Wednesday, March 09, 2011

What I Think Of KNM's Earnings Guidance

On the Edge Financial Daily: KNM back to earnings guidance mode

'Back' to earnings guidance mode. Yeah. KNM USED to give earnings guide but let's not talk about the past, just yet.

Let's focus on the main issue, which is 'How Much'.

  • KNM’s management had met with analysts earlier in the week and guided earnings before interest, tax, depreciation and amortisation (Ebitda) of RM363 million for its FY11 (ending Dec 31, 2011), while the Ebitda for FY12 is targeted at RM564 million

From KNM's own words, KNM is TELLING everyone that it will earn some EBITDA of rm 363 million for fy 2011 and rm 564 million for fy 2012.

Now because KNM's is telling all the research houses that it will earn so much, naturally the research houses have to base their fair value target projection for KNM based on these high numbers.

Yeah what else can they do but base their reports based on such projections, yes?

Now check this out.

What we do know for now is KNM only earned some 131 million for its fy 2010.
And if we do believe KNM's management, KNM can earn as high as 500 million for its fy 2012!

Now tell me if that's rather optimistic.

And consider the fact, the best KNM ever made was for its fy 2008 earnings. KNM had a net profit of rm 336 million.

So KNM is telling us, the investing public that by 2 years KNM will bring in record profits.

And consider the fact, fy 2010 Q3, KNM earned some 56 million.
Its latest fy 2010 Q4, KNM earned some 20.6 million.

Drastic drop on q-q earnings, yes?

But it doesn't matter KNM says it CAN.

Yes it can. It will earn some 500 million plus in 2 years time!

Can ah?

Now let's look at the BACK issue as mentioned at the start of the posting.

See KNM used to give earnings guidance.

Then it stopped.

Aha... doesn't the inquiry mind wants to recall what happened?

Let's use March 18, 2008. I wrote the following posting: Some Musings on KNM Reports. In that posting, I pointed out that in RHB's report, RHB mentioned the following:
  • Management is giving guidance that FY08-09 net earnings to be around rm450million and rm700 million respectively.


Let's compare KNM's guidance previously and compare to what KNM actually earned.

Such comparison should be useful, yes? At least we get to know the quality of KNM's earnings guidance.

So how did KNM do?

fy 2008, KNM made 336.175 million. (KNM guided 450 million)

fy 2009, KNM made 257.847 million. (KMM guided 700 million)

Yeah... naturally KNM tanked big time back then!!!

But the point is KNM's guidance back then was horrendous and way off target!

Yeah.. it doesn't take a genius to figure out why KNM stopped giving earnings guidance.

And now... KNM is back at the game again.

Giving very optimistic earnings guidance.

How now brown cow?


K C said...

When KNM says it can make EBITDA of 564 m in 2012, they sure can one. Be positive and work towards it. But again, basing on what it earns in the last half year of 76.6 m, or annualized at 143m, KNM needs to make 4 times the EBITDA in 2 years time. Really can ah? Actually what is more important is what is the percentage in terms of EBITDA/Revenue (E/R). Even if KNM achieves 1 b EBITDA, but if E/R is say 2%, I think the problem is even bigger for KNM compared to its earnings of EBITDA of just RM1.

Moolah said...

As mentioned back in a 2008 posting, KNM then did made 'huge' earnings guidance too.

And the ened result?

fy 2008, KNM made 336.175 million. (KNM guided 450 million)

fy 2009, KNM made 257.847 million. (KMM guided 700 million)

Yeah... I just love this company tooooooooooo little. :P

solomon said...

Track record a big NO NO. All else is possible. Just like the shepherd and the wolves story....when you call too many times wolves coming, but no you still trust the Shepherd? In this case, it is just the financial guidance...