Friday, December 03, 2010

KN Downgrades P&O To A Hold!!

They said the stock was cheap. It was trading only at 3x earnings only.

They said the stock had potential because 'the owner was contemplating a divestment in P&O in a deal that could reap proceeds that were well above P&O’s implied stock market valuations.'

And so with all these 'right' ingredients, the stock flew up, up and away. ( Chart belows shows P&O when the posting, Regarding P&O: The Stock That Flew Into Orbit, was made on 31st July 2010)


The local media added more fuel by publishing the following article. Prudential UK eyes P&O takeover

Since then... the Prudential deal was discontinued without much explanation. ( Here's P&O announcement: Proposed divestment of an equity interest in Pacific & Orient Insurance Co. Bhd. )

And the cheapness in earnings?

KN blasted out loud that P&O could earn some 32.87 million for fy 2010, when the company was sitting on half year losses of 1.4 million. However, it did not based P&O target price based on its earnings estimate of 32.87 million but it based it on fy 2011's earnings estimates of 43.47 million!!!! And KN based the 3x earnings cheapness on that 43.47 million! ( See Regarding P&O: The Stock That Flew Into Orbit , And So P&O Earnings Are Said To Be Inline With Expectations and For which fiscal year did P&O earned more than 30 million? )

P&O reported its Q4 earnings last week. Its 2010 earnings came in at some 21 million.

KN's estimate again? 32.87 million for fy 2010 and 43.47 million for fy 2011.

So naturally, the earnings was way, way below estimates.

Meanwhile the stock....



Ahem...

How?

And not forgetting in the middle of all this.... a 10% private placement was done...

Some 'interesting' comments from KN from its reported dated 1st Dec 2010.

  • Disappointing quarter with full year net profit of RM21.3m (65% of our RM32.9m estimates) due to a huge set back from unexpectedly high effective tax rate of 50% thus dragging group’s performance. During the quarter, the group took a RM8.7m reversal of it’s deferred tax assets that saw DTA down to RM5.8m from 3QFY10 of RM14.5m and hence contributed to higher than expected tax expenses. However, pretax profit of RM42.3m was inline with our forecast of RM43.8m.

Ahem... 65% of our RM32.9 estimates...

  • We are taking conservative stance after a dismal FY10. FY11F is reduced 21% to RM34.6m and 28% for FY12 PAT of RM37.7m as we reduce our premium sales assumption to 6-8% from 15% previously.

Conservative stance? FY2011 is reduced 21% to rm34.6million??!!! LOL!

  • Target price is reduced to RM0.84 (from RM1.15 previously) based on 6x FY11 while recommendation is also reduced to a HOLD from BUY previously. This values the group at 6x revised FY11 EPS of 14.06sen, which is at the low end of the 6-15x 2010/11 PER of Malaysian general insurers.

Target price is reduced to rm 0.84?!! LOL!

Actually, by itself, P&O performance for this year had been incredible. I have to say that. Take a look at the posting For which fiscal year did P&O earned more than 30 million? again.

P&O 2010's earnings of 21.3 million is the best ever performance from then since 2000.

But the way KN declared the cheapness in the stock was really something else.



1 comments:

Simon said...

I still can see some growth on P&O.
Their boss is buying back the stock.

But the failure of take over from PRU, is maybe their offer is not attractive, their boss rather take it and continue the biz.