by the timely increase in supply of hot rolled steel (HRC) from our ultimate parent company, China Steel Corporation, to make up for the delay in local HRC supply," it added.

    For the January-September period, net profit was RM54.03 million compared with RM100.85 million the previous corresponding period. Revenue also fell, down to RM596.19 million compared with RM1.167 billion a year ago.

    On the current year prospects, it said the local steel market has slowed down since October 2009 after a series of price increases since second quarter 2009.

    CSC Steel said overcapacity and high inventory which caused steel prices falling in China since August 2009 was the main factor that made local buyers cautious in re-stocking activities.

    However, from mid October 2009, steel prices in China had begun to increase. CSC said the group expects steel market to recover by end of the year or beginning of 2010 as the stimulus packages introduced by many countries, especially China, with forecast GDP growth of above 8.0% this year, performed excellently.

    As for Malaysia, it said domestic steel demand was increasing as projects under the stimulus packages, are being gradually implemented.

    "Coupled with the current low inventory level, we expect greater re-ordering activities to take place once international steel market starts to recover," it said.

From the company's earnings notes. The cash balance.


It's impressive, no?

Its total borrowings were 13.705 million.

How can I not say it's impressive?

However, nothing is perfect. Such is life. LOL!

Posted a year ago, November 2008
Regarding CSC Steel'sCurrent Earnings And Its Investments In Marketable Securities. Some of the issues mentioned were:


  • Ah. The marketable securities appears to be Unit Trust Funds! Now don't you want to know what kind of funds these are? What if there are commodity-linked funds?

    4. But look at the size of their investment in these Unit Trust Funds. CSC has cash balances of 7.361 million and bank deposits of 9.5 million but it's Unit Trust Funds investments totals a whopping 57.336 million!!!! Surely, one has the rights to question if CSC Steel management has got their priorities correct or not! Is CSC an investment company or is it a steel manufacturer?Why is CSC investing such a big portion of their total cash into Unit Trusts given the current global credit crisis? Why?

    5. The current quarterly earnings is for quarter ending 30th Sept 2008. Most Unit Trust Funds are down since then. As mentioned earlier, what if there are commodity-linked funds?

The following screen shot was taken from CSC latest Cash Flow statement from its latest quarterly earnings.



CSC Steel has some 58.506 million in Unit Trust Funds!
Is it too much?

Me? My answer is an astounding YES!

CSC Steel should realise that some investors simply DO NOT like to see such practice. If CSC has ample cash in its piggy bank, it would create more shareholder value if it returns more back to its shareholders! Yes, pay more back to the shareholders in the form of dividends and stop SCREWING around trying to make money in the Unit Trust markets. Stop dabbling in the market!

Of course, you might not argee but that above is my flawed opinion.

The following screen shot is taken from CSC earnings notes.



As can be seen, CSC is not losing making money but the money it is making is rather smallish, no? And if I were a shareholder, surely I would ask where is the justification in investing so much money in these Unit Trust funds?

Got extra moolah, share with the shareholders would certainly be a much viable option, no?

How?

ps: this is not your weekend tipsy la.

Thursday, November 26, 2009

A Quick Look At Tong Herr's Earnings

Here's another stock which I need to make a couple of comments.

2nd Sep 2009, I wrote
How Now For Tong Herr? which was follow up to the posting A Warning From Tong Herr?

Tong Herr announced its earnings last night.

I was interested. What was I expecting? What were you expecting? Here's a past screen shot of past Tong Herr's earnings (
click here ).

I was expecting profits to be around 1 million or less. Tong Herr had lost some 800k the previously.

Here's Tong Herr's earnings.




Well again it's better than I had expected. (LOL! Do understand that I am merely stating things as it is. And if you like to make assumptions and ass-u-me that I now have my bull horns on, well that ass is yours, not mine. )

And it's exactly like Uchi's earnings comments posted earlier, Tong Herr had done extremely well if you compare to what it did the previous quarter.

However, like Uchi also, Tong Herr's current earnings pale in comparison if you compare to what it did the previous year.

Some would also point out that based on 'current' earnings, Tong Herr's current market prices are rather so rich.

But some would discount that and argue that it's pointless to look at current earnings and if the earnings turnaround sustains, then based on what Tong Herr had achieved in the past then Tong Herr price is not rich at all. In fact based on historical stock prices, the current price is a bargain.

Hey stop your stop and stare. LOL!

But isn't this how it is? A coin does have two sides, no?

Anyway, some comments from the company.

  • The Group recorded revenue of RM48.47 million and profit before income tax of RM3.92 million in this reporting quarter compared to revenue of RM44.89million and loss before tax of RM381 thousand respectively, as recorded in the preceding quarter. The higher profit before income tax in this reporting quarter as compared to the results in preceding quarter are due to lower raw material cost.

So lower raw material cost is the huge helping hand.

How?

No matter which side of the coin you are at, surely you have to ask if the current 'lower raw material' scenario can sustain.

What if it doesn't?

Well on the other hand, some would bring out the low revenue, which again have two sides, in my flawed opinion.

On one side, one would say, the extreme low revenue compared to previous period last fiscal year shows how tough the business economics is for Tong Herr. Business is simply poor and not helping out is the anti-dumping warning mentioned by Tong Herr!

On the other side, some would argue that things can only get better.

Yeah, why so pessimistic? LOL! Sun will always rise and tomorrow is always a better day. (so true) and if things get better, then any improve in revenue should mitigate any rising material cost.

Well, that's a rather justifable reasoning.

But will it happen?

How?

Which side of the coin do you like?

Me?

All I have to say is "And as usual... how?Oh.. this again is not a tipsy. Please lah. The only way I know how to make anyone tipsy is to whip out my bottle of whisky or perhaps a bottle of wine. :)So if you like to ass-u-me, go ahead, your ass not mine. :D "

A Quick Review Of Uchi's Earnings

Time to give out credit. :D

First Uchi Tec.

The last posting I made on Uchi Tec was in Aug 2009:
A Quick Look At Uchi's Earnings.

Uchi announced its earnings last night.


As can be seen from the table above, as again, the broader picture still does not look good for the earning still pales in comparison with what Uchi did last fiscal year.

However, when you compared it what Uchi did last quarter, the sign of the turnaround is there. (you can see the second quarter screen shot
here and the first quarter screen shot here )

Some notes from the company:

  • 14. PERFORMANCE REVIEW

    Revenue in Ringgit Malaysia for the period ended September 30, 2009 (RM62.862 million which equivalent to USD17.753 million), decreased by 35% as compared to September 30, 2008 (RM97.078 million which equivalent to USD29.829 million), mainly due to lower sales volume in consequence of customer’s logistic planning restructuring and unfavourable global economic condition.

    15. COMPARISON WITH THE IMMEDIATE PRECEDING QUARTER’S RESULTS

    There was no significant change in operating profit as compared to the immediate preceding quarter ended June 30, 2009.

    Profit before taxation for the current quarter increased by 89% because profit before taxation for the six months period ended June 30, 2009 was affected by the recognition of realized foreign exchange losses of RM8.9million upon termination of certain open contract with a bank.

    The recognition of such exchange losses shall not recur in the subsequent period of the year.

One more note. The dividend issue. Back in Feb 2009, I wrote Would You Buy Uchi For Its Dividends? (Uchi then was 75 sen)

The last few lines of the posting:

  • 3. Cash balances is also clearly declining and one of the main reason is that Uchi's pays great dividends.

    Now common sense would suggest that if the earnings keep on declining,
    one day Uchi's dividends payout would surely decline too.

    Counter argument is that in the long run, Uchi's earnings should recover and given the fact that Uchi's current cash balances is still quite sizeable, why worry? Buy and enjoy the dividends for the long term.

    How?

    Would you buy Uchi for its dividends?



Have a look at this screen shot from Uchi's earnings notes.




And as usual... how?

Oh.. this again is not a tipsy. Please lah. The only way I know how to make anyone tipsy is to whip out my bottle of whisky or perhaps a bottle of wine. :)

So if you like to ass-u-me, go ahead, your ass not mine. :D

Wednesday, November 25, 2009

The Very Best








George Best 22 May 1946-25 Nov 2005

RIP

Maradona good.

Pele better.

George Best


Boustead Net Profit Up Or Down?

On Business Times:


  • Boustead Q3 net profit up 72pc

    Published: 2009/11/25

    BOUSTEAD Holdings Bhd (2771) yesterday reported a net profit of RM108 million for its third quarter, 72 per cent bettter than the RM63 million profit recorded in the preceding quarter.

    The strong result was achieved on a turnover of RM1.4 billion.

    For the nine month period, Boustead registered a net profit of RM239 million on the back of a RM3.9 billion turnover.

    Earnings per share was 29.1 sen while net assets per share was lower at RM4.08 due to the dilutive effect from the recently concluded rights issue.
    The Boustead board has declared a third interim dividend of 7.5 sen which brings dividend for the 2009 financial year to 17.5 sen or 35 per cent.

    "Given our third quarter results, clearly the tide and sentiments are turning by virtue of the fact that our earnings are up. The sectors of the economy we are involved in, namely the consumer and the heavy industries segments bode well for the group while our plantations continue to be a steady revenue generator and profit contributor," Boustead group managing director Tan Sri Lodin Wok Kamaruddin said in a statement.

    He said Boustead's balance sheet appears strong, following its recent rights issue which generated proceeds in excess of RM700 million while its gearing ratio has dropped significantly to 0.8 times from 1.2 times.

    During the quarter under review, Boustead's heavy industries division emerged as the main contributor, with a profit of RM49 million.

    The plantation division recorded a profit of RM17 million compared with RM10 million achieved in the preceding quarter while Boustead's property division recorded a 15 per cent decline in profit to RM19 million.

    The finance and investment division achieved a profit of RM20 million compared with RM6 million achieved in the preceding quarter while its trading division registered a profit of RM14 million against RM4 million recorded in the preceding quarter

Here is the screen shot of the article.





This is the Edge Financial Daily version.
Boustead’s 3Q profit down 47% y-o-y

  • Boustead’s 3Q profit down 47% y-o-y
    Written by Isabelle Francis
    Tuesday, 24 November 2009 10:28

    KUALA LUMPUR: BOUSTEAD HOLDINGS BHD [] posted a net profit of RM86.2 million in the third quarter (3Q) ended Sept 30, 2009, down 47% from RM164 million a year earlier but up 84% from the preceding quarter’s earnings of RM63 million.

    Revenue dropped 27% year-on-year (y-o-y) to RM1.42 billion from RM1.95 billion but was up 11% from the preceding quarter. Basic earnings per share (EPS) fell to 12.41 sen from 25.48 sen a year earlier.

    It declared a third interim dividend of 7.5 sen per share less tax, bringing the total to 17.5 sen or 35% per share less tax for the current financial year ending Dec 31, 2009. The latest dividend is payable on Dec 29, 2009.

    For the nine-month period, net profit fell 59% to RM193.92 million from RM468.2 million a year earlier, while revenue dipped 33% to RM3.91 billion from RM5.8 billion.

    EPS fell to 16.55 sen from 48.36 sen, partly due to the dilutive effect of a rights issue.

    “Clearly the tide and sentiments are turning by virtue of the fact that our earnings are up (quarter-on-quarter). The sectors of the economy we are involved in, namely the consumer and the heavy industries segments bode well for the group while our PLANTATION []s continue to be a steady revenue generator and profit contributor.

    “Our balance sheet looks strong given our recent rights issue which generated proceeds in excess of RM700 million. Our paid-up capital has increased to RM456 million and our gearing ratio has dropped significantly to 0.8 from 1.2 times. In essence, our financial strength is strong while our prospects look better,” said group managing director Tan Sri Lodin Wok Kamaruddin in a statement yesterday.

    Boustead told Bursa Malaysia yesterday its highest profit earner — the heavy industries division — contributed a pre-tax profit of RM113 million for the nine-month period versus RM233.1 million a year earlier due to slower progress of work and cost escalation.

    Its second-largest profit contributor, the plantation division, contributed a pre-tax profit of RM50.7 million versus RM260.8 million.

    Boustead said the division achieved an average palm oil price of RM2,172 per tonne versus RM3,103 per tonne previously. Fresh fruit bunch harvest totalling 827,850 tonnes was 5% lower than last year.

    It said its property division’s pre-tax profit of RM58.9 million for the period was 44% lower than last year’s. Profit from its hotel operation was lower due to the start-up cost of the recently opened Royale Chulan Hotel. It added that the property development segment profit was also lower, due to the absence of corporate lot sales.
    Boustead said its finance and investment division reported an improved pre-tax profit of RM29.6 million.

    It noted that BH Insurance posted a 62% higher pre-tax profit of RM24.5 million, mainly due to the increase in underwriting and investment income.

    Meanwhile, it said the Affin Group posted a better pre-tax profit of RM383.2 million versus RM288.6 million a year earlier, due to improved net interest and Islamic banking income, while loan provisions were also lower.

    Boustead said the trading division, meanwhile, posted a lower profit of RM21.5 million. The division gained profits from its petroleum retail unit Boustead Petroleum Marketing Sdn Bhd (BHPetrol), and from the LCCT Baggage Handling system project.

    On its outlook, Boustead said its most lucrative business, the heavy industries division, will continue with its effort in developing its defence and commercial businesses. It will also establish more partnerships.

    The company is cautiously optimistic that CPO prices could sustain at the RM2,200 to RM2,400 level till year-end on the back of steady overseas demand as economies around the world recover.

    It said a factor that bodes well for the CPO price would be the potential for further weaknesses in the US dollar.

    It added that the property division’s earnings would be driven by the ongoing developments at Mutiara Damansara and Mutiara Rini townships and the division’s stable of commercial and retail PROPERTIES [].

    The company said that the expansion of the hotel activities, which now include the five-star Royale Chulan Hotel and Royale Bintang Seremban are expected to further increase revenue for the hotel division.



    This article appeared in The Edge Financial Daily, November 24, 2009.

And I would bet that the mak cik at the canteen would say 'Aiseh macam mana ni?'



Me?

I think the below table says it all!

Tanjung Offshore Suffers Huge Losses 'As Expected'

Oh yeah, good old OSK.

The other day I was reading their report on Tanjung Offshore. It interested me for a couple of reasons. Firstly OSK warns of lower earnings, ie losses from Tanjung Offshore! Secondly it lowered its target for Tanjung. Now lowering price target is understandable but when the Target Price is reduced from 1.94 to 0.88 sen, one just have to wonder what's happening!

This was their explanation.


  • We expect Tanjung Offshore to announce its 3QFY09 results on 24 Nov 2009, which we gather would be in the red. This may be mainly attributed to its UK subsidiary, Citech, experiencing some cost overruns and late delivery issues. Hence, we are lowering our FY09-10 earnings, as well as downgrading our call to Sell, with a target price of RM0.88 (previously Buy, TP: RM1.94)

    3QFY09 results likely to be bad. Tanjung Offshore is expected to announce its 3QFY09 results on 24 Nov, 2009, which we understand would be in the red compared to a net profit of RM2.8m in 2QFY09 and RM10.0m in 1QFY09. We gather that the main reason for the weak results emanate from its UK subsidiary, Citech Energy Recovery Systems UK Ltd, which manufactures CITECH waste heat recovery units. Apparently, this unit again experienced cost overruns and late delivery like it did during 2QFY09, when its net profit plunged 72.5% q-o-q. We also see this loss spilling over to 4QFY09, which may erode its cumulative 1H09 profits.

Yeah, previously 1.94!

But OSK wasn't the only that had a SELL on the stock.

On 26th Aug 2009
AmResearch downgrades Tanjung Offshore to Sell (AmResearch gave it a fair value of 1.11) and Maybank Investment Research too had a SELL on the stock with a target price of 0.90.

Now OSK too had a report on 26th Aug. This is what they wrote!




Their price target was 1.74! LOL! (Remember AmResearch had it at 1.11 and Maybank had it at 0.90)

I guess their downgrade on 20th November was better late than never!

Tanjung Offshore announced its earnings last night. It made huge losses!

I then looked at its Balance Sheet.




Compared to previous year, cash balance down. Receivables are rather high at 196 million. But the look at the spiralling debts! Look at all the bonds and the Islamic notes. Total debts now stands at 578.194 million! (Are you sure debts is good?)

How?

LOL! Some would say no worries. The losses are 'as expected' and that the recent decline in Tanjung Offshore share prices HAD already reflected these losses.

So how?

On the Edge Financial Daily. Tanjong Offshore posts RM10m net loss in 3Q

  • Tanjong Offshore posts RM10m net loss in 3Q
    Written by Siti Sakinah Abdul Latif
    Tuesday, 24 November 2009 23:48

    KUALA LUMPUR: Tanjong Offshore Bhd posted a net loss of RM10.28 million in its third quarter (3Q) ended Sept 30, compared with a net profit of RM5.08 million a year earlier, due mainly to the loss at its UK unit Citech Energy Recovery Systems UK Ltd (CERS).

    The company said CERS registered a net loss of £2.70 million (RM15.1 million) in the quarter and had ongoing late delivery charges payments and escalation of costs in its manufacture of waste heat recovery packages.

    Revenue for the quarter fell 21.3% to RM154.88 million from RM196.91 million. Loss per share stood at 4.18 sen, compared with earnings of 2.49 sen previously.

    "Recently, the group reshuffled the top management positions at CERS so as to have more direct involvement in the day-to-day operational matters. Moving forward, we hope to turn around the losses at CERS and register new sales for the financial year ending 2010," it said in the statement.

    For the nine months to September, net profit plunged 86.6% to RM2.46 million from RM18.35 million in the corresponding period of FY08, while revenue jumped 38.3% to RM513.4 million from RM371.13 million.

    The company said that it remained "cautiously optimistic" on prospects of the oil and gas industry in the international market .

    It said despite the losses registered in 3Q "we remain confident that we are able to overcome short-term losses" as the company continuously enhanced its services to the oil majors in Malaysia and overseas market

Tuesday, November 24, 2009

One In Four Borrowers Under Water

On WSJ: One in Four Borrowers Is Under Water

  • By RUTH SIMON and JAMES R. HAGERTY
    The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.

    Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.

    These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn't expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.

    Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American.

    Most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don't have any mortgage, according to the Census Bureau.

    But negative equity "is an outstanding risk hanging over the mortgage market," said Mark Fleming, chief economist of First American Core Logic. "
    It lowers homeowners' mobility because they can't sell, even if they want to move to get a new job." Borrowers who owe more than 120% of their home's value, he said, were more likely to default.

    Mortgage troubles are not limited to the unemployed. About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay -- more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman. "The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," the study said.

    Just months after showing signs of leveling off, the housing market has thrown off conflicting signals in recent weeks. Jittery home builders and bad weather led to a 10.6% drop in new home starts in October, and applications for home-purchase mortgages have dropped sharply in recent weeks.

    These same falling prices have boosted home sales from the depressed levels of last year. The National Association of Realtors reported Monday that sales of previously occupied homes in October jumped 10.1% from September to a seasonally adjusted annual rate of 6.1 million, the highest since February 2007.

    The bump in sales was ahead of forecasts, spurred by falling prices, low mortgage rates and a federal tax credits for buyers. Congress recently expanded and extended the tax credits.

    The latest First American data aren't comparable to previous estimates because the company revised its methodology. First American now accounts for payments made by homeowners that reduce principal, and it no longer assumes that home-equity lines of credit have been completely drawn down.

    The changes reduced the total number of borrowers under water -- although both old and new methodology show increases from the previous quarter.
    Using the old methodology, the portion of underwater borrowers would have increased to 33.8% in the third quarter

    Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American.

    More than 40% of borrowers who took out a mortgage in 2006 -- when home prices peaked -- are under water. Prices have dropped so much in some parts of the U.S. that some borrowers who took out loans more than five years ago owe more than their home's value.

    Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home's value.

    Andrew Lunsford put 20% down when he bought his home in Las Vegas for $530,000 in 2004. Now, he said, his home was worth less than $300,000.

    "I'm to the point where I feel I will never get my head above water," said Mr. Lunsford, a retired state trooper who works for an insurance company. He said his bank won't modify his loan because he can afford his payments, and he's unwilling to walk away, he said: "We're too honest."

    Borrowers with negative equity are more likely to default if they live in a state where the bank can't pursue their assets in court, according to a study by the Federal Reserve Bank of Richmond.

    But borrowers who are less than 20% under water are likely to maintain their mortgage if their loan is modified and the payments reduced, said Sanjiv Das, head of Citigroup's mortgage unit. "Beyond 120%, the most effective modification is a complete loan restructuring, including a principal reduction."

    Mortgage companies have been reluctant to reduce mortgage principal over worries about "moral contagion, with people not paying their mortgage or redefaulting because they believed the bank would reduce their principal," Mr. Das said.

    Many borrowers are so deeply under water that they can't take advantage of lower rates and refinance their mortgage. "We're declining hundreds of loans each month," said Steve Walsh, a mortgage broker in Scottsdale, Ariz. "The only way we will make headway is if we allow for a streamlined refinance where the appraisal is irrelevant."

    Realtors reported that home sales in October were up 24% from a year earlier. The number of homes listed for sale nationwide was 3.57 million at the end of October, down 3.7% from a month earlier, the trade group said. But that inventory could rebound next year as banks acquire more homes through foreclosure.

    About 7.5 million households were 30 days or more behind on their mortgage payments or in foreclosure at the end of September, according to the Mortgage Bankers Association. Many of those homes will be lost to foreclosure, adding to the supply of homes for sale.

    A recovery could pay off for the roughly 30% of underwater borrowers who owe 110% or less of their home's value and are able to endure the slump. "Most people prefer to stay in their home" even if the value of their property has declined, said John Burns, a real-estate consultant based in Irvine, Calif.

    —Nick Timiraos contributed to this article.

What Is Mega First Doing?

I had posted some postings on companies dabbling in the share market.

  1. Regarding CSC Steel'sCurrent Earnings And Its Investments In Marketable Securities
  2. Apollo Food's'Investments' In The Share Market
  3. Listed Companies Investments: Yung Kong Galvanised Steel
  4. Maybulk Had 'Investment' Losses Of Over 62 Million!
  5. Why Is Maybulk So Active In the Share Market?
  6. Again On Yung Kong Galvanised Steel's Quoted Investments
  7. A Look At How Apollo Food Holdings Dabble In The Share Market

I was just reading Mega First earnings just now.



I then looked at what the company said in its notes.


WOW! Look at the amount of money Mega First made from the gain of disposal of quoted investments!

I then looked at the cash flow statement.


WOW!

Mega First spend some 258.422 million purchasing 'quoted shares'?????

Holy cow!

And as usual, there is no disclosure on what's happening!

Under section B7 of its notes.



How?

I am lost for words.

Is Mega First Malaysia's super trading or investing company ?????

A New Look At Fima Corporation

Wrote the following back in 2008: Should The Investor Take The Safer Approach?

Like to highlight the following passages..

===>>>

Now, present day, the Edge Weekly has an article on Fima Corp.

  • Fima Corp Bhd is jumping on the plantation bandwagon by purchasing a slice of a small Indonesian palm oil outfit. In a statement on Jan 27, Fima said it will pay RM13 million for a 32.5% stake in PT Nunukan Jaya Lestari in East Kalimantan. This is part of a plan to diversify its earnings base. read more.... (link is broken. Can't help it)

How?

Ok, an investment of 13 million is not a lot... but... here is my cow question... don't you really think that this company management, after achieving its recent success, has started to think way too big? Don't you think the company is really starting to lose focus? Diversification into palm oil???


How? Is this the 'something wrong before it drops'? Or should we want to continue the wait-and-see approach?

or... ahem... should the investor take SAFER approach... ?

<===>

FimaCorp announced its earnings last night.

Before I clicked on the announcement, I was thinking out loud to myself. What do I expect? What do I want to expect from the company announcement?

I was sceptical about the diversification into palm oil. Did not like it and in fact, I always hate to see our local companies diversifying too much. For I had always preferred to see out companies concentrate on doing what they do best. FimaCorp was making great money in printing of security and confidential documents for the government. It was their niche. That's what they do best and to see them diversifying into palm oil (just because of a booming palm oil business in 2008) did not excite me too much.

Let's look at some 'recent' earnings.

Aug 2008: Quarterly rpt on consolidated results for the financial period ended 30/6/2008. FimaCorp made 14.006 million.

Nov 2008: Quarterly rpt on consolidated results for the financial period ended 30/9/2008. FimaCorp's earnings dropped to 7.952 million.

Feb 2009: Quarterly rpt on consolidated results for the financial period ended 31/12/2008. FimaCorp made 9.162 million.

May 2009: Quarterly rpt on consolidated results for the financial period ended 31/3/2009. FimaCorp made 26.010 million!

Aug 2009:
Quarterly rpt on consolidated results for the financial period ended 30/6/2009. FimaCorp made 15.334 million.

Here's last night earnings.





Not as impressive but this FimaCorp is a different FimaCorp then what I was looking at when I wrote
Should The Investor Take The Safer Approach?

Compare the quarterly tables posted here and do compare recent dividends paid.

Yet again, another post which I needed to make to put the record out straight. Yes, indeed the gamble for FimaCorp to venture into palm oil has paid off!

Here's screen shot of its balance sheet.








Ah yes, FimaCorp is no longer a net cash company with no debts and FimaCorp total borrowings amount to 43.144 million.

And here is the screen shot of FimaCorp's business segmentals.



Oh this again is not an early morning tipsy! Since I am no financial expert and since I am such a flawed one, I surely cannot guarantee that you will lose money if you decide to buy based on my posting and just for the record, FimaCorp last traded at 3.23.


Monday, November 23, 2009

Regarding Texchem Resources

Comments on Texchem Resources?

I do have some archive news on this company. Perhaps it could offer you a different perspective on what kind of company you are looking at.

25th May 2007:
Two Divisions to Drive Texchem

Big plans mentioned. I was more interested in the last line.


  • For the first quarter ended March 31, the food division registered an operating loss of RM400,000, while its revenue of RM63.8mil was a 12.5% fall from the previous corresponding quarter.

Let's use that quarterly earnings as a marker.

Quarterly rpt on consolidated results for the financial period ended 31/3/2007. Total losses were 889k. Cash 48.457 million. Total debts 304.463 million.

7th Aug 2007. Texchem Eyes Bigger Indonesian Mart Share

  • TEXCHEM Resources Bhd wants to double its mosquito coil market share in Indonesia to 30 per cent in five years.

    The company, which makes household insecticide products under the Fumakilla brand, wants to have a bigger slice of Indonesia's market, which is eight times bigger than Malaysia's

9th Aug 2007 Quarterly rpt on consolidated results for the financial period ended 30/6/2007. Company made 6.566 million from a revenue of 306.676 million.

Texchem Divisions¡¯ Reduced Sales with the Exception of Food

  • PENANG: Texchem Resources Bhd’s net profit doubled to RM6.57 million in the second quarter ended June 30, 2007 from RM3.22 million a year earlier mainly due to an exceptional gain of RM6.2 million from the disposal of Texchem Consumers Sdn Bhd.

    Revenue fell to RM306.08 million from RM323.03 million mainly due to the disposal of TCSB and lower sales volume achieved by the family care, packaging and industrial divisions, which were mitigated by higher sales from the food division...

If you minus out that exceptional gain of 6.2 million, there is not much profits left for the quarter.

27th December 2007, RHB Research iniated coverage.

  • Texchem Resources
    An Attractive Dividend Yielding Stock

    Share price : RM1.29
    Fair Value : RM1.37
    Recom : Market Perform (Initiate Coverage)

    ...Initiate with Market Perform recommendation. We value Texchem at RM1.37/share, based on a target CY08 PER of 14.5x. Together with our projected 2008 dividend per share of 12 sen, this suggests a potential total shareholder’s return of 15.5%, which is roughly in line with our projected return for the market. Hence, we are initiating coverage on Texchem with a Market Perform recommendation.

Always felt unease with such a recommendation. Share price was rm1.29 and they felt fair value is around 1.37. Not much upside, yes? But they justify it by saying that this is a dividend play. Let's keep watch on this issue.

Jan 14th 2008: Texchem set to make strong recovery in earnings

  • Texchem set to make strong recovery in earnings

    By LEONG HUNG YEE

    PETALING JAYA: Shares of Texchem Resources Bhd extended their gains on follow-through interest on Friday.

    The counter closed marginally higher at RM1.28 and a breath away from its three-month high of RM1.32 recorded on Dec 27.

    Analysts said the counter was clearly on the radar of investors as reflected in its price movement and trading volume over the past few months.

    Rating agency Standard & Poor’s (S&P) has a buy call on the stock with a 12-month target price of RM1.45.

    It said the company was poised for a recovery in earnings going into 2008 after overcoming operational difficulties that culminated in a net loss of RM900,000 in the first quarter (Q1’07), its first since Q1’04.

    “We are forecasting Texchem to report net profits of RM13.1mil and RM11.2mil in 2007 and 2008, respectively, driven by a stronger performance at its packaging division coupled with the ongoing recovery at its food division.

    “Excluding the exceptional gain recorded during Q2 '07, recurring net profit is expected to jump 62% year-on-year (y-o-y),” said the agency.

    S&P said the company was attractive for its strong dividend track record and gross yield of 7.8%.


    It added that Texchem had managed to bring its net gearing down to 112% at end-September 2007 from 140% at end-2006, although financing costs remained high and were a drag on profitability.

    RHB Research projected Texchem’s earnings to rebound this year on account of better operating results from the family care and food divisions as well as lower finance costs as the company gradually pared down its borrowing levels.

    The research house recommended a hold at RM1.29, valuing the share at RM1.37 based on a target calendar year 2007 price-earnings ratio of 14.5 times.

Eh? Eh? RHB coverage was a market perform, no?

22nd Jan 2008: Texchem to expand this year

  • ... “By 2010, the food division could be expected to generate 30% of group revenue,” he said.

    Texchem is also allocating RM7mil to set up seven Sushi King outlets this year in Kota Kinabalu, Miri, Bintulu and in the Klang Valley.

    Two new Sushi King outlets were opened in Kuching earlier this month, bringing the total number of outlets in the country to 43....
Feb 2008: Quarterly rpt on consolidated results for the financial period ended 31/12/2007. Texchem made 8.601 million from a sales revenue of 327.192 million. The earnings margin are rather razor thin, yes? (some do prefer to invest in companies that have a profit margins above 20%)

On Business Times (link lost)


  • Industrial, food units boost Texchem Res pre-tax

    Published: 2008/02/22

    TEXCHEM Resources Bhd saw its pre-tax profit rise to RM29.735 million in its financial year ended December 31, 2007 from RM22.537 million in 2006.

    This, it said yesterday, was due to the improved performance of its industrial and food divisions, which offset the lower profits of the packaging and family care segment.

    In a statement to Bursa Malaysia, the group said included in the higher pre-tax profit was an exceptional gain of RM6.2 million from the sale of Texchem Consumers Sdn Bhd (TCSB).

    However, its full-year revenue dropped slightly to RM1.258 billion from RM1.267 billion before, due to the sale of TCSB and the lower revenue recorded by the packaging division.

    Although the group remains optimistic for this year, it said it is mindful of a potential slowdown in the global economy which could have an impact on its performance.

    In a separate note to the bourse, the group said it plans to buy a 21 per cent in PT Technopia Jakarta from Texchem Corp Sdn Bhd for RM5.903 million cash.

    It felt this will enable the expansion of its family care division as well as consolidation of the future earnings of the Indonesian-based firm, and increase direct penetration into the mosquito coils market there.

    “With a huge population of about 235 million people, Texchem Resources sees great potential in the mosquito coils and household insecticide products market in Indonesia.

    “The proposed acquisition therefore represents further steps towards achieving the group’s vision to be the top player in the household insecticides industry in Asean by 2010,” it said. — Bernama

8th March 2008: Texchem targets RM3.2b revenue by 2013

Oo.. I always get sceptical when company boasts out loud to the local media about their revenue targets or revenue growth. Why? Most important is the bottom line, the net profit. One can have all the glittering revenue growth but if it is not accompanied by net profit growth, it all counts for nothing. Anyway as per the earlier quarterly earnings report, we saw that Texchem net earnings were 17.915 million for fy 2007. Note the figure is boosted by extraordinary gain of 6.2 million.

10th March 2008, on the Edge (link lost)

  • 10-03-2008: Texchem confident of sustainable dividend payout till 2011
    by Yantoultra Ngui Yichen

    KUALA LUMPUR: Packaging, industrial, food and households products group Texchem Resources Bhd is confident of an annual 12% dividend payout until 2011 on the back of its aggressive expansion plans.

    Texchem, which is controlled by Japanese businessman Tan Sri Fumihiko Konishi and was listed on the local bourse in 1993, paid dividends as high as 20% in 1999 and 2000.

    Konishi, 63, the group’s chairman and chief executive officer, said Texchem’s philosophy was to grow without asking any money from its shareholders, and only pay out dividend annually. It has not proposed any right issues since its listing.

    Texchem, whose belt includes Sushi King and Fumakilla, aims to achieve a RM1.5 billion turnover and RM30 million pre-tax profit in its current fiscal year ending Dec 31, 2008 (FY08), riding on its new expansion plans, which might include some mergers and acquisitions (M&A).

    Konishi said the group planned to expand its food division in the country as well as in Myammar via M&A as it had seen more sustainability in the food industry throughout its experience in the sector.

    “There are about four (in talks on possible M&A) in the pipeline,” he told reporters after Texchem’s analysts briefing last Friday.

    The group’s net profit for FY07 rose 8.95% to RM17.91 million from RM16.31 million in FY06 due to improvements in operational performance of its industrial, packaging and food divisions despite the disposal of its subsidiary Texchem Consumer Sdn Bhd. Its revenue hit RM1.26 billion while pre-tax profit was RM29.74 million.

    Konishi said Texchem also aimed to expand the number of its Sushi King restaurants to 50 from 44 at present by the end of the year.

    On its household division, he said the group planned to venture into new markets like Bangladesh and the Philippines by exploring the possibility of setting up household insecticide manufacturing plants in both countries.

    “We will allocate some RM70 million for our expansion plan and expect our overseas revenue contribution to reach 50% (from 35% in FY07) soon (in the next five years),” he said.

    Konishi added that Texchem expected its revenue to hit RM3.2 billion turnover and RM100 million in pre-tax profit in 2013 and it targeted to be a RM5 billion (revenue) company by 2020, with pre-tax profit of about RM200 million.

    Meanwhile, Konishi said Texchem would increase investments in existing markets like Vietnam, Thailand and China as well as develop more venture businesses within each division.

Rather inaccurate the article. See the comments in red. It said "The group’s net profit for FY07 rose 8.95% to RM17.91 million from RM16.31 million in FY06". Well if one minus out the 6.2 million from rm17.91 million to the disposal, then Texchem fared much poorly in fy 2007 when compared to what it did in fy 2006.

May 2008: Quarterly rpt on consolidated results for the financial period ended 31/3/2008. Revenue did increase but Texchem net profits only 1.059 million!

5th July 2008, on Business Times. (link lost)

  • Texchem: EU ban eating up revenue

    By Marina Emmanuel Published: 2008/07/05

    TEXCHEM Resources Bhd's (TRB) associate company Seapack Food Sdn Bhd has seen a 70 per cent production drop since the suspension of Malaysian seafood exports to the European Union (EU).

    TRB chairman and chief executive officer Tan Sri Fumihiko Konishi said Seapack is expected to register monthly revenue losses of RM3 million until such time as the suspension is lifted.

    "Our monthly production output now stands at 200 tonnes and we hope the authorities will act quickly in resolving the situation," he told reporters after an extraordinary general meeting in Penang yesterday.

    Konishi said the EU accounts for 70 per cent of Seapack's exports and the company has been forced to restructure and reduce its workforce from 300 to 80 last month due to the drop in business.

    "We are now concentrating on the domestic market and also regional ones," he said, adding that exports now include cleaned and re-sized squid and cuttlefish, along with value-added products such as sashimi squid and also surimi items.

    Malaysia last month temporarily stopped seafood exports to the EU following threats of a total ban after checks on local fisheries revealed lacking health standards.

    The EU has threatened a total ban on Malaysian seafood following random checks in April on nine companies exporting fishery products which were found lacking in health standards and practices.

    Industry experts had predicted that Malaysia is set to lose more than RM11 billion during the three-month wait for the suspension to be lifted.

    Konishi said the latest development will not affect the operations of TRB's seafood processing company Sea Master Trading company Sdn Bhd which has 280 people on its payroll.

    "Fortunately, we moved fast enough to step up our exports to China and Japan since we are unable to do so to EU countries for now," he said.

    South Korea and Taiwan are also the company's other export markets where prawns, squid, cuttlefish, deboned fish and processed jellyfish are sold.

    TRB's food division currently contributes 29 per cent to group revenue.

    "Since our food division is viewed by TRB as its rising star," Konishi said, "we will continue to invest in this division. For this year, we will invest RM15 million to upgrade our facilities for the food division locally and overseas".

    Konishi also said that several new projects for the division are currently in the pipeline to expand the food business in Malaysia and abroad.

31st July 2008: Quarterly rpt on consolidated results for the financial period ended 30/6/2008. Net earnings only 468k!

Oh the dividends issue.

31st July 2008: Interim Dividend. Interim Dividend of 6% less 26% Malaysian tax

15th December 2008: Second interim dividend Second Interim Dividend of 4% less 25% Malaysian tax

On 17th December 2008:

  • RAM downgrades Texchem debt issue

    Published: 2008/12/17

    RAM Ratings has revised the outlook on the long-term rating of Texchem Resources Bhd's RM100 million Commercial Papers/Medium Term Notes Programme (2005/2012) (CP/MTN) from stable to negative.

    The CP/MTN is currently rated "A3/P2".

    In a statement, Rating Agency Malaysia Bhd (RAM) said the negative outlook reflects concerns about the increased prospects of lower sales and profit margins for Texchem amid the difficult operating environment.

    "Texchem's overall performance during the nine-month period ended September 30 2008 was below expectations, with narrower profit margins following the distribution issues faced by its family-care division and also the weaker showing of its packaging segment, which had been affected by stiff competition and pricing pressures," it said.

    Despite higher revenue, the group's operating profit margin eased to 1.4 per cent for the nine months, from 1.72 per cent previously.

Feb 2009. Quarterly rpt on consolidated results for the financial period ended 31/12/2008. Texchem lost 3.98 million!

May 2009: Quarterly rpt on consolidated results for the financial period ended 31/3/2009. Texchem lost 9.232 million!!!!

  • Texchem records RM9.2m net loss in 1Q
    Written by Financial Daily
    Wednesday, 06 May 2009 10:50

    KUALA LIMPUR: Texchem Resources Bhd recorded a net loss of RM9.2 million in the first quarter ended March 31, 2009 (1QFY09), compared with a net profit of RM1.1 million a year earlier, mainly due to the impact of the global economic downturn.

    Revenue fell 30% to RM242.8 million from RM347.1 million mainly due to a drop in demand for industrial, packaging and food products, despite its family care division having achieved higher sales via its Indonesian subsidiary that was acquired on April 18 last year. No dividend was declared.

    Texchem said yesterday the diversified group expected its business environment to remain challenging, and would continue to adopt a prudent approach towards capital expenditure while focusing on managing its trade receivables, inventories and operating cash flows to improve liquidity during this difficult period.


    This article appeared in The Edge Financial Daily, May 6, 2009.

July 2009: Interim Dividend Interim Dividend of 3% less 25% Malaysian tax

Ooo... interim dividend halved! This is what one has to be extremely careful. Dividends are not constant. Yes, they can increase in time (and this usually co-incides with better earnings performances) but they also can be decreased!

Oct 2009: Quarterly rpt on consolidated results for the financial period ended 30/9/2009. Texchem made 1.05 million. Recovery?Not much clues given in its earnings notes.

  • The Group’s revenue for the current quarter was RM318.4 million, a decrease of 22% compared to RM406.2 million reported in corresponding quarter last year. The lower revenue was mainly due to the on-going global recession which had adversely affected turnover in the Industrial, Packaging and Food Divisions.

    As a result, the Group generated a slightly lower pre-tax profit of RM2.7 million against the corresponding quarter of RM3.0 million.

Texchem today trades at 96 sen.

Sunday, November 22, 2009

Jon Stewart: Things To Thanks For?




Saturday, November 21, 2009

A Good Long Look At Mieco Chipboard Again

I have written many a times on Mieco Chipboard before. ( Here is the link to the past articles that I had written before: click link here )

Today I try something new.

Yeah, most know that iCapital is a huge fanboy of the stock. So what I will do is make a new posting based on what iCapital wrote back in 2007.

I will mark in dark blue font as what I think as significant.

  • Mieco Chipboard (Mieco, 5001)

    [Updated on 02/07/2007 07:49:00]

    Principal activities: Manufacturing and sale of chipboards and other related products.
    Major shareholders: Bandar Raya Developments Berhad, Lembaga Tabung Haji.

    This week, i Capital updates Mieco. A quick recapitulation. Mieco is one of the two largest particleboard manufacturers in the Asia-Pacific region. Mieco offers a wide range of plain and value-added products, including decorative melamine faced chipboard (MFC), decorative electron beam foil chipboard (EBFC), decorative polymer faced chipboard (PFC), worktop, direct post form (DPF) board, laminated flooring, and ‘Do-It-Yourself’ (DIY) type of furniture, which are sold under its ‘MIECO Livin Style’ brand.

    Sales
    Half of Mieco’s output is sold locally, while the remaining half goes to over 20 countries, including China, Taiwan, Japan, Korea, Hong Kong, South East Asia, the Indian subcontinent, the Middle East, Africa and the Australasian countries, with China remaining as its main export market. Mieco’s export markets mainly take plain boards, which give the group a margin of around 11-14%. In contrast, the domestic market takes both plain and value-added boards, such as MFC and PFC. Value added boards give better margins, around 8-10 percentage points higher than that of plain boards. Since domestic sales give a better margin, domestic sales constitute, in monetary terms, around 80% of the group’s total sales – see table 1.

    Update on its latest plant located in Kechau Tui, Pahang
    Mieco’s first and second particleboard lines, both located in Semambu, Kuantan, were respectively commissioned in 1976 and 1990. In 1995, the group installed a third production line in Gebeng, Kuantan. These production lines all together gave the group a total annual production capacity of around 300,000 cu m. Mieco had its new plant, which is located in Kechau Tui, Pahang, commissioned in Mar 05, and the near RM400 mln investment gives the group an additional yearly production capacity of 640,000 cu m, bringing the group’s total annual production capacity to 940,000 cu m. The new plant produces only plain boards. While older plants are running at full capacity, the new plant is currently running at around 70% of installed capacity.

    By the end of the year, the group will increase its capacity utilisation rate to 75%, without incurring any additional capital expenditure. In 2008, with an additional capital expenditure of RM40 mln to upgrade the group’s press line, the group will be able to run at full capacity in the beginning of 2009.

    Performance analysis

    While Mieco’s sales have been improving, the percentage of revenue that goes to the group’s earnings before interest, tax, depreciation and amortisation (EBITDA) has been on a declining trend, and the decline was accentuated when the group started running its new plant in 2005 – see figure 1. The main reason for the decline in profitability was the rising cost of raw materials. In 2006 alone, wood cost rose 48%. Cumulatively, over the past 5 years, costs of glue and wood have increased 56% and 129% respectively. Also, in 2005, as a result of low selling prices, the group’s sales, grew only 10% from 2004. This also contributed to the group’s lower profitability level in 2005.

    Particleboard selling prices plunged in 2005. The plunge was caused by regional industry-wide particleboard production capacity expansion. Similarly, Mieco was also one of those that embarked on an expansion process. Figure 2 shows the sales and EBITDA margin of Vanachai, which is the other large particleboard manufacturer in the Asia Pacific region. Similar to Mieco, which expanded its original capacity by more than double in 2005, Vanachai expanded its annual production capacity significantly from 498,000 cu m to near 948,000 cu m in 2004. Around the same time, other main particleboard players in Thailand had also significantly increased their production capacity. It has to be noted that Vanachai’s business model is different from Mieco’s, that is, besides manufacturing particleboard, its core operations comprise medium density fibreboard (MDF) manufacturing. Thus, compared with Mieco, Vanachai shows much a higher sales value and EBITDA margin.

    As demand did not pick up as fast as the capacity expansion, Mieco made a net loss of around RM8 mln in 2005 compared with a profit of RM30 mln in 2004. However, these trends did not apply only to Mieco, but to the particleboard industry as a whole. As such, industry players experienced significant squeezes in their margins, and plunging profitability, despite rising sales, which were mainly due to increased sales volume. Both figures 1 and 2 represent the trend that had been experienced by the industry players.

    However, things are turning around. Demand has been picking up quite well, and is thus, stabilising and improving selling prices. Besides, increasing demand particularly in Asia and Europe is expected to boost the group’s capacity utilisation rate. Rebounding demand from Europe would further improve particleboard prices and is also expected to lower the supply coming in from that region. Demand from Asia remains strong. Also, Mieco has successfully expanded its existing markets and entered into new markets such as India and the Middle East. In the longer-term, improving capacity utilisation and particleboard prices are expected to improve the group’s sales, and thus its bottom line. In the shorter-term, however, the situation is not expected to be all that positive.

    The reason is that while particleboard prices are improving, the Korean government has come up with a policy, stating that each person is allowed to own only one house in Korea. This has reduced the demand for particleboard from that country. Korea is one of Thailand’s main particleboard buyers. As such a policy has reduced the demand for particleboard from Thailand, manufacturers in Thailand have dumped their products in Malaysia, lowering particleboard selling prices. Currently, particleboard prices are softening and are hovering around RM125 per cu m. Such a situation is expected to continue for another few months, as the Thai manufacturers continue to dump their particleboard over to Malaysia. However, particleboard prices are expected to pick up towards the end of the year, as sales volumes are always stronger in Q3 and Q4.

    Q1 07 Results
    Compared with Q1 06, the group’s revenue in Q1 07 improved by around 40% from RM68 mln to RM95 mln, due to higher selling prices and higher sales volume. However, its EBITDA hardly changed. Compared with Q4 06, the group’s sales improved by 11% but its EBITDA declined 11%. Comparing Q1 07’s results with that of Q1 06 would give a more accurate picture of the group’s performance, as in this industry (being a cyclical one), sales are usually at their lowest in the first quarter, and will then pick up in the third and fourth quarters. In terms of loss per share, Mieco made a loss of 6 sen in Q1 07, a significant improvement compared with a loss of 43 sen in Q106.

    Although selling prices are expected to soften further in the coming months, the group has been working very hard to improve its production efficiency. A thermo plant, which is expected to be set up soon, is expected to give the group annual savings of around RM3-4 mln. Besides, the group’s effort in increasing its capacity utilisation rate will reduce its fixed cost per unit of production, contributing positively to the group’s bottom line.

    Rise in raw material costs tapering off
    Another good news for the industry is that the rising cost of resin and wood is tapering off. In the shorter term, the impact of the softening particleboard prices is expected to be cushioned by tapering raw material costs.

    As part of Mieco’s cost saving measures, Mieco will involve itself in reforestation soon. Mieco was granted an area of 10,000 acres. Also, Mieco managed to secure log supply from a total area of around 2,653 acres from FELDA’s rubber replanting area.

    Conclusion & Advice

    At RM1.02 and including its 100 mln warrants, Mieco is capitalised at around RM247.2 mln. For this, what do investors get in return ?

    Compared with Mieco’s market capitalisation prior to its expansion in 2005 of around RM317 mln to its current market capitalisation of RM247.2 mln, has the near RM400 mln investment added no value to the group? The investment has equipped the group with an additional yearly production capacity of 640,000 cu m, and prepared the group to reap the benefits from the rising demand for particleboard in the region. Also, the new plant has given the group a firmer foothold in the industry.

    As expected, recovering particleboard prices have contributed positively to the group’s top and bottom lines, and this trend is expected to continue in the longer-term. While in the near term prices are expected to soften further and lower the group’s margin and thus, its profitability, such a development is expected to be partly offset by the group’s efforts in improving its production efficiency. Despite the group taking up some debts to finance its new particleboard production line, improving profitability along with the contribution from improving prices and demand will enable the group to pay off its loans in a few years time. Based on the positive prospects of the industry as a whole, and together with Mieco’s prudent management, i Capital retains its longer-term buy rating for Mieco Chipboard.

    Disclosure of interests (required by the Securities Industry Act): The publisher and associates have an interest in Mieco Chipboard.

Here's my interpretation.

First and most important issue is the vested interest issue. When one has vested interest, how could one NOT have anything positive to say? Yes?

Now the first few bold blue lines.

Declining selling price coupled with rising raw material cost.

In regardless of what company, who is managing the company, who owns the company or who is recommending the stock, how would you interpret that? How would I?

This for me sounds like a real tough industry to be in. (remember Warren Buffett's famous investment advice on such business?)

And not helping at all is Mieco had decided to built a state-of-the-art plant costing some 400 million in 2005 when the tough time hit. One can call it bad timing or one can call it bad luck but fact remains is that Mieco built an extremely expensive plant when the economics of the particle business turned really bad.

400 million plant, plunging selling price and rising cost price simply equated to bad business.

So back in July 2007, iCapital suggested a buy. It said things are turning around. And they used the following reasoning.

  • Compared with Mieco’s market capitalisation prior to its expansion in 2005 of around RM317 mln to its current market capitalisation of RM247.2 mln, has the near RM400 mln investment added no value to the group?

Firstly, let me say that, in my flawed opinion, what iCapital is doing here is rather risky.

It valued Mieco via market capitalisation. Valuing by market capitalisation is based ultimately on the stock price. Which is saying that the market is valuing the stock correctly and if one is in the game long enogh, one would understand the risk involved in making such a statement. Why? Any given stock can go up on any given Sunday and more often than not, in our local markets, fundamental reasoning and valuation do get dumped into the drain and stocks go flying without wings!

So is the market valuing the stock correctly back in 2005?

Or is the market valuing the stock wrongly back in 2007?

Before I attempt to answer those two questions, let's do a simple review.

Let's look at Mieco's earnings back in 2003.

Back in 2003, Mieco was a solid company. 180+ million and no debts. Growth is there too! ( Do refer this earnings report: Quarterly rpt on consolidated results for the financial period ended 30/6/2003. )

Aug 2005. Quarterly rpt on consolidated results for the financial period ended 30/6/2005. Mieco earnings is only 120k.

Aug 2005: Bandar Raya Bhd, who owns Mieco, "proposed a capital repayment which would be satisfied by the distribution of up to 119.1 million shares in Mieco on the basis of one Mieco share for every four BRDB share."

Not sounding good when the owner announces that they want to dispose Mieco shares!

Nov 2005. Quarterly rpt on consolidated results for the financial period ended 30/9/2005. Mieco is now losing money! Mieco posted a net loss of 3.742 million! Cash in its piggy bank is now only 16.883 million! Total loans stood at 210.849 million.

July 2007, iCapital wrote on Mieco.

Aug 2007. Quarterly rpt on consolidated results for the financial period ended 30/6/2007 Mieco losses increased to 6.075 million! Cash balances has now shrunk to 14 million. Total loans stood at 243.514 million!

How? Earnings went from profit growth to worsening losses. Balance sheet deteriorated. Cash shrank. Loans increased.

So if the market in 2007, values Mieco lowly, wasn't it justifiable?

Perhaps it would be better if I understand the business economics of the company, yes?

It was a business which had bad business economics, in which average selling prices of the product were falling and raw materials costs were increasing! Does this sound like a good business to invest in?

Or should I attempt to value a business in a difficult business environment?

And so Mieco had a 400 million new plant. But just what's the use? Correct or not? Mieco could have the the state of art plant and Mieco could have the best management but if the business economics is not there, what's the use?

( Coincidently see this posting S&P has a Strong Buy on Mieco Chipbaord!. I was bemused. )

Anyway, let's see how Mieco fared since then.

Jan 2008. Bandar Raya to reconsider disposal of Mieco. They tried it in Aug 2005. They failed. Now they try again! No joke. (ps: the Star business link still works. :D )

  • But Jagan stressed that BDRB's plan to dispose off its stake in Mieco had “nothing to do with the chipboard maker's performance.”
    He believes Mieco would bounce back to the levels of its heydays. “The glut in the industry will subside when the supply of hardwood gets scarce,” he said. Also, he pointed out that the increasing environmental awareness would lead to a growing demand for chipboard, which is more environment-friendly.

May 2008: Quarterly rpt on consolidated results for the financial period ended 31/3/2008. Mieco lost money again. Losses totals 3.339 million.

Feb 2009: Quarterly rpt on consolidated results for the financial period ended 31/12/2008. Mieco lost some 14.5 million. Losses were compounded by the fact that they lost some rm5.9 million from disposal of plant and equipment.

May 2009: Quarterly rpt on consolidated results for the financial period ended 31/3/2009. Mieco lost some 22 million! Cash balances only left some 10 million. Total loans stood at 196.567 million.

July 2009: Bandar Raya continues to attempt to sell Mieco. LOL! Link to Business Times article titled 'BRDB bullish on Mieco but welcomes suitors' is broken.

Aug 2009: Did Mieco Chipboard Have A Turnaround??

Nov 2009, yesterday. Mieco announced its earnings. It lost 1.574 million. Cash is now only 6.221 million. Total loans is now 177.792 million.

Did you see the line 'Amount due to holding company' under 'Non-current liabilities' in the balance sheet?

Yeah, Mieco now owes Bandar Raya some 35.3 million!

Isn't it so clear why Bandar Raya had been trying to dispose Mieco since 2005?

Consider that fact.

If the holding company doesn't want, why would you want?

---------------------------------------------------------

Here's the business times article.

  • BRDB bullish on Mieco but welcomes suitors

    Ooi Tee Ching Published: 2009/07/07

    Mieco is an attractive bride, but Bandar Raya Developments, as a parent, is very choosy of prospective suitors for Mieco, says Mieco chairman

    Property developer Bandar Raya Developments Bhd (BRDB) (1473) is optimistic of prospects for subsidiary Mieco Chipboard Bhd, but may sell the chipboard maker if there is a good enough offer.

    "Mieco is an attractive bride and is never short of dates. She has always had suitors and is frequently courted. It is just that BRDB, as a parent, is very choosy of prospective suitors for Mieco," Mieco chairman Datuk Mohamed Moiz JM Ali Moiz told Business Times in an interview in Kuala Lumpur.

    He disagreed with the view that furniture manufacturing was a sunset industry.

    "Furniture is a necessity, be it in a residential, commercial or industrial setting. This industry has legs to see through the tough times. We remain optimistic of the long-term prospects," he said.

    Last year, Mieco posted losses of RM36.3 million. It continued to lose money in the first quarter of this year. Mohamed Moiz admitted that it would be tough for Mieco to make money this year.

    However, the group has been cutting costs.

    "Mieco's monthly output used to be around 50,000 sq ft, but it has now dwindled to 15,000 sq ft. We have had to let go of 166 employees and close down the Hong Kong office.

    "In November 2008 we closed our plant in Kechau Tui (in Pahang), but this is temporary. Basically, we've done what we have to do. We've centralised marketing activities to Kuantan," Mohamed Moiz said.

    Mieco also has a total debt of RM150 million, but the chairman stressed that the chipboard maker was not defaulting.

    "Given the current weakness in global demand for chipboard, we need to take pre-emptive action with the banks. We're re-scheduling the loan repayments to give us some breathing space. We're looking at a two-year-extension. We hope to wrap up talks this month."

    Four years ago, BRDB's plan to demerge its stake in Mieco to BRDB's minority shareholders under a capital repayment exercise failed. Mohamed Moiz explained that property development and chipboard manufacturing were capital-intensive industries.

    "Back in 2005, BRDB directors saw it fit to just focus on property. We needed at least 75 per cent vote from other shareholders. But when it went to count, we didn't get the numbers. So we left it at that," he said.

    Asked if a demerger exercise might be revisited, he replied: "In business anything is possible. It does not necessarily have to be a demerger. We keep our options open.

    "We've been in the chipboard-making business for 35 years. We're in this for the long run."