Thursday, October 28, 2010

MaeMode's Earnings, Receivables And Using Loans To Grow Its Business

Since I made the following posting last month, MaeMode Wants Your Money Again! , I was interested to glance thru MaeMode's earnings notes when it reported its earnings last night.

It wasn't pretty.



It made 852 thousand (yes thousand) for the quarter! That's almost non existent earnings. And with total debts close to 328 million, go figure!

And the amazing thing was the trade receivables rose to a mind boggling 353.212 million!!!!!!

For its fiscal year 2005, its receivables was 84 million. By end fiscal year 2010, its receivables has ballooned to an insane 340 million. It took just 5 fiscal years for the loans to increase 255 million! The receivables grew at an annual compounded rate of 32.2%!!!! Holy cow!

And here's the logical question that needed to be asked.

Can these receivables be received? Can these amount of money said to be owed to MaeMode be collected????

If the answer is no, these receivables needed to be accounted for!!!

And the outcome has to be provisional for 'bad' debts.

So how much of the 340 million receivables can be collected? And how much of it is really bad debt?

Perhaps MaeMode should print out its debtors aging for all to see.

And guess what? MaeMode has only some 106.7 million shares. It last traded at 54 sen. The market is only valuing MaeMode at around 58 million only. Compare that to the size of the receivables! :P

And debts have be increased too. Ah... the classical using of debts to grow a business. :P

Consider this. In FY 2002, the company was in a 'boring' position. Sales revenue was only a mere 107 million for the fiscal year. Company was making 8.2 million. Loans were 'manageable' at 75 million. MaeMode had some 56 million in receivables then.

Compare that to what it did last fiscal year.

Sure MaeMode used debts to grew its business. Loans soared to 318 million. What did MaeMode get in return?

Total sales revenue soared to 466 million for its fy 2010.

In Fy 2002, it had total sales revenue of only 107 million.

How?

Comparing just the sales revenue, its clear that MaeMode GREW as a company as its sales revenue quadrupled!

But what's the end result?

For its FY 2010, it earned 6.94 million!!!!!!!!!

!!!!

Earnings actually decreased despite the incredible surge in sales helped by the increase in loans.

And look at the cash/loans position. The receivables.

How?

Using loans to finance one's business???

Oh yeah... perhaps this is the exception. :-)

ps: last month, for its right issue of warrants, MaeMode said "Attractive option to increase their equity participation!" LOL! :P

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2 comments:

Muhammad said...

hi ze moola
can u comment on SP Setia? any impending danger lurking around?

K C said...

A classic case study for MBA students on corporate finance and financial statement analysis. An agency problem of how management enlarges its empire with huge borrowing by increasing revenue by 5 times from 2002 to 2010, with no apparent increase in profit. Profit margin decreased from the already low 7.7% to a pittance of 1.5%. In first quarter 2011, 0.8%! ROE and ROIC not shown in the table but looking at the sales, the loan etc, I guess they will be the most 1 to 2% compared to the cost of capital of say 10%?. Receivables at 340 m and profit only at 6.9m in 2010 (deteriorating in 2011)? In this type of business, many claims of work done are doubtful claims. Usually after finalizing the accounts, much less of these receivables are realized. If 30% of receivables are not “true”, 100m (Vs 6.9m profit) will go down the drain. Scary indeed! But one thing for sure, many retail investors will subscribe to its right issues.