Saturday, June 26, 2010

Octagon Series: The Fall

Part IV of the Octagon Series:

It's now Jan 2007.

  • Thursday January 18, 2007

    Tyre recycling plant ready soon

    PETALING JAYA: Octagon Consolidated Bhd’s associate company Advanced Pyrotech Sdn Bhd (APT) expects revenue of about US$10mil from its soon-to-be operational RM110mil continuous process pyrolysis plant in Pulau Indah, Selangor in the year ending Dec 31, 2008.

    Octagon executive director Siti Fatimah Mohd Shariff said the revenue would be mainly from a seven-year contract it had secured from a South Korean company....
And how was the company doing? Earnings actually slumped. (Octagon reports its Q4 earnings in Dec, so fy 2006 earnings was announced on Dec 2006)

Now pretty at all, yes?

Earnings now is only 10.262 million and most importantly the company now only have 8.444 million cash and 2.339 in debts.

Recall the following statement..

  • So Octagon had a healthy business but it was flat. No more growth. Having a healthy cash pile was not enough. They want to diversify! This is the bottom line yes?
Management was not satisfied with its healthy but flat business. It went into search for growth!

April 2007.

  • 25-04-2007: Octagon eyes more special purpose coating biz
    By Surin Murugiah & Cheong Yuan

    Octagon Consolidated Bhd is stepping up efforts to further tap the special purpose coating business in the
    local aviation, marine, oil and gas, and infrastructure sectors.

    Its managing director and chief executive officer Mazlan Ali said on April 25 that Octagon would leverage on its extensive expertise in the consumer electronics coating business to diversify into these sectors and venture into the overseas market.....
Moving into oil and gas?

Oct 2007....

  • Octagon bags RM400m Colombo plant job
    By Zaidi Isham Ismail
    October 24 2007

    OCTAGON Consolidated Bhd, a maker of industrial paint,
    has bagged a RM400 million deal to build and operate a RM400 million renewable energy plant in Sri Lanka.

    Octagon managing director and chief executive officer Mazlan Ali said construction is due to start in June next year and will be fully completed by 2009.

    "Once running, the project is expected to impact Octagon's financial performance immediately generating returns to revenue and pre-tax profit in the current and next two financial years (ending October)," Mazlan told reporters in Kuala Lumpur yesterday... ( can see this also:
    Octagon wins RM400m contract in Colombo )
Bagged a 400 million deal to build and operate a renewable energy plant in Sri Lanka?

Come Dec 2007.

Ahem. Cash improved but if you look at the cash flow statement, the increase was from its bank borrowings which exploded to 40.1 million! Receivables exploded to 51.354 million.

Do you remember this statement on when to sell a stock?

  • A stock begins to show decaying fundamentals, such as lower profit margins or lower return on invested capital
Is this decaying fundamentals or is this not decaying fundamentals?

And the search for new business continued. So did the decline in Octagon's fundamentals.

Yessire me! The rest is history. Octagon announced its earnings last night. Here's the compiled table.

Cash is a mere 12.4 million. Debts totals 178.8 million now! Receivables is now 81.378 million!

Imagine when these debts are written off as bad debts! And if one is counting, this should be Octagon's sixth consecutive quarter of losses.

So why did all this happen?

All because the company was not satisfied with the healthy business which had no growth!
Would that be wrong to say?

And needless to say, the stock was an absolute disaster for those who insisted to buy and hold the stock! Octagon last traded at 16.5 sen!

So did buy and hold fail again? No. Absolutely not. The Buy strategy would have given the perspective investor a decent reason to invest in the stock in Sep 2003. However, the events after that and the fact the stock flew up, up and away soon after, the investor had ample time to quit the stock with a real handsome profit.

And the decline in the stock fundamentals did not just happen over night. There were so many justification for the investor to SELL!


  1. Octagon Series: The Rise
  2. Octagon Series: A New Octagon
  3. Octagon Series: Failed Plans And New Plans
  4. Octagon Series: The Fall