Wednesday, April 20, 2011

QC And The Research Reports

From the posting, What Do You Look For In A Research Report? Part II
Mun Wai said...

  • How far do you think QC is checked at research houses? (first at the analyst level n then the Head of Research)
I do not know. Honestly. I am not in the industry, so I cannot write what I do NOT know.
However... I did think about it.... for many minutes. I did. :P

Then I realised the report featured in the posting What Do You Look For In A Research Report? Part II. The feature report on Timberwell was written by Chris Eng. He's now OSK head of Research.
So why focus on Chris Eng?
Do indulge in me for a couple of minutes.Now at the end of each report, the report are signed by the head of research and in OSK case, it's Chris Eng.

In the posting, What Do You Look For In A Research Report?, I wrote the following:


Are the reports consistent on the stock? Perhaps a past example would explain it clearly why this is important. 22nd July 2009, I posted Featured Report: OSK Research On Axiata Look at the end of the posting. It tracks the recent Recommendation history and price target for the stock.

  • 24th Dec 2008. Axiata 3.58. Maintain Neutral at 4.20.
  • 08th Jan 2009. Axiata 3.60. Maintain Neutral at 4.20.
  • 06th Feb 2009. Axiata 3.18. Maintain Neutral at 4.20.
  • 19th Feb 2009. Axiata 3.36. Maintain Neutral at 4.20.
  • 28th Feb 2009. Axiata 3.06. Maintain Neutral. TP lowered to 3.00.
  • 25th Mar 2009. Axiata 2.61. Take profit. Downgrade. TP lowered to 2.50.
  • 30th Mar 2009. Axiata 2.38. Upgrade to Neutral. TP at 2.50.
  • 28th Apr 2009. Axiata 2.10. Take profit. Downgrade. TP lowered to 1.73.
  • 20th May 2009. Axiata 2.32. Upgrade to trading buy! TP at 2.70.
  • 18th Jun 2009. Axiata 2.28. Trading buy maintained. TP at 2.70.
  • 08th Jul 2009. Axiata 2.42. Trading buy maintained. TP at 2.70.
  • 21st Jul 2009. Axiata 2.98. BUY upgrade. TP at 3.40.
On Dec 2009, OSK reckoned that Axiata was worth 4.20. It had a neutral call on it. Come Feb 2009, Axiata was worth only 3.00! Yeah, it's call is neutral! (LOLOLOL!). Then in April, Axiata is even valued worst. The call was TAKE PROFIT! ( YEAH... this is where everyone should scream their lungs out and shout O-M-G !!! What profit was there to take? It was just in Dec OSK said the stock was a neutral with a fair value of 4.20. It's now April and its a bloody TAKE PROFIT with a fair value of 1.73? Look the screenshots. This was not made up!) And a month later, Axiata value suddenly jumped from 1.73 to 2.70!!!! ( O-M-G!!!! Exactly!)

So how was that?

Now all those reports were signed by Chris Eng himself. You can verify it in the posting Featured Report: OSK Research On Axiata.

Now I am asking myself. Was there QC done? Did Chris Eng actually read those reports or did he just sign for the sake of signing?

Issue is simple. The stock was tanking big time. Sinking to new lows. But the analyst made the ULTRA confusing recommendation to 'Take Profit' on April 2009. How on earth does one take profit on a stock that is sinking to a new low? Wasn't cut loss a more precise and accurate call? And yet, the head of the research, signed that report.

So is there QC?

Does QC exist?

I do not know.

And is this an isolate incident?

Do I have more examples?

On March 2010, I wrote the following: OSK's What If Blue Sky Valuation! (report written by Chris himself.) (LOL! I had a great time laughing at that report last year and I had a great laugh when I re-read it once more)

So now the head of research made that report. (Please read OSK's What If Blue Sky Valuation! )

How did it fare? On May 2010, MMC reported its earnings. I posted Comments On MMC Earnings

Now Chris Eng had said " While we are conservatively sticking to our earnings forecast for now".

But the ultra sticky point was Chris Eng's conservative forecast earnings for MMC Corp was RM 424.2 million!!!!!!

Come lah..I was laughing to myself. How could this be considered conservative when the earnings forecast was assumed to grow at 79.3% this year!!!!!! Does earnings grow so easily????
Apparently it does according to Chris.

And MMC earnings for that quarter was only earned 34.4 million!!!
And naturally when I got a hold of OSK report that day on MMC, I had to make another posting, So What Is OSK Saying Now About MMC. Do give it a read.

How? Well, it was incredible for me! Amazing!
So is there QC?
Let's take another example. A random one.
On 7 July 2009, I posted the following: iCapital And Swee Joo.

Do give it a read. Swee Joo today trades at 18 sen!
And since you had asked, I too wonder if there was QC from iCapital?


Mun Wai said...

Many thanks for sparing your time to share your view. Appreciate it!

Trust me, when the QC issue come across my mind I did considered the appropriateness of asking in such a blunt manner. (Note that I did put a lousy disclaimer too...! Lousy me!)

But...but...but, obviously I am defeated by the urge of wanting to question the QC issue. My apologies for causing much hassles to you.

Moolah said...

You are welcome and this wasn't too big a hassle.

limko said...

It is not an isolated case in OSK's report on Axiata or MMC, it is the same with RHB's report on JCY which came down from around 1.8 to 0.8 and then 0.22 back to 0.8 recently, all in matter of months if not weeks. (The figures quoted are approximate based on memory, but not far actual)

This begets the question, are we punting or are the analysts punting?

Moolah said...

limko, RHB's downgrade of JCY to 22 sen was under the report "JCY International Berhad : Back To Black, But Disappointing Again". It was published on 28 Feb 2011. This was highlighted in the posting

I am not aware that RHB had upgraded JCY to 80 sen. Perhaps I do not have a copy. Could you let me know what was the title of the report?

I would really like to see how RHB could downgrade and then upgrade a stock in such a drastic manner.


limko said...

On 5th April 2010, RHB Equities 360 wrote 'JCY : Fair value raised to RM0.81 Market Perform (Up from UP)
- Feb 2011 chip sales fell by 1.1% mom to US$25.2bn, after rising 1.5% mom in Jan. While this is not
surprising given its seasonally slower month, we note that the decrease is lower than the 5-year average
decline of 5%. Yoy, chip sales grew slightly stronger by 13.6% (vs. 13.3% yoy in Jan 2011), although at a
weaker pace compared to the high of 58.4% in Mar 2011.
- The disaster that hit Japan indeed has caused concerns for the global semiconductor supply chain.
However, we believe this could potentially benefit third-party packaging and test players as more Japanbased
integrated device manufacturers outsource their backend services.
- Going forward, the disaster in Japan could potentially increase the outsourcing of these services to
dedicated packaging and test houses by IDMs as they try to mitigate equipment costs, logistics disruptions
and interrupted domestic plants.
- Similarly, this could also translate into higher outsourcing for HDDs to companies outside of Japan. Showa
Denko which controls about 25% of the global HDD component market was forced to close its plants in
Chiba and Yamagata in Japan due to slight damage and power shortages. Therefore, we believe this could
potentially benefit Notion and JCY as they may secure new component orders.'

Moolah said...



I have made a new posting highlighting this issue:

Moolah said...

Ah Wai.... :P

Mun Wai said...

Good Cow! sayang ya :=)

Moo, how to make MYR3 mil between now to 21/10/11?

Ah Wai thinks that the most immportant task now is to plant a digital tracking device into the lawyer's body to monitor his whereabouts. Brilliant idea, isn't it? Make sure he comes to the High Court on trial date.

Mun Wai said...

Moo, Ah Wai is no genius. So, don't just give 4 dots mah, how to figure out what does it mean. :)

Refer to "Ah Wai.... :P"

Mun Wai said...

Moo, Ah Wai spotted something terribly wrong in the previous comment.

How wrong am I to ass-u-me that Ah Wai is expected to understand what Moolah replied. Likely that the reverse is true :)'s akin to kids sticking to the divine notion that MCQs can only has ONE answer...since when ah?

Moolah said...


Errr ... :P