Friday, January 07, 2011

Belated Comments on Malaysia AE Model (MaeMode)

Received a belated comment on MaeMode:

  • hng said...

    Hi, i've look into your research on Malaysia AE model, which you have highlight its growing receivable and incur high borrowing cost in its balance sheet. Despite Maemode have recent proposed 1 for 3 warrant, but it will only raise less than 500k for its working capital etc..

    I'm agree with your concern on Maemode, but i do understand its business nature in which Maemode once secure project, it have to pay upfront cost and there is no progression billing until the whole project is almost complete or already hit certain portion of the entire project, then only the billing will be kick in.

    That is, Maemode have to borrow its working capital via bank borrowing first, which in accounting, its consider its receivable, which then justify its growing receivables in par with growing borrowing in its balance sheet every time there is new project secure. In short, Maemode business model is unlike conventional, its need to borrowing money as working capital which in turn account these working capital as receivable, then once the project in completed, billing will be make and set off most of the receivables and the balance is its net profit. It is indeed difficult to analyze its balance sheet correctly, as there is keep project coming in which in turn causing its unlikely to pare down its receivable per project.

    I'm on opinion that Maemode recent secure two new project LCCT and Indo coal plant will contribute significantly in its 2011 financial result. Expect its EPS to be above 10sen. Its upcoming warrant 1 for 3 also serve as sweeten if its share price ever back to before 2008, share price was above RM1.00

    Remark: Q1= EPS 0.8sen, Q2 result will be announce by end of these month. Let see whether its subsequently result will boots its earning.

For reference, my past postings on MaeMode can be found here:

4 comments:

solomon said...

I will avoid this on the medium or longer term. however, in a rally, a stock that can profit one is consider good stock.

So, which is more important, u can make money or the company can? Securing new project is good, but if the margin is thin, why risk leh....especially coal investment in that specific country. If one can occupy the Niaga Bank, why make one think they can do it at the coal mine?

I am a lousy analyst....never mind let us have time to see whether these project bear fruit. hng may have the points.

hng said...

Just to clarify, what Maemode secure project is to design, construct and the remedy of defects of the Kariangau 2 x 15 MW Coal Fired Steam Power Plant. These contract works worth RM 105m completed within 24 months.

Another project secure by Maemode is design, supply, delivery to site, installation, testing and commissioning and maintenance of baggage handling system for LCCT. These contract works worth RM 81.8m completed within 20 months.

From my own investment point of view, Maemode should have limited downside risk, and the risk is further cushion from upcoming warrant 1 for 3, 2sen each for 10yr.

solomon said...

Thanks for the point out, Hng, i am wrong on the coal investment which in fact they are taking the PMO role in the project.

if they have the necessary expertise, but strangely as a trading of good and machinery (PTAEMHS).....u think ok? Sorry it just remind me of Zelan venture in Middle East, cost overrun. Or even the hot issues on Sime Engineering cost overrun. Just also consider the forex risk becoz non disclosure on this end. We as the public only know limitedly and often sandwich as SUBWAY and being takeaway.Why company go overboard over their core competencies?



Happy New Year and wish u luck.

hng said...

Just to clarify with you again, Maemode has capable to design and manufacture its own automated material handing system that customize individual project need. If you like to further detail on its business model, please visit its at www.ae.com.my.