Wednesday, June 29, 2011

A Look At Linear's Accounting Fraud And The Impact On The Stock

Posted earlier: Yet Another Case Of Accounting Fraud

  •  ....... Late last year, Linear said it won its biggest project ever, the RM1.67 billion King Dome project in Manjung, Perak, for which it received a letter of award from a Seychelles-based company Global Investment Group Inc (GIG).This was supposed to be the world's largest dome structure measuring 1,600 metres in diameter, housing an indoor city with retail, leisure, resort, food and beverage facilities

    Early this month, Linear said there was "no evidence of any significant progress towards the execution of the contract" and "no documentary evidence to demonstrate the overall viability of the King Dome Project".
End Dec 2009 Linear rocketed up on a straight line cos of this Billion dollar contract.

If I recall correctly, it was unreal.

Linear was not an investment grade stock. Its fundamentals were lacking and yet it won a Billion dollar contract. It was unreal.

The Edge carried these 2 short news clip.

  • Linear Corp secures RM1.6b project Written by Joseph Chin
    Tuesday, 29 December 2009 18:18

    KUALA LUMPUR: LINEAR CORPORATION BHD [] has secured a RM1.66 billion project for the building and commissioning of a district cooling plant in Manjung Perak.

    The company told Bursa Malaysia on Tuesday, Dec 29 its unit LCI Global Sdn Bhd accepted the project awarded by Seychelles' Global Investment Group Inc for the 350,000 refrigeration ton (RT) plant.

    It said the plant was for the King Dome project, but details were not revealed in the announcement.

    "The commencement of work is 24 months from the date of approval of the development plan by the Manjung District Council. The duration of the project will be 24 months from the date of commencement," it said


    -------------------------


    Linear surges on RM1.6b contract
    Written by Joseph Chin
    Wednesday, 30 December 2009 09:27

    KUALA LUMPUR: Share price of LINEAR CORPORATION BHD [] surged 29.5 sen to 48 sen in early trade on Wednesday, Dec 30 after it secured a RM1.66 billion project a district cooling plant in Manjung, Perak.

    At 9.22am, it was up 29.5 sen to 48 sen with 2.81 million shares done.
    The FBM KLCI fell 1.38 points to 1,273.84. Turnover was 40.19 million shares valued at RM32.17 million.

    On Tuesday, it announced its unit LCI Global Sdn Bhd had secured the project awarded by Seychelles' Global Investment Group Inc for the 350,000 refrigeration ton (RT) plant. The plant was for the King Dome project, but details were not revealed in the announcement.

    The duration of the project will be 24 months from the date of commencement, it said.
Stock went up, up and awayyyyyyyyyyyyy....


Note how the stock flew up and look at the sudden surge in traded volume....

The next day Star Biz carried the following article: Linear soars on new RM1.7bil job
  • Thursday December 31, 2009

    Linear soars on new RM1.7bil job

    PETALING JAYA: Shares of Linear Corp Bhd rose to record levels yesterday, as investors chased the stock on news that the company had secured a RM1.66bil contract to build a cooling plant in Manjung, Perak.

    The stock shot up 39.5 sen, or 213%, to close at a two-year high of 58.5 sen on a volume of 19 million shares.

    The upsurge raised Linear’s market value to about RM44mil.

    It remains unclear when actual work at the site will start, or how the company intends to raise funds for the project.
    StarBiz tried to reach executive director Mervin Nevis via phone calls and SMS but did not receive a reply.

    However, Dow Jones Newswires yesterday quoted Nevis as saying that the company was considering various ways to raise a “performance bond” for the project.

    The report said other ways to fund the project could include using internal funds, selling new shares in the company or through a consortium arrangement.

    No details about the amount to be raised were given, although it was understood that the performance bond could be worth as much as 10% of the total project value, according to the Dow Jones report.

    In a filing with Bursa Malaysia on Tuesday, Linear said a wholly owned subsidiary had accepted the contract to design and build a cooling plant in Manjung from Global Investment Group Inc of Seychelles.

    Work on the project will start 24 months after the development plan is approved by the Manjung Municipal Council.

    The project is expected to be completed in 24 months from the date of commencement of works, according to the filing.

    Information on its website showed Linear had completed district cooling projects in Bandar Perda in Penang and at The Curve shopping complex in Petaling Jaya.

    Linear, a heating, ventilation and air-conditioning company, has a current paid-up capital of RM75.1mil based on 75.1 million oustanding shares issued to date.

    It reported a cumulative net loss of RM4mil on revenue of RM13.2mil for the nine-month period ended Sept 30
    .
It's interesting to note what happened next.


The top arrow indicates 2nd Feb 2011. This was when Bursa decides to give the UMA. LINEAR-Unusual Market Activity ("UMA") query by Bursa Securities

The next day, the Star carried the following article: Linear gets UMA query from Bursa
  • Wednesday February 3, 2010

    Linear gets UMA query from Bursa
    PETALING JAYA: Linear Corp Bhd, a heating, ventilation and air-conditioning company, was issued an unusual market activity (UMA) query by Bursa Malaysia yesterday following recent sharp increases in its share price and trading volume.

    At 5pm, the stock was up 5.5 sen to 59.5 sen after hitting a high of 63 sen earlier. Some 15.9 million shares changed hands.

    On Dec 31, the stock hit 70 sen – its highest in at least five years.

    Low-profile Linear in the same month had said its wholly owned subsidiary had accepted a RM1.66bil contract to design and build a cooling plant in Manjung from Global Investment Group Inc of Seychelles.

    Linear joins a string of companies such as Integrated Rubber Corp Bhd, Perduren (M) Bhd and Takaso Resources Bhd that were recently issued UMA queries after their stock and volumes raced to record highs.

    In its reply to Bursa, Linear said except for the Manjung project announcement, there were no other material developments relating to the group’s business that has not been previously announced.

    “There are also no rumours or report concerning the business and/or affairs of the group that may account for the unusual market activity,” it said.
Yeah ... but to be more precise, that 70 sen mentioned was the highest close. Linear did traded at an intraday high of 83.5 sen!!!... and many million shares exchanged hand since end Dec 2009.

And by June 2010, warnings flashed strongly against Linear.

From Business Times. ( sorry no links  - link broken)
  • SC 'gathering facts' on Linear Corp
    By Azlan Abu Bakar Published: 2010/06/09

    It is learnt that Linear Corp had paid out almost all of its cash to a company in Seychelles.

    The Securities Commission (SC) is believed to have started an investigation of Linear Corp Bhd (9504) after it was learnt that the company had paid out almost all of its cash to a company in Seychelles.
    An industry source told Business Times yesterday that the authorities intended to find out what had actually occurred in the company.

    "They (SC) are gathering all the facts now," he said.

    As at March 31 2009, Linear had RM37 milion in cash, according to its unaudited accounts.
    Last Friday, Linear told Bursa Malaysia Bhd that it had advanced RM36 million to Global Investment Group Inc (GIG) as a performance consideration to build a RM1.66 billion cooling tower in Manjung, Perak.


    "The advance was effected solely by a director of the company at the material time in an autocratic manner," Linear told the stock exchange.

    According to information obtained from Linear's latest annual report, as many as three directors quit the company this year.

    They included independent and non-executive director Datuk Thangarajo A. Subramaniam, non-independent and non-executive director Alan Rajendram and Singaporean non-executive director Eswaramoorthy Pillay Amuther.

    Rajendram and his partner, Eswaramoorthy, had sold a total of 14.37 million shares, or 19 per cent of the company, in April.
    They were, however, not the only sellers of Linear shares.

    Linear itself sold in batches some 2.6 million shares, or 3.5 per cent of the company, for RM1.95 million.

    The proceeds are about 9.4 per cent of Linear's current market capitalisation of RM18.4 million.

    Linear also said that it was in discussions with the four banks which had granted unsecured banking facilities.

    "All of these facilities are in default and the total outstanding amount as at May 31 this year was about RM20.8 million. In addition, Linear has defaulted on a secured term loan with an outstanding amount of about RM16.7 million as at May 31," the company said.

    Linear is seeking to recover the RM36 million advance paid for the project in Perak, which was awarded by GIG to its unit, LCI Global Sdn Bhd.

    The two companies were supposed to seal a formal contract within 180 days of the letter of award but that did not materialise.

    The cooling plant was to supply chilled water for the air-conditioning system of a big project, called King Dome, developed by GIG.

    King Dome was touted to become the world's largest dome structure with a diameter of 1,600 metres. It would house an indoor city with retail, leisure, resort, food and beverage facilities.
Smelly? Unreal?

Also from Business Times:
  • Linear under investigation

    By June Ramlee Published: 2010/06/16

    BURSA Malaysia is investigating Linear Corp Bhd (9504) for possible breaches of listing requirements, the stock market regulator said yesterday.

    In a statement to Business Times, Bursa Malaysia said that it will not hesitate to take the necessary actions against the company and the culpable directors if they find something amiss.

    Linear shares have slumped to a six-month low yesterday to close at 22.5 sen, reeling from the after effects of the company's cash being passed to a company in Seychelles. Two weeks ago, Linear told the stock exchange that a company director had paid out almost all of its cash to a Seychelles company....
And the Edge carried the following the next day...
  • Another scandal brewing, this time at Linear? 
    Written by Daniel Khoo
    Thursday, 17 June 2010 11:11

    KUALA LUMPUR: In the wake of Kenmark Industrial Co (M) Bhd’s saga, another corporate scandal is brewing at a little-known company — Linear Corp Bhd.

    Linear, which manufactures cooling systems, recently updated Bursa Malaysia Securities with startling revelations on the status of its supposedly biggest project ever, the RM1.67 billion King Dome project in Manjung, Perak, for which it received a letter of award (LoA) from a Seychelles-based company — Global Investment Group Inc (GIG) late last year.

    On Dec 29, 2009, Linear had announced it was awarded the contract by GIG to build a 350,000 refrigeration tonne per hour district cooling plant for the King Dome structure.

    This was supposed to be the world’s largest dome structure measuring 1,600 metres in diameter, housing an indoor city with retail, leisure, resort, food and beverage facilities. Linear was to have signed the contract with GIG within 180 days from the date of the LoA dated Dec 24, 2009.

    In the latest statement to the stock exchange on June 4, Linear said there was “no evidence of any significant progress towards the execution of the contract” and “no documentary evidence to demonstrate the overall viability of the King Dome Project”.
    The company added that there was “no documentary evidence on the background and business experience of the promoters of GIG and on the financial standing of GIG” and that there was a “lack of full and proper documentation relating to the contractual relationships”.

    This implies that the “project” may not proceed after Linear had paid a huge amount of RM36 million to GIG for a “performance consideration”.

    The amount consists of almost all of Linear’s cash reserves of RM37 million as at March 31, 2010. The money was paid out to GIG in an “autocratic manner” after instructions from a director of Linear, the company said. It added that there was “absence of proper procedures and internal controls within Linear Group”.

    Just about half a month before Linear disclosed these revelations, two of its non-executive directors resigned — Alan Rajendram Jeya Rajendram and Datuk Thangarajo A Subramaniam.

    During his directorship at Linear, Alan Rajendram was also executive vice-chairman of the Stanton Group of Companies. Stanton Technology Sdn Bhd’s CEO is Mevin Nevis AF Nevis, who is also the executive director at Linear, and remains there today.

    “I’m not in a position to talk about it,” Mevin Nevis said when contacted by The Edge Financial Daily yesterday to give more details about the purported King Dome project. He declined to comment and abruptly ended the telephone conversation.

    In May 2010, the company reconstituted its board, appointing three new directors after the resignation of two directors.

    After the King Dome award was announced, Linear’s share price shot up from 18.5 sen to a high of 83.5 sen in just two trading days on Dec 30 and Dec 31, 2009 on heavy volume.
    Interestingly, Linear had announced the RM1.67 billion deal after the market closed on Dec 29, 2009, five days after supposedly receiving the LoA and near the end of the year, when overall trading volume on the stock market is typically low due to the holiday season.

    The low-key stock was suddenly the third most actively traded stock on Dec 30, 2009 with 19.1 million shares traded. Another 24.7 million shares changed hands the next day.

    Records showed that Linear was also the fourth most actively traded stock for the four-day trading week of Dec 28–Dec 31, 2009. Its shares have since been on a downward trend, closing near a six-month low at 23.5 sen yesterday.

    The Edge had first drawn investor attention to this “unusual” billion-ringgit deal in the article titled “Puzzling deal for little-known Linear” in its January 11, 2010 issue. Apart from the lack of information about such a large project, The Edge highlighted that Linear was a small loss-making company and questioned its financial ability to handle such a large project, especially given its Practice Note 1 (PN1) status.
    A company is classified as PN1 status when it has defaulted on its loan obligations. In late September last year, Linear was served a writ of summons by EON Bank Bhd for non-payment of interest amounting to RM133,000 on an overdraft facility taken by its wholly owned subsidiary LCI Global Sdn Bhd.

    Then in December, Linear was served another writ of summons by RHB Bank Bhd for a RM2 million banking facility taken out by 70%-owned subsidiary BAC Cooling Technology Sdn Bhd.

    “The board of directors has been in consultations and discussions with the four banks that have granted unsecured banking facilities to the Linear Group,” the company said on June 4.

    It said “all of these facilities are in default” and that the amount outstanding as at May 31, 2010 was about RM37.5 million, including a secured term loan of RM16.7 million that was also in default.

    The company, which has its headquarters in Prai, Penang and an office in Petaling Jaya, Selangor, was evasive in response to calls made by The Edge Financial Daily to both locations. “Who told you I was in charge of the King Dome project? I do not know what’s happening. You have to get to the top bosses on this matter,” said a staff.

    It is learnt that both regulators, Bursa Malaysia Securities and the Securities Commission, are investigating Linear for a possible breach of its listing requirements and regulations. Things are certainly heating up at this small cooling systems company.


    This article appeared in The Edge Financial Daily, June 17, 2010.
And here's the most incredible part of the story.... the guarantee.

On Star Biz: Rajendram has signed guarantee on King Dome project
  • Tuesday June 22, 2010
    Rajendram has signed guarantee on King Dome projectBy B.K. SIDHU

    KUALA LUMPUR: Alan Rajendram the former director of troubled-Linear Corp Bhd finally broke his silence to say that he has signed a personal guarantee to recover the RM36mil paid to Global Investment Group (GIG) if the agreement for the RM1.6bil King Dome project was not signed by November this year.

    Rajendram resigned as director of Linear on May 18 after a fall out with his business partner Bryann Pillay. Both had controlled the company via a 19% equity stake but that stake had since been divested to parties linked to Yap Chee Keong and Saw Heng Soo, the new executive directors of Linear.

    Linear is a manufacturer of cooling system and the completion of the share sale agreement is expected in mid-July.

    “I have handed the reins of Linear to Pillay,’’ Alan said in a telephone interview yesterday.

    Earlier yesterday Pillay said in an interview he would take ownership of the 19% block of shares if the share sale deal was not completed by mid-July and intends to “do whatever was necessary to turn the company around.’’

    Pillay had received a deposit of RM1.8mil for the 19% block of shares.

    Pillay, still a director of Linear, also admitted there was a fall-out between him and Rajendram.

    “I have invested a lot of money in Linear and so have my friends. In the past, the company was managed by Rajendram but I am now taking a proactive role. We are addressing the issues surrounding the company, especially corporate governance issues. We are putting in place the necessary process for transparency,’’ he said.

    Pillay said the day to day running of the company was now managed by Yap, Saw and another new executive director, Mervin Nevis.

    A special task committee had been formed to carry out a review of financial records and statements of the Linear group, and to identity any irregularities.

    Linear’s troubles began when there was no progress made after the company signed a letter of award with GIG on Dec 29, 2009 for the dome project and the RM36mil was paid out to GIG as “performance consideration’’ for a RM1.6bil King Dome project. Besides that, Linear defaulted on its loan obligations.

    The contract involved the building of a 350,000 refrigeration tonne per hour district cooling plant for the King Dome structure to be located in Manjung, Perak,

    Linear told Bursa Malaysia there was “absence of proper procedures and internal controls within Linear group,’’ which could perhaps explain why a huge amount of cash of RM36mil was so easily paid out to GIG. The amount consists of almost all of Linear’s cash reserves of RM37mil as at March 31, 2010.

    Rajendram maintains that the project was viable, thus his rationale to give his personal guarantee and he made his exit as he did not want to influence the board on the King Dome project and the fallout with Pillay.

    Pillay said the company was mulling over the possibility of shifting the project to Johor or some other states. Talks are ongoing with other states.

    “As far as the board is concerned, Rajendram has to deliver even though he has resigned from the company. He signed an indemnity to redeem the monies and he has to make it good,’’ Pillay said.

    Both the Securities Commission and Bursa are investigating Linear for any possible breaches of listing rules.

    Linear’s share price has taken a beating since the onset of its troubles and in yesterday’s trading the share price added 1 sen to close at 19 sen.

    While Linear may have its own problems, the other company both Rajendram and Pillay had once invested in was interactive IPTV solutions provider Stanton Technologies Sdn Bhd.
    “Stanton is dying a slow death after Dubai Ventures, a unit of Dubai Investment Group, ceased to be a shareholder in the company,’’ Pillay said.

    Stanton was initially slated to be listed on the Dubai Financial Exchange but later chose the Singapore Exchange. However, none materialised.

    Pillay said he was in talks with parties to sell Stanton’s China and Thailand business.

    Linear reported net loss of RM1.0mil on the back of RM2.8mil turnover for the three months ended March 31, 2010.
Rajendram was then charged of securities fraud by SC!

SC charges Alan Rajendram
  • KUALA LUMPUR: The Securities Commission (SC) charged former director of LFE Corp Bhd Alan Rajendram Jeya Rajendram yesterday with securities fraud and eight other offences allegedly committed when he was a director of the company.

    A statement from the regulator said the charges against Alan Rajendram, 53, were the latest in a string of enforcement actions by the SC against alleged corporate fraud and misconduct. Alan Rajendram is also a former director of Linear Corporation Bhd, which is embroiled in the controversial “King Dome” saga and was classified as a PN17 company on Wednesday.

    The SC said Alan Rajendram was charged under section 87A(b) of the Securities Industry Act 1983 for “committing an act that operated as a fraud” on LFE by using RM9 million of LFE’s monies to finance the purchases of the company’s shares pursuant to a private placement and restricted offer to him.
    It said the act was alleged to have been committed between Jan 4, 2007 and Feb 8, 2007, adding that the former director would be liable to a fine of not less than RM1 million and imprisonment not exceeding 10 years if convic....
Also charged was Eswaramoorthy Pillay s/o Amuther : SC charges Linear director for abetment in securities fraud

By the way on 24th June 2010: Linear entered into PN17! LINEAR - New admission into PN17

But that was not it, there was another twist to all this!

Then came Sep 2010, the White Knight story!

Linear sees entry of new white knight
  • Linear sees entry of new white knight Written by Daniel Khoo
    Thursday, 02 September 2010 15:14

    KUALA LUMPUR: PN17-status company Linear Corporation Bhd is beginning to see some light at the end of the tunnel after the entry of a white knight with the appointment of three new directors, who are planning to put the company back on its feet again.

    This confirms an earlier report in The Edge Financial Daily on June 24, 2010 that the company was undertaking turnaround plans.

    The three new directors: Datuk Ling Keak Ming, independent and non-executive director; Lim Hun Beng, non-independent and non-executive director; and Adam Bin Bachek, independent and non-executive director were appointed yesterday, according to statements to Bursa Malaysia.

    Ling, a former director of Magnum Corporation Bhd from 2000 to 2007, is closely associated with the MWE Holdings group, where he is currently managing director of MWE Advanced Structure Sdn Bhd and MWE Golf & Country Club Bhd.

    It is learnt that the previous white knight, who owned a 19.92% stake in Linear via privately held Crystal Insight Sdn Bhd has sold his stake to this new white knight some three weeks ago. The transaction price, however, is not known. As of yesterday, no details of substantial shareholder changes in the company have been announced to Bursa Malaysia.

    Linear’s previous executive director Yap Chee Keong, who resigned on Aug 30, 2010, was the old white knight’s proxy to plan a turnaround for the company. After Yap’s short stint at the company, sources say the old white knight decided not to proceed with the task of pumping in more money into the company because he had other commitments.

    Penang sources tell The Edge Financial Daily that the new white knight, a low profile businessman based in Penang, now plans to pump in additional funds to revive Linear.

    With the additional funds, this may also change the previous turnaround plans, which had included a sale and leaseback of Linear’s factory plant in Penang to raise cash for the company’s operations.

    “A new white knight removes the need for the company to sell the company’s core asset when the cash is pumped in,” said a source.

    An announcement by Linear to Bursa Malaysia with its recent second quarter (2Q) results stated that there are plans for “new injection of funds for working capital by potential new investors as a prelude to concluding a corporate restructuring exercise to get the company out of current PN1 and PN17 status”....
And the salted fish came alive..... LOL! :P

Linear rallies to more than 2-month high

Do note Linear rallied from 8 sen on the back of that White Knight or white horsie story to a high of 29 sen on 9 Sep 2010!


And Linear then denied the White Knight story.

The arrows on the chart above are rather self explanatory.

And Linear today? Its last traded price is 9 sen.

But here's the interesting thing.

Last Sep, I actually made a posting on Linear! Yes I did.

On 7th Sep 2010, I wrote Oh, That Linear Stock!. Guess what? The so-called rubbish stock I wrote back then.... did not fall!

LOL! Yessirmeee!

Remember on 9th Sep, two days after I made that 'horrible' posting, Linear soared to an intraday high of 29 sen.

See? See? See?

How many times must I say... I don't own a voodo stick that can cause a stock to plunge!

:P

Yet Another Case Of Accounting Fraud

On Business Times:

  • Auditor: Some of Linear's deals could not be proven

    Published: 2011/06/29

    KUALA LUMPUR: Linear Corp Bhd's books may have been cooked since 1999, PwC said in its special audit released yesterday.

    In the audit, PwC revealed that some of the sales transactions or net proceeds from trading activities could not be proven.

    For example, Imux (Asia) Ltd and LCI Global, subsidiaries of Linear Corp, claimed to have recorded sales of 58,050 units of solar energy panels totalling US$41 million (RM125.3 million) to Bucumert, a Romanian company.

    These panels were bought from Kinetic, a Hong Kong company, for US$34.5 million.

    However, the audit revealed that the panels sold to Bucumert were delivered to two locations in China which could not be physically located. Kinetic, the so-called supplier of the solar panels, is a HK$1 company, and was set up four months prior to the start of the solar panel trading business by LCI Global and Imux Asia.

    Also, Kinetic could not be located at its business address and has been gazetted to be deregistered by the Hong Kong authorities in May 2010.

    The company's US$3.7 million sale of cooling tower parts to Nikki, a company based in Bangkok, was also questionable.

    In the report, which cited Linear's employee and ex-senior official, the cooling tower spare parts sold to Nikki did not exist. Nikki has a paid-up capital of 3 million baht and was set up in July 1993.

    It is registered as a wholesaler of motor vehicle parts and did not record any revenue from 2007 to 2009. Its business address is a three-storey residential house in Bangkok.

    Late last year, Linear said it won its biggest project ever, the RM1.67 billion King Dome project in Manjung, Perak, for which it received a letter of award from a Seychelles-based company Global Investment Group Inc (GIG).

    This was supposed to be the world's largest dome structure measuring 1,600 metres in diameter, housing an indoor city with retail, leisure, resort, food and beverage facilities.

    Early this month, Linear said there was "no evidence of any significant progress towards the execution of the contract" and "no documentary evidence to demonstrate the overall viability of the King Dome Project".

    In the PwC report, it added that the existence of the King Dome project could not be proven.

    "There were no confirmations from various government authorities in respect of the King Dome Project to be located in either Perak or Johor, and it is unclear whether GIG, the promoter of the King Dome Project, has the operational and financial capabilities to deliver the Kingdome Project." said PwC in the report.

    PwC said that GIG could not be contacted at its stated place of business and contact

Tuesday, June 28, 2011

The Local Media's Coverage Of BLand Earnings

On the Edge yesterday: Berjaya Land sinks into red with 4Q net loss

  • KUALA LUMPUR: BERJAYA LAND BHD [] went into the red in the fourth quarter ended April 30, 2011 with net losses of RM4.68 million compared with net profit of RM72.07 million a year ago due various factors including impairments and loss on disposal of certain quoted investments.

    It said on Monday, June 27 that revenue fell 5.83% to RM1.062 billion from RM1.128 billion mainly due to the lower property sales from the property development business.

    Pre-tax profit was RM105.1 million compared with RM161.2 million a year ago. Loss per share was 0.09 sen compared with earnings per share of 1.44 sen.

    “The drop in pre-tax profit for the quarter under review was mainly due to the impairment in value of certain property, plant and equipment and quoted investments coupled with loss on partial disposal of equity interest in a subsidiary company and certain quoted investments, as well as share of losses from jointly controlled entities,” it explained.

    The board recommended a final dividend of 1.0 sen per ordinary share of 50 sen each less 25% income tax.

    For the financial year ended April 30, 2011, its earnings fell 28.1% to RM80.44 million from RM111.96 million. Pre-tax profit dipped to RM458.57 million from RM465.79 million. Revenue was marginally higher at RM4.06 billion versus RM4.05 billion.

    The lower pre-tax profit was mainly due to lower profit contribution from BERJAYA SPORTS TOTO BHD [] as its principal subsidiary, Sports Toto (Malaysia) Sdn Bhd, was adversely affected by the increase in Pool Betting Duty from 6% to 8% effective June 1, 2010 and higher prize payout.

    This impact was mitigated by the reduction in the 4D Big Special Prize effective Dec 15, 2010. In addition, certain resorts of the group which are upgrading certain category of rooms incurred higher charge out of room refurbishment expenditure this year.


The SunBiz today, carried this version: BLand posts pre-tax profit of RM458m in FY11
  • BLand posts pre-tax profit of RM458m in FY11

    Posted on 28 June 2011 - 05:41am

    PETALING JAYA (June 27, 2011): Berjaya Land Bhd (BLand) posted a slightly lower pre-tax profit of RM458.57 million for the financial year ended April 30, 2011 (FY11) from RM465.79 million a year ago on lower profit contribution from the gaming business due to the impact from the increase in pool betting duty from 6% to 8% in June last year and higher prize payout.

    However, the impact was mitigated by the reduction in the 4D Big Special Prize last December.

    In addition, certain resorts of the group, which are upgrading certain category of rooms, incurred higher charge out of room refurbishment expenditure in FY11.

    The impact on the earnings was partly mitigated by the gain on disposal of an associated company and favourable fair value changes of certain of the group's quoted investments, BLand said on Monday.

    Revenue in FY11 was marginally higher at RM4.06 billion against RM4.05 billion a year ago.

    On a quarterly basis, BLand's pre-tax profit for the three months ended April 30, 2011 (Q4) was lower at RM105.14 million against RM161.24 million mainly due to the impairment in value of certain property, plant and equipment and quoted investments coupled with loss on partial disposal of equity interest in a subsidiary company and certain quoted investments, as well as share of losses from jointly-controlled entities.

    Revenue in Q4 was RM1.06 billion compared with RM1.13 billion a year ago.

    "Barring unforeseen circumstances, the directors are of the view that the group's performance for the financial year ending April 30, 2012 will remain satisfactory," BLand said in a statement.

    BLand has recommended a final dividend of one sen a share less tax.


The Star Biz and Business Times did not report on BLand's earnings.

Hmmm... interesting?

Are we playing spot the difference or what?

Both articles appears to be correct with its facts but .... aren't they .... different?

How?

How is our local stock exchange going to attract more 'investors' when the local media publish rather 'different' set of news?

I mean, which set of news, should the 'reader' trust?

I understand that investors should know what they are buying and investors should do some form of research before investing but what chances do they stand if the local media spins out news like this?

And then Bland earnings itself.

They, the media, focus on 'pre-tax' profit but isn't 'pre-tax' meaningless to the investor?

Think about it.

At the end, doesn't the company, Bland, still have to pay tax? Or tax is free?

If not, why is the SunBiz making such meaningless comparison?
  • On a quarterly basis, BLand's pre-tax profit for the three months ended April 30, 2011 (Q4) was lower at RM105.14 million against RM161.24 million....
And the Edge article...
  • BERJAYA LAND BHD [] went into the red in the fourth quarter ended April 30, 2011 with net losses of RM4.68 million compared with net profit of RM72.07 million a year ago due various factors including impairments and loss on disposal of certain quoted investments..
So losses were caused by impairments and loss on disposal of certain quoted investments...

Now surely the inquiry mind would want to know what the impairments were and what the certain quoted investments were?

And here's the Edge or is it Bland explanation..
  • “The drop in pre-tax profit for the quarter under review was mainly due to the impairment in value of certain property, plant and equipment and quoted investments coupled with loss on partial disposal of equity interest in a subsidiary company and certain quoted investments, as well as share of losses from jointly controlled entities,” it explained
 Err..  how? Doesn't explain much, doesn't it?

Monday, June 27, 2011

China Probes Listed Chinese Stocks Overseas

Posted on CNBC: http://www.cnbc.com/id/43544876

  • Chia Probes Slump in Overseas Listings

    Published: Monday, 27 Jun 2011 | 5:51 AM ET Text Size By: Reuters

    China is paying close attention to the slump in shares of overseas-listed Chinese companies in the wake of a string of accounting problems and is studying ways to address the issue, an official from the country's securities regulator said.

    Corporate misbehaviour, unfamiliarity with the U.S. market and some practices involved in overseas listings had all contributed to the recent investor distrust of Chinese companies, said Wang Ou, vice head of research at the China Securities Regulatory Commission (CSRC).

    "First, we have to admit that some of our companies may have flaws. Second, our (companies') understanding of the U.S. market and the measures to tackle risk there may be inadequate," Wang told a conference over the weekend.

    Wang's comments, the first public remarks from the CSRC since a series of accounting scandals involving Chinese companies listed in North America, coincide with a visit to Beijing by officials from the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board.

    The delegation arrived in Beijing to meet Chinese regulators to discuss cross-boarder oversight, hoping to sign an agreement on accounting supervision by the end of this year, the official Xinhua News Agency reported on Friday.

    Audits of Chinese companies listing in the United States became a hot issue after a spike in accounting scandals and shareholder lawsuits alleging fraud.

    Much of the questionable accounting involved reverse mergers, a type of backdoor listing in which a foreign company merges with a U.S. shell Company.
    To overcome regulatory hurdles, many Chinese companies have also set up legal structures under which control of a mainland-based company can be transferred to an overseas entity via certain contracts.
    CSRC's Wang said the practice would expose Chinese companies to potential legal risks, another source of worry for overseas investors.
Singapore Business Times carried this version:
  • Published June 27, 2011

    Exchanges seek a cure for Chinese headache
    Accounting scandals in listed firms from China create ripples in US, Korea and Taiwan

    By LYNETTE KHOO

    (SINGAPORE) Chinese companies - and their accounting scandals - are giving regulators worldwide sleepless nights.

    A full-scale investigation is underway in the United States while several other stock exchanges are thinking of ways to ensure that the financial accounts of Chinese companies are kosher.

    Korean Stock Exchange (KRX) said 'it is now considering some rule changes to improve investor protection and ensure reliability of the financial statements of foreign companies'.

    Details of these measures are not firmed up yet, a KRX spokesman told BT.

    To ensure the quality of audit, KRX listing rules currently have certain criteria for auditors of foreign companies applying for listing on KRX. These requirements would mean that these companies have to engage Big Four accounting firms for primary listings or Big 30 for secondary listings, the KRX spokesman said.

    In the US, Nasdaq and NYSE Euronext have halted trading in the shares of at least 21 small- and micro- cap Chinese companies in the past year, while the Securities and Exchange Commission (SEC) is investigating these companies, their auditors and sponsors that marketed them to investors.

    Following the spectacular collapse of shares in Toronto-listed Sino-Forest amid accusations by short-seller Muddy Waters that it overstated its assets, SEC head Mary Schapiro said last week that the SEC is exploring ways to address investor concerns about shoddy accounting that has caused numerous Chinese companies to restate earnings.
    Taiwan Stock Exchange (TWSE), a hot venue for dual listings among S-chips (Singapore-listed Chinese firms), said secondary listings are still required to meet stringent standards though they are already regulated in their primary market.

    'We have very strict profitability requirements for companies and each company must also have its figures certified by two Taiwan CPAs (certified public accountants),' its spokesman said.

    TWSE also requires listed companies to have a diversified board with no fewer than two independent directors, with at least one independent director residing in Taiwan.

    Hong Kong's stock exchange was approached last week for comment but did not get back to BT by press time last night. It has earlier drawn flak for its decision last December to allow mainland companies listed in Hong Kong to use Chinese accounting standards and auditors approved by mainland regulators.

    But it said that regulatory authorities in Hong Kong and the mainland have set up a cooperation mechanism for Hong Kong for investigating and regulating CPA firms, with mainland regulators undertaking the actual probes.

    In a bid to boost their valuations, many S-chips have flocked to Hong Kong and Taiwan for secondary listings while a handful like Combine Will and Foreland Fabrictech are heading for Korea instead. The volatile market conditions and mixed performance of dual listings have, however, caused some to postpone their plans.

    While none of the S-chips dual-listed in Taiwan and Hong Kong has got into trouble, China Gaoxian - which dual-listed in Korea only in January - is among the few S-chips found to have had accounting irregularities this year.

    SGX has since taken steps to strengthen safeguards in the S-chips cluster. It has asked S-chips to engage professionals to determine whether their internal controls are sufficient and to ensure they have the power to remove rogue legal representatives at their Chinese subsidiaries.

    Stories of how some companies managed to fool their auditors with false bank statements with the help of bank branch officers have got investors worried about a potential systemic risk in the accounting integrity of Chinese companies. But some market watchers read it differently.

    'Admittedly, the close relationship with bank officers makes fraud easy and convenient. However, such a close relationship does not imply fraud or interpret as systemic risk of accounting integrity,' said Wu Yanjuan, senior foreign counsel at Loo & Partners LLP.

    Lin Song, partner of China practice at RHT Law LLP, said it would be unfair to tar all Chinese companies with the same brush, although the significant number of accounting scandals suggest a high risk in China that companies may collude with local bank branches.

    'Companies in China are still generally more focused on growth than corporate governance,' he said. While there are laws in China against commercial crimes and fraud, enforcement is still not up to scratch - as local governments tend to protect local businesses.

    China issued internal control guidelines in April last year requiring Chinese companies listed both onshore and offshore to implement them from this year, and companies listed on the mainboards of Shanghai and Shenzhen to do so from 2012.

    But Ms Wu noted that it is not mandatory for the offshore listed companies to adopt the guidelines. And even if a company intends to adopt the guidelines in order to improve its internal controls, it takes time for the implementation to take effect.

    Stock exchanges and overseas regulators could, however, require unified accounting standards in companies operating in different jurisdictions and ensure audit quality, she said.
Recommended reading:

Friday, June 24, 2011

Some Comments On Fajarbaru

Got a set of comments posted on an old posting: Review Of Fajarbaru's Earnings

  • HLB said...

    Hi Moola, I found this post when I was trying to get some update of Fajarbaru. I used to be an investor of this counter. But the price and volume seems going down recently. I know the last quarter result was no better than preceding year's quarter. I like your style of analysis, would you give some update and your point of view regarding this stock. I am still holding some.
I stopped posting on  because there wasn't much interest and feedback.

Anyway, for your info, here's the updated earnings table on Fajarbaru.


Fundamentally, the company's balance sheet is indeed rather solid and its dividends have been pretty solid recently. ( I am not writing on the DY stuff cos it's pointless cos the yield would depend on your existing cost of investment)

I would agree with you that based on earnings, Fajarbaru's not too happening. As mentioned before in my last posting on Fajarbaru, it's fy 2010 Q4 earnings of 10.463 was distorted by recovery of bad debts worth some 2.7 million. And if we exclude that set of earnings, we are currently looking at a current ytd 3 quarters earnings of some 11.5 million vs 14.2 million recorded the previous year. And we are looking at a possible earnings of maybe less than 15 year for this fiscal year (this is my estimate hor)

Which is rather poor when compared to what it had done the previous years.

And I am not sure if you would notice there's constant exercise of warrants announced on Bursa website, which means if I want to prevent eps dilution shock, perhaps it's best that I calculate Fajarbaru's eps based on the assumption that all its warrants will be converted into ordinary shares.

From my live quotes, currently there are 172,691,075 shares of Fajarbaru and there are some 25,016,025 warrants. Which means for eps calculation sake, I would use 197.7 million shares as the base when I calculate my eps.

The initial announcement from Fajar on this can be found here: FAJAR BARU CAPITAL BERHAD (“FBC” OR “COMPANY”) o PROPOSED PRIVATE PLACEMENT o PROPOSED SHARE SPLIT o PROPOSED RIGHTS ISSUE WITH WARRANTS o PROPOSED AMENDMENTS - note it's a 2007 announcement.

Yes, the share base now is bigger cos there was a private placement done later.

All in with an earnings of 15 million and a share base of 197.7 million, we are looking at a possible eps of 7.6 sen. I would use this set of numbers to estimate the current PER and ask myself if the current traded price if fair, undervalue or perhaps too optmistic.

Back to the earnings issue. As you have noted yourself, earnings is not too happening. Now think about it. What's the possible current business economics for a builder like Fajarbaru?

Would exchange rate be a factor?

Or would soaring commodity prices cause a havoc to the building material prices? If so, what's the impact on Fajarbaru's construction business?

And .... what kind of news are we hearing about Fajarbaru nowadays?

Any new project that would boost its order book?

Ah.. this one important... cos without any new orders, the outlook then would be un-exciting. Not much reason for 'others' to buy the stock. Yes? If I am not mistaken it was bidding bits and pieces for some LRT and some LCCT work. Did it win?

And how is Fajarbaru progressing in its recent attempt to diversify into the property sector?

Posted last July: Fajarbaru Venturing More Into Property Development. I wasn't too impressed because of the lack of information and I thought the deal was rather dodgy and recently there were a couple of news of Fajarbaru trying to diversify more into property. (for eample Fajarbaru JV buying Penang land for RM200m ) Despite my personal dislike of companies diversifying, a property ventrue for a builder like Fajarbaru isn't too bad an idea and more since Fajarbaru is very cash rich. It rather makes sense for it to venture more into property development. Make its 'cash on hand' more prodctive. That's my thinking.

However... if you look at the business segmental from Fajarbaru last reported earnings, progress in the property development is slow....

From Quarterly rpt on consolidated results for the financial period ended 31/3/2011 - see page 11 of the pdf file attached in that link.



And yeah, as pointed out, the share price performance have been disappointing recently.




ps: hope this set of second opinion helps (and yes, I do acknowledge there is some share buybacks activities from Fajarbaru)

Smartag: I Am Wrong Because The Stock Moved Higher?

From the posting Is Smartag Worth A Bet?:

  • ST said..

    SMARTAG shoots up yesterday. Stop being jealous and stop writing nonsense on SMARTAG!
Ok. Smartag moved higher yesterday. So I am wrong because the stock moved higher.

But the jealousy part? The nonsense part?

Err... sorry if I am stupid but I just don't get it.

When I wrote the posting, Is Smartag Worth A Bet?, Smartag was looking like this.


Hmm.... if you take the effort to look at it, at the time of the posting - yesterday morning (started writing at 9.04am) , Smartag was trading at its lowest ever since listing, at 28 sen. So what's there to be jealous about?

Could I be jealous that Smartag is trading at its lowest ever?

If that's a good reason to be jealous, heck I am guilty .... forever. Lock me up dude/dudess!

And so I am writing nonsense. Ok, I will not use the meaning of blog reasoning and neither will I use the fact that I have stated out clearly that I am nobody's friendly investment advisor (heck, maybe I am just plain jealous and unfriendly!) but let's be a bit mature about it.

I have stated out many times that I do welcome all criticism. Yes, if I have the guts to write it out, then I should be more prepared to take all sarcasm and criticism openly.

Meaning to say, if you think what I wrote was all nonsense in the posting Is Smartag Worth A Bet?, I openly invite you to give me the exact reasoning why and what that I wrote was non agreeable - hence a nonsense to you. Seriously? That's an open invitation and I do hope you take what I am writing here with good faith.

So the stock moved up. I am wrong because of that?

Now in the posting ACE Market: Same Old, Same Old Issue, I highlighted the charts of the six newly listed ACE stocks.

Now I am not sure if you are aware but the main culprits, the stocks that were giving the ACE IPO stocks a bad name moved up strongly. Yes, have you considered the fact that perhaps there's a chance that Smartag moved up and rebounded strongly because of this issue?

The badest of these newly listed ACE stocks was of course XOX.

And how did XOX do yesterday? It surged 8.5 sen or 24.29% yesterday.


And its side kick IJacobs soared 12% or up 3 sen too!


Smartag was up a nice 2 sen or 7.14%.


And that Mclean was up 1 sen or 4%.


I am leaving out MPay ( up 1 sen or 6% ) and BoilerM (unchanged) .

But how? Look at those 4 charts of XOX, IJacobs, Smartag and Mclean. These were all newly listed ACE stocks and they all traded below their IPO prices and with a very similar looking charts, they all moved up yesterday.

How?

Is there not a chance that these stocks moved in tandem via association (newly listed ACE stocks trading below IPO pricing) ?

Ah... that's my interpretation.

And I openly say now that I could be wrong about it.

But that's my flawed opinion and I stick to it.

So let's talk about the writing nonsense part. ( Aiyoh - I leave out the jealous part lah. Pointless lah. But if you think I am jealous, so be it. That's your right of opinion lah )

I hope you would indulge in me for a couple of moments longer. Thanks.

Now here is Smartag public info.



Smartag have some 227,000,000 shares.

Ok. let's look at some facts.

On 13th April 2011, Smartag reported 2 set of quarterly earnings.

  1. Q1 -  Quarterly rpt on consolidated results for the financial period ended 31/12/2010
  2. Q2 - Quarterly rpt on consolidated results for the financial period ended 31/3/2011
Q1 - a loss of 386 thousand

Q2 - made 653 thousand.
Current ytd earnings - 267 thousand!
Now the current half year earnings from Smartag is only 267 thousand, my friend.

Smartag have 227 million shares, which means the current half year eps is only 0.16 sen. 0.16 sen only.

Want to calculate the possible PER?

KN 'forecasted' Smartag could be earning some 10.4 million for this current fiscal year and KN is basing it's target price on this year's earnings.

The table again.



Now this is all facts. Not nonsense. I am not twisting anything but merely highlighting this fact.

If you disagree so far, let me know.

Ok.. past earnings does not represent the stock price. Stock price are all based on its future potential. Do you agree? Or is this nonsense too?

And everyone who follows the stock market, knows Smartag potential is in their RFID solution. And Smartag was indeed mentioned to be part of the ETP project.

Yes. That's a fact.

But it's also a fact, that currently, this is still a MOU only and that according to Smartag own announcement, this MOU is terminatable by both parties.

And currently "Smartag, together with the Royal Malaysian Customs Department, will undertake a trial run of the RFID system at the latter's checkpoints from June 1."

This is the trial run. Smartag as per their own announcement will bear all costs for the trial runs.

Any twisting of facts so far?

And according to the Chairman, let me requote that BTimes report "KUALA LUMPUR: Smartag Solutions Bhd stands to make a minimum RM70 million a year once its Radio Frequency Identification (RFID) solution to track container movements is made compulsory. "

So what do we have?

Once the RFID solution is made compulsory, Smartag stands to make a minimum of 70 million.

And so that's the potential, yes?

Agree?

Oh dearie me, I hope I am not writing any nonsense so far.

So the potential of Smartag all hinges on one statement from Smartag's chairman, which is Smartag stands to make 70 million a year if the RFID solution is passed and made compulsory.

Now let's do some simple maths.

Let's do some very basic understanding of what kind of potential we are talking about here.

Let's see.. Smartag have 227 million shares. An earnings of 70 million per year would equates to an eps of 30.8 sen!

And eps of 30.8 sen!

Which means Smartag based on a 9x PE ( 9x PE too low? Maybe. But right or wrong, I use 9x to follow KN's valuation method) , Smartag should be worth at least 2.77.

Do you agree so far that potentially Smartag could be worth some 2.77 if the Smartag's Chairman estimate holds true?

Mind you, that Chairman stressed clearly 'a minimum of 70 million'.

Now if this holds true, then the logical and sensible focus should be on Smartag's disposal of shares recently!

Yes?

Or am I writing nonsense because I am highlighting this fact?

Think about it. "On the 19th April, Smartag was announced that it will be getting a slice of the ETP projects. On the 9th May, the CEO shows his confidence in his own company by selling 6,800,000 shares? Average price of disposal was 35.2sen."

And on 20 June 2011, The wife's company also sold shares. Some 4,250,000 were disposed at a price of 32 sen.

How?

Isn't there the disconnect?

Chairman says a potential minimum of 70 million per year. This equals to an eps of 30.8 sen. So why did the CEO himself dumped some 6,800,000 shares at 35.2 sen. Wife's company dumped it for 32 sen.

Now is this not a serious issue to consider?


I could be wrong but I reckon this issue should be carefully examined.

Why? Because we are not talking about small change, yes? Potentially, based on a simple 9x PE and based on Chairman's 70 million estimate, Smartag should be easily worth some 2.77. Why did the CEO and his wife think otherwise?

Think about it..... that's all I would say.

And yeah.... Smartag is up again. It currently last traded at 0.305.

Oooopsy daisy me... I must be wrong again...and I am also jealous...... since I am writing ... err... nonsense again.

ST, no matter what, good luck lah. But again.. if you could afford your precious time, do share with me, why you consider what I wrote on Smartag as nonsense.

ps: ST, if you really believe that Smartag RFID solution could bring a potential earnings of 70 million per year, seriously, just buy all of Smartag. Yes, buy it all the way. Sapu everything! 50 sen, 60 sen, 70 sen, 80 sen, 90 sen.... just buy! Why? At 70 million per year, Smartag should be worth easily above 2.70 lah. Ok ma?

Thursday, June 23, 2011

How Is AirAsia Going To Finance This New Airbus Order?

On 25th May 2011, I wrote the following: http://whereiszemoola.blogspot.com/2011/05/update-on-airasia-earnings.html

Back in early Aug 2010, I gave AirAsia credit. Yeah I did. LOL!

In the posting Positive Move That AirAsia Defers Their AirBus Order, I said the following...

  • However, let me say this, I have to give AirAsia some credit for eating the humble pie and for successfully persuading AirBus to allow them to defer the delivery of the air crafts and more so, this move really gives them a fighting chance to survive and to overcome their insanity of building a company which was clearly over burdened by the immense corporate debts they took upon to finance the building of their business.Yeah.. AirAsia should be ok for the next one year or so... yeah.. this is a POSITIVE CORPORATE exercise... it's certainly extremely crucial that AirAsia made this postponement of delivery.... but... deferring is only a postponement.... and in regardless, these air crafts order still needs to be delivered!
And AirAsia the stock had done fairly well since then. (LOL! That would be some major understatement for some)



(ps: you are welcome! :D )

And I continued to make reference on it.

On 4 Dec 2010: A Look At AirAsia Stellar Earnings. The positive moves from the deferment of the aircrafts was visible on the balance sheet. I made the following remarks.

  • The cash/debt level, has it improved?
    The c.c or capital commitment column 'improved'. Would I pay attention to the value? Or should I pay attention to the number of aircraft to be delivered?

On 24 Feb 2011: What Do You Thnk Of AirAsia's Earnings?

From that posting ::

Cash actually improved a lot compared to the previous quarter.

And debt increased slightly.
But the capital commitment... there was a huge improvement, yes?
And as mentioned before in August 2010, I thought it was a Positive Move That AirAsia Defers Their AirBus Order.

Seriously... it's giving AirAsia a fighting chance to survive!!!

And I still hold those remarks from that posting.
  • However, let me say this, I have to give AirAsia some credit for eating the humble pie and for successfully persuading AirBus to allow them to defer the delivery of the air crafts and more so, this move really gives them a fighting chance to survive and to overcome their insanity of building a company which was clearly over burdened by the immense corporate debts they took upon to finance the building of their business.

    Yeah.. AirAsia should be ok for the next one year or so... yeah.. this is a POSITIVE CORPORATE exercise... it's certainly extremely crucial that AirAsia made this postponement of delivery.... but... deferring is only a postponement.... and in regardless, these air crafts order still needs to be delivered!
  • Anyway... a postponement is a postponement is a postponement. Come 2014 (last August AirAsia deferred 8 AirBus to 2014) and 2015, these air crafts still needs to be delivered. Which means, from now till then, AirAsia still needs to ensure that it builds up its cash flow to ensure it can accept delivery of these air crafts that they had ordered. Unless of course, AirAsia can pull off another miracle by asking AirBus to allow them to defer yet once more. :P
    ps: yeah, AirAsia X listing would indeed help AirAsia financials. It too is required. And it is the ONLY OTHER logical and sensible option for AirAsia to rescue its dire balance sheet.

Back in early 2009, I certainly thought AirAsia was doomed. I really thought there was a 90% chance it go into deep trouble but now I have changed my opinion. It's doing all the right things to survive.

They got their placement of shares. They deferred their aricraft order and their current plans to list AirAsia Thailand would help a lot!

But then the main issue or risk is... 2014 and 2015.

That's when AirAsia would have to take deliveries of all the aircrafts orders they have postponed. Will they survive? Or will they not?

ps: I have no idea what the stock would do. :/

---------------------

Last night AirAsia reported its earnings.

I believe the following updated table would speak for itself in regards to the much improvement in AirAsia balance sheet.



ps: And as usual I have no idea and have no interest to know how the stock will do.


------------------------

I repasted the entire posting because  today, AirAsia confirmed its new order of aircrafts:  AirAsia places firm order for 200 A320 Airbus aircraft

200 aircrafts!

Holy cow!
  • KUALA LUMPUR: AIRASIA BHD [] placed a firm order with Airbus for 200 A320neo aircraft, which is the largest order for the aircraft manufacturer.

    Altogether, AirAsia has now placed firm orders for 375 A320 Family aircraft, with 89 already in service on the carrier's fast-growing pan-Asian network. In addition, the carrier's long haul affiliate AirAsia X is also an all-Airbus customer having placed orders for 38 widebody aircraft.

    The order for the 200 aircraft makes AirAsia the biggest airline customer for the Airbus single aisle product line worldwide. Its A320neo aircraft will be powered by CFM International’s new LEAP-X engines.

    AirAsia group chief executive officer Tan Sri Tony Fernandes said on Thursday, June 23 with this historic deal, AirAsia had secured its future with the ability to meet the huge growth potential offered by the Asian market.

    “Our decision to be one of the launch customers for the A320neo will ensure that we remain at the forefront of our business, with one of the world's youngest and most modern fleets," he said at the Paris Air Show.

    The A320neo, which incorporated new engines and large wing tip devices called sharklets, will ensure fuel savings of 15% and additional range capability of 500 nautical miles (950 km), or the ability to carry two tonnes more payload at a given range.

    The fuel savings translate into some 3,600 tonnes less tonnes carbon dioxide per aircraft per year. In addition, the A320neo will provide a double-digit reduction in NOx emissions and reduced engine noise. The A320neo will have over 95% airframe commonality with the existing models, enabling it to fit seamlessly into existing A320 Family fleets.

    Over 7,000 A320 Family aircraft have already been ordered and almost 5,000 delivered to more than 330 customers and operators worldwide.
No price mentioned???

So I searched Bursa website: Purchase of Airbus A320 Neo.pdf
  • AirAsia Berhad (“AirAsia” or “the Company”) is pleased to announce that it has signed a Purchase Agreement with Airbus S.A.S (“Airbus”) to purchase two hundred (200) Airbus A320 NEO aircraft (“A320 NEO Aircraft”).

    With the purchase of the A320 NEO Aircraft, the aggregate total of AirAsia’s aircraft order for the AirAsia Group including the current A320 aircraft will be three hundred and seventy five (375) aircraft orders comprising one hundred and seventy five (175) firm orders of the current A320 aircraft and two hundred (200) firm orders of the A320 NEO Aircraft.
Let's refer to the table from May's posting again.



Yes, cash is improving but the most worrying thing for me is the C.C or Capital commitment. As per the most recent earnings report, fy 11 A1, AirAsia said its total capital commitment for new aircrafts totals some 19.635 billion ringgit.

Today's order:?
  • The value of the A320 NEO Aircraft Purchase based on list price is approximately US$18.2 billion for 200 aircraft.
US$18.2 billion!??

WOW!

Using a lower and simple exchange rate of 3.00 to the USD, this would work to about an aircraft order worth 54.6 Billion ringgit!

Which means AirAsia capital commitment would now be 74.235 billion ringgit!!!!

WOW!

This is massive. As mentioned before and highlighted again in the top of this posting, I was worried about AirAsia financial position back in 2009. However, because AirAsia had deferred its new aircrafts deliveries, AirAsia financials turned for the much better. Cash flow improved. And with the possible listing of its subsidiaries, AirAsia looked ok. But today's announcement is scary. It's a massive worry. How on  earth is AirAsia going to be able to finance this?

Ok, the new the aircraft delivery schedule is to commence from 2016 through 2026, and when we add in the current existing order with this new order, from now till 2026, AirAsia will be taking in delivery of 285 new aircrafts!

How?

AirAsia still can ah?

------------------------

From AirAsia announcement today, the delivery schedule.

( first line would read, aircrafts no.90 to 96 or 7 new aircrafts will be delivered this year. This is part of the current A230 Airbus order.)

Aircraft N° 90 - 96 7 2011 Current A320


Aircraft N° 97 – 110 14 2012 Current A320

Aircraft N° 111 – 123 13 2013 Current A320

Aircraft N° 124 – 141 18 2014 Current A320

Aircraft N° 142 – 160 19 2015 Current A320

Aircraft N° 161 - 175 15 2016 Current A320

Aircraft N° 176 – 179 4 2016 A320 NEO Aircraft


Aircraft N° 180 – 193 14 2017 A320 NEO Aircraft

Aircraft N° 194 – 211 18 2018 A320 NEO Aircraft

Aircraft N° 212 – 230 19 2019 A320 NEO Aircraft

Aircraft N° 231 – 250 20 2020 A320 NEO Aircraft

Aircraft N° 251 – 271 21 2021 A320 NEO Aircraft

Aircraft N° 272 – 294 23 2022 A320 NEO Aircraft

Aircraft N° 295 – 318 24 2023 A320 NEO Aircraft

Aircraft N° 319 – 342 24 2024 A320 NEO Aircraft

Aircraft N° 343 – 366 24 2025 A320 NEO Aircraft

Aircraft N° 367 – 375 9 2026 A320 NEO Aircraft

Is Smartag Worth A Bet?

Posted on Tuesday: ACE Market: Same Old, Same Old Issue. In that posting, I highlighted six of the new ACEs in the ACE Market.

We all know and read about McLean and THAT

Let's look at Smartag. This one is rather very interesting because it was mentioned as a company getting a slice of the ETP projects.

The retail IPO price for Smartag was 31 sen. Stock closed yesterday at 28 sen - down close to 10% from its IPO price.




With the stock getting a slice of the ETP, what gives? Look at the chart above. One does not have to be a rocket scientist but that's clearly a chart of a stock in a strong downtrend at this moment of time.

** Ah... at this moment of time... is crucial. Stock charts changes all the time. And mind you, stock fundamentals changes too! Some very slow but some stock fundamentals could really change overnight! Anyway... at this moment of time.. that's a stock with a serious downtrend but needless to say the downtrend might not be permanent and it could change for the better - yes let's be mature about it and acknowledge this fact first. **

So why the stock like this one?

Is the investing public missing out on something?

Or is there a reason why the stock is trading so badly?

Yes, could this be a hidden gem, the ACE in the ACE market or could this just be a potential bad apple?

Now of the things that is useful is the IPO coverage of the stock.

And for the case of Smartag, KN covered this stock.

Here's the copy.





Quote:
  • Smartag is a provider of total Radio Frequency Identification (RFID) based solutions for potential clients that seek to optimise their business process and data flow using RFID technology. We like the company’s impressive net margin of more than 40% and expect such level to be maintained for the next 3 years. We expect earnings to grow marginally for the next 2 years and the impact of its Land Checkpoint Project shall arrive in FY13. We value Smartag at RM0.42 and recommend investors to subscribe the IPO.
And their basis of that 0.42 sen price tag.

This is important. Do we just want to take the target price based on face value (ie if KN says 42 sen then 42 it is?) or do we want to know the basis on how they got to such valuation?

  • Valuation. The IPO price of RM0.31 is undemanding at 6.8x PER based on FY10 earnings compared to its peer CBS Tech’s average PE Band of 9x. We value Smartag at RM0.42 based on 9x PER over CY11 core EPS of 4.7 sen.

Ok 9x PER based on CY11 eps of 4.7 sen.

Let's look at the earnings table from KN.




Look at the core net profit numbers highlighted by the arrows.
It earned 8.4 million for fy 2008.
The next year, fy 2009 earnings fell to 6.4 million.
 But the following year, the year before Smartag is listed earnings soared to 10.3 million.

Ok. There's two thoughts from me on this.

1. 2009 is generally a bad and messed up year for many companies worldwide. Perhaps it's understandable that we do see such a drastic dip in earnings.
2. The pessimistic side. Well, rightly or wrongly, I had been taught to be aware of companies that has a sudden surge in earnings the year before its IPO listing. Why? The reasoning is that it's a smelly and rotten world out there and there's a chance that the earnings were dressed up for the IPO. Is this the case for Smartag? I do now know for sure but if one is a pessimistic perhaps one could err by being cautious. ( ** note : this one ... very tacky point. Yes.. there is certain implications with this point. Very sensitive. DO note I am not saying that the earnings dressing happened but it's just a thought and I am certainly not implying anything and it's best you the reader make your own conclusion.)

 Anyway, for fy 2011, KN has estimated Smartag would earn some 10.4 million or an eps of 4.7 sen.

The earnings estimate seemed a bit flat, no indication of growth and most important, the earnings estimate is not far fetched. (not like in the case of AsiaEP mentioned in the posting And Who Is Helping The Stock Market Become A Casino? )

So the key figure now is an eps of 4.7 sen. 

If the eps is achievable, then at 28 sen, Smartag is trading at a rather low PE multiple of 5.9x based on KN's estimate of Smartag earnings in 2011.

I then checked my quick data. Sometimes, I use the quick financial tracker provided by the local trading houses.

Here's the snapshot of Smartag's current quarterly earnings.




Smartag reported a loss for it's Q1?

Time to check Bursa website.

On 13th April Smartag made 2 earnings announcements!
Q1 - a loss of 386 thousand
Q2 - made 653 thousand.
Current ytd earnings - 267 thousand!

Errr... two things.

1. Smartag was listed only on 18th April 2011. So these 2 quarterly earnings was before Smartag was listed and yes, I have said it many times before,  pre-IPO earnings are not too reliable and sometimes we need a financial track record of at least 2 years to make a more intelligent reasoning.

2. However... on the other hand... some reckons that the early morning cow gets to eat all the fresh grass. Yes, some feels that in order to make it big and score a multiple bagger, you need foresight, you need to spot potential and you need to take risk. You need to take a chance! No risk no gain babe. No money, no honey babe.

Well, as I have said many times before, it's pointless for me to argue which is the best stock market strategy. Honestly, if you think your way is ok, just carry on and do it your way. No joke. That's all I can say.

Now if this is the case, then all these pre-ipo earnings and projections becomes more important a yardstick.

So what we have? Smartag half year earning is only 267 THOUSAND. Yes, that's very little little but what's more important, based on this limited data,  it suggests that KN earnings forecast of 10.4 million or an eps of 4.7 sen is highly unlikely.

Think about it. Company made only 267 thousand for the first half of fy 2011. And KN expected earnings for fy 2011 is 10.4 million??????

How?

What do you think now of Smartag's fair value price of 42 sen given by KN? Is it achievable?

And when one puts this factor into perspective, then perhaps it explains why Smartag's current traded price is on a clear downtrend.

But what about the ETP?

Comeon.. a stock should be valued based on its future potential, yes?

I agree.

Let's look at the ETP project awarded to Smartag.

On 19th April 2011: OTHERS: Smartag Solutions Berhad (“Smartag” or the “Company”)Smartag named as part of The Security and Trade Facilitation System using Radio Frequency Identification (RFID) (“Project”) for the Royal Malaysian Customs Checkpoint throughout Malaysia
  • Pursuant to the speech given by the Prime Minister of Malaysia, YAB Dato’ Sri Mohd Najib bin Tun Abdul Razak at the Economic Transformation Programme (“ETP”) Progress Update Conference on 19 April 2011, the Board of Directors of Smartag wishes to inform that Smartag was named to be a part of the Project to provide security and trade facilitation system for the Royal Malaysian Customs at its checkpoints throughout Malaysia.

    The ETP is a comprehensive effort under the Performance Management & Delivery Unit (“PEMANDU”) to spearhead growth areas in various industries with the objective of raising Malaysia’s overall gross national income. The PEMANDU’s main role and objective is to oversee the implementation, assess the progress, facilitate as well as support the delivery and drive the progress of the ETP.

    At this juncture, no memorandum of understanding or agreement has been signed in respect to the Project. Further announcements on the progress of the Project will be released in due course once the Company receives further details on the Project.
Two days later, the Edge carried the following article: Smartag to rely on internal funds for ETP project
  • Smartag to rely on internal funds for ETP project
    Written by Kamarul Azhar
    Thursday, 21 April 2011 11:54

    PUTRAJAYA : Newly-listed Smartag Solutions Bhd will rely on internally generated funds to finance the implementation of radio frequency identification (RFID) infrastructure at customs checkpoints throughout Malaysia. This was one of the Entry Point Projects (EPP) announced by Prime Minister Datuk Seri Najib Razak at the Economic Transformation Programme (ETP) progress update on Tuesday.

    “The Customs checkpoint project enables containers transported via roads to be tracked using our RFID system, which is based on international standards. The RFID seals will be tagged to the containers and scanned by RFID readers which will be set up at land checkpoints,” CEO PK Lim told The Edge Financial Daily in a telephone interview yesterday.

    Smartag will provide customs checkpoints with RFID readers to read seals tagged on containers and certified products via a system called Smartrack, he said. Smartrack is a software that serves as a date repository system allowing seamless information sharing between different parties in a RFID system.

    The company registered RM5.7 million and RM267,000 in revenue and net profit in the first six months ended March 31. As at March 31, it had total assets of RM30.6 million while total liabilities stood at RM1.7 million. It had cash and cash equivalents of RM1.3 million.

    Smartag debuted on Monday on Bursa Malaysia. Its core business in is the provision of RFID solutions, including consultation, planning and implementation. RFID is an electronic system that uses radio frequency signals to identify individually tagged objects or personnel.

    The company has been in talks with the Customs Department to implement its RFID system to enhance the efficiency of container clearing and improve security for certified products such as timber, palm oil and halal products.

    According to company chairman Datuk Abdul Hamed Sepawi, the project would benefit Malaysian companies as it would pave the way for the creation of paperless customs checkpoints throughout Malaysia, reducing the hassle of paperwork to obtain clearance for containers and transport.

    “This project will benefit Malaysian companies, especially manufacturers, exporters, courier service providers and transporters, as it improves the security of certified products such as timber, palm oil, and halal-certified products,” he told the press conference after the announcement of new EPPs by the prime minister on Tuesday.

    Smartag will invest RM45 million in the project, which will be spent in tranches until 2020. The EPP will have a Gross National Income impact of RM201 million by 2020.

    Smartag’s stock was one of the most actively traded on Bursa yesterday with 63.7 million shares changing hands. The counter closed 3.5 sen or 8.75% higher at 43.5 sen.


    This article appeared in The Edge Financial Daily, April 21, 2011.
The stock rallied strongly on the news of the award.


On 12th May, Smartag announced the following: OTHERS


  • Kenanga Investment Bank Berhad on behalf of the Board of Directors of Smartag, wishes to inform that a Memorandum of Understanding (“MOU”) between Smartag and the Jabatan Kastam Diraja Malaysia (“JKDM”) was signed on 12 May 2011 for the Security and Trade Facilitation System using Radio Frequency Identification (“RFID”) (“Project”) for JKMD throughout Malaysia.

    The objective of the partnership between Smartag and JKDM to undertake the Project is to reduce the traffic and waiting time at each customs checkpoint location and also further improve the information system of JKDM in deterring security threats with the use of RFID technology.

    The salient terms of the MOU area as follows:-

    (1) Scope of Work and Responsibilities
        - Smartag will be the main contractor in implementing the RFID system and setting up the necessary RFID hardware at the customs checkpoints throughout Malaysia. - In implementing the RFID system under the Project, both Smartag and JKDM will host seminars and courses to educate and spread awareness about the RFID system to various stakeholders in the logistics industry including members of logistics and transportation associations in Malaysia. - Smartag and JKDM will perform pilot tests on the RFID system under the Project for three (3) months from 1 June 2011.

    (2) Period
        - The MOU will be in effect until the signing of a superseding agreement between Smartag and JKDM, if any, or any termination request from either parties.

    (3) Cost
        - Smartag will bear all costs related to the implementation of the Project. The exact quantum of costs and financial impact to the Company cannot be determined at this juncture given the nascent stage of the Project and the full scope of work involved is still being assessed by the Company. Furthermore, the pilot tests have yet to begin.

    (4) Termination
        - Both parties may terminate the MOU by way of notice in writing at least ninety (90) days in advance.

    (5) Confidentiality
        - Both parties agree to ensure that all documents, information and relevant data received from each other over the period of the MOU and after the termination of the MOU are kept private and confidential unless such documents, information and relevant data are required by law to be revealed.

    Further announcements on the progress of the Project will be released in due course.

    This announcement is dated 12 May 2011.
So far, that's all there is.

At this moment of time, it's a MOU only.

On 24th May, Smartag was featured in a Business Times article. 
Smartag to start RFID trial run at Customs
  • KUALA LUMPUR: Smartag Solutions Bhd stands to make a minimum RM70 million a year once its Radio Frequency Identification (RFID) solution to track container movements is made compulsory.

    Smartag, together with the Royal Malaysian Customs Department, will undertake a trial run of the RFID system at the latter's checkpoints from June 1.

    Smartag chairman Datuk Abdul Hamed Sepawi said the pilot project will run for three months with major companies from the logistics and manufacturing sectors such as Western Digital, TNT, Federal Express Brokerage and Priority Cargo having signed up for the test run.

    Abdul Hamed said the company may charge around RM10 per trip/container for journeys within the country. Taking into this account, Smartag is set to make at least RM70 million a year once the RFID solution is made mandatory. However, this was just an indicative pricing for now, he added.....
The Chairman speaks of the rm 70 million potential.

Yes.. but note that he's saying it's only possible 'once the RFID solution to track container is made compulsory' and for what it's worth... it's just an indicative pricing now.

So how?

Do you want to bet on this potential?

Er..then I saw the following announcements:

Changes in Director's Interest (S135) - Lim Peng Keong

Lim Peng Keong? That's the CEO and according to that announcement some 6,800,000 shares were disposed on 9th May.


Macam mana ni? On the 19th April, Smartag was announced that it will be getting a slice of the ETP projects. On the 9th May, the CEO shows his confidence in his own company by selling a substantial chunk of his shares? Average price of disposal was 0.352.

What lah!

And then on the 20th June, there was another disposal of shares!


Changes in Director's Interest (S135) - Lim Peng Keong

Accordingly the CEO said that 'The disposals were transacted by Namnan Co. Ltd, which my spouse has controlling interest.'
The wife's company also sold shares. Some 4,250,000 were disposed at a price of 32 sen. ( Just one sen above the ipo price of 31 sen).

How?

Project is supposed to be big.

Big money is there to be made.

The chariman openly said that the RFID project could see Smartag making some 70 million a year. Sorry a MINIMUM of 70 million once the RFID solution is made compulsory.

70 million is a lot of money.

And surely if that's true... the shares would be worth many, many times than what it is trading now. And certainly worth much more than what the CEO sold his shares for. And also certainly worth much more than what the CEO wife sold for.

How?

I dunno... but what the CEO and wife is doing here... is clearly sending a bad signal to the market.

And perhaps the current earnings is not helping much.

Which probably explains why the stock is doing so poorly since its IPO listing.

How?

Do you really want to bet on Smartag?

Do you really think it could be an ACE in the ACE stock market?














ps: I am not Paul, Paul's gone and I do not know if Smartag will soar to the moon and neither do I know if it will crash and burn. And oh... neither am I friendly too. :P