Saturday, June 11, 2011

And That XOX Plunges 35% On Listing Day!

The stock that was the talk of the town yesterday was XOX. How could it not be because the stock plunged an incredible 35% on its listing day!

It's IPO price was 80 sen. It opened at 73 sen and closed the day at 52 sen.



And needless to say the stock was featured prominently in the local papers today.

On Business Times: XOX takes poor Bursa debut in its stride
  • "The opening price is commendable. There is much potential for the group with our upcoming track record, very resilient business model and business expansion plans.

    "We are confident of our prospects. We understand from Bursa (Malaysia) that the market is soft, we will see what happens in the future," XOX Bhd managing director and chief executive officer Ng Kok Heng said at a press conference after its listing yesterday.
Traders who punted on this stock yesterday would probably be so disgusted to read that set of comments! They were probably saying what on earth is the CEO talking about? What commendable opening price? What the heck? The stock IPO price was 80 sen. The stock (XOX) opened at 73 sen and went down all the way with sellers dominating the trade all day yesterday. Confident with prospects?

The Business Times article then continues:
  • XOX is the first mobile virtual network operator (MVNO) to be listed on the Malaysian local stock exchange.

    An MVNO provides mobile phone services but does not have its own licensed frequency allocation of radio spectrum.

    XOX offers mobile phone services by tapping into the infrastructure of Celcom Axiata Bhd
Yes, XOX is a MVNO and as such its piggy backing on Celcom. It's a leaching business. How sustainable can it be? And since it's leecher, while the company XOX saves on costs, it does not have much ASSets!

Meaning to say, if something is to go wrong, there's nothing much an investor/shareholder can fall back on and common sense would suggest that the ipo speculator should at least know what's the net asset of the company is. And from the company ipo prospectus pdf here, go page 160, one would clearly note that the nta per share is only 10.52 sen.


And somehow the stock is IPO-ed at 80 sen. Go figure this one out!

The article then continues:
  • Ng said XOX expects to turn around this year after posting net losses for the past two years. In 2009, it registered a net loss of RM13.1 million while in 2010 the losses were higher at RM16 million.

    This year, it expects a net profit of RM19.8 million due to the anticipated rise in its subscriber base, which stands at 470,000.

    However, its first quarter results say otherwise.
    XOX continued to post losses and this time, its net loss for the first quarter ending March 31 stood at RM1.67 million, which was mainly due to selling and distribution expenses in creating brand awareness for XOX's services.
Company had been losing money for the past 2 years. ( Will come back to this issue later)

But the CEO said it WILL turn around and post a net profit of 19.8 million after it had post a loss of 13.1 million in 2009 and a HIGHER loss of 16 million in 2010!!!!  Truly incredible! Such a wildly optimistic profit projection!

Now I would make a big ass out me and you by ASSUMING that IPO was priced based on this PROFIT ESTIMATE! - ahem.. remember the past postings throughout this blog - the higher the profit estimate, the higher the stock fair value projection! Yes! The numbers game! Pluck a number from the sky and own it!

And Business Times did a fairly well job by publishing the following:
  •  "XOX has been posting losses for the past two consecutive years and even their first quarter results were not even profitable.

    "Maybe that is why they are not doing well (on its listing debut)," said an analyst who did not want to be named.

    "The (telco market) is very competitive and network coverage is important. They (XOX) should have value-added services and their next growth leg should be broadband. This market is very difficult because they are dominated by other markets and big players," the analyst added.

    TA Securities too has not many good things to say about XOX in its research report.

    "Due to the limited data on peer comparison for XOX, we are wary on the growth potential in the near future.

    "As such, we are sceptical whether this IPO will be well-received. Its previous year losses and bullish forecasts will probably remind investors of TIME dotCom's fate when it was listed some time ago," the firm noted.
On Star Biz: Bad start for XOX on Bursa
.
  • An analyst who was more positive on the stock said the profit-taking activity by investors could be a knee-jerk reaction to XOX's first-quarter results.

    “The worries are probably overplayed. (But) XOX's expenses to boost its brand awareness were necessary or else it will just lose market share to competitors.”
Knee jerk? Worries overplayed? ( ps: who this analyst ah? )

Comeon.. let's stick to facts. Fact is company has yet to make a single sen of profit. It promised to turn around and make a tidy profit this year. But according to its first quarter announcement, indications are not good that it can even make a profit this year!

So dear un-known analyst, why shouldn't those investors be worried?

Anyway the Star Biz article then continues:
  • Research house Inter-Pacific noted that as a full-fledged MVNO, XOX was able to ride on Celcom Axiata Bhd's network for infrastructure, meaning that costs on infrastructure would be minimal.

    “Consequently, proceeds from the IPO would be used mainly for branding and customer acquisition activities,” it said in a research note yesterday.

    It added that XOX predominantly targeted the Chinese community, which includes blue-collars, business owners, foreign Chinese nationals and youths.

    “As per agreement with Celcom, XOX's advertising and marketing activities can only be in English and Mandarin.

    “While this does not restrict XOX from acquiring other customer segments, it would limit the company's opportunity to reach out to the Malay populace.”

    Inter-Pacific also said XOX lacked both financial and operations records, adding that the company had been loss-making for the past four years.

    “We do not hold as much confidence as XOX's management on its spirited forecast for its current financial year (FY11) in terms of subscriber acquisition and higher ARPU (average revenue per user) assumptions.”

    According to its prospectus, XOX expects a net profit of RM19.7mil for FY11 against a net loss of RM15.9mil posted a year ago. It also anticipates revenue to surge more than 10 times to RM249.5mil from RM20.1mil achieved in FY10.

    Inter-Pacific said it expected a lower net profit and revenue at RM16.3mil and RM161.7mil respectively for XOX's FY11.

    “XOX's entrant as a niche player to cater for the ethnic Chinese seems to be a viable idea, with strong backing from its MVNO, Celcom, which looks at it as a win-win situation as Celcom does not concentrate on this segment.

    “We are, however, hesitant of such ambitious numbers and believe that intense competition in the industry will hurt XOX's projections.
Oooh! Did you feel confident reading that?

Me?

Sorry I don't. In fact it makes me more sceptical about this company business fundamentals.

It's a leecher and worst still it appears to cater mainly to the ethnic Chinese. A selective market.

Sorry but I rather be wrong and be dumb and silly by being pessimistic about the sustainability of this company's business model!

Ah.. and it's certainly not a crime if by being dumb and silly and missing out on a single opportunity.

But that's just me.

Ok so what do we have?

We have this company, XOX, plunging an incredible 35% on listing day. Then we read the company has been losing money. And of course, amidst market chatter is how on earth can this lousy money losing company be listed in the first place? How can?

I then asked myself. How did XOX project itself to the investing market prior to listing? Was it straight forward to the investors that it had been losing money?

Simple questions I asked. So I did a quick search around.

Some articles from Star Biz:

Jan 2011: XOX believes in conquering niche segment first

April 2011: XOX set to tap Sarawak's potential

Nothing. No talk about XOX having losses.

The IPO prospectus was posted on Bursa on 24th May 2011. click here

Then the next day, on Star Biz: XOX expects to return to profit this year
  • KUALA LUMPUR: ACE Market-bound XOX Bhd expects to return to profitability this financial year ending Dec 31, 2011 (FY11) and grow its revenue more than 10 times on an increase in subscribers, higher average revenue per user (ARPU) and the launch of more services.

    According to its prospectus, XOX, a full-fledged mobile virtual network operator (MVNO), expects a net profit of RM19.7mil for the current FY11 against a net loss of RM15.9mil posted a year ago. It also anticipates revenue to surge more than 10 times to RM249.5mil from RM20.1mil achieved in FY10.

    “The industry is huge and it is still growing. We need to get the subscribers and will be launching more services going forward. Without the revenue, you can't get the net profit,” chief executive officer Ng Kok Heng said after launching its prospectus yesterday.

    XOX, which is slated for a listing on June 10, currently has more than 400,000 subscribers and targets to hit one million subscribers this year.

    The telco forecast that there would be 1.77 million starter packs sold to distributors at an average selling price of RM8.81 per starter pack for the current year.
    “In the past three years, we have garnered a significant 20% market share in the MVNO space in the country and built a reputation for introducing innovative and customer-centric services with unbeatable value,” Ng said.

    He said as an MVNO, XOX did not have to invest heavily in infrastructure. XOX currently rides on Celcom Axiata Bhd's network infrastructure.

    On ARPU, Ng said XOX's average ARPU was about RM20 per month, comprising mostly pre-paid customers. However, he said with more services such e-wallet, an electronic payment service to be launched this year, its ARPU was set to increase. XOX expects the new services as well as wider availability of its products nationwide to help draw more subscribers to its stable.

    “We believe that it (e-wallet) will be a lifestyle enhancer for our consumers by bringing additional convenience in making payments and various deals,” he said.

    XOX's IPO entails the public issue of 46.8 million new ordinary shares at an initial public offering (IPO) price of 80 sen each, raising RM37.4mil in proceeds for the group. Of the 46.8 million public issue shares, 29.8 million shares will be allocated for private placement for eligible identified investors, 9.5 million shares to be allocated to eligible directors, employees and business associates of XOX and 7.5 million for the public.

    Asked if the IPO shares of 10 sen par value to be issued at 80 sen were expensive, Ng said it was “relative”.

    XOX plans to allocate RM23.2mil from the proceeds of its IPO for working capital, RM6.2mil for capital expenditure, RM5mil for payment to creditors and the balance RM3mil for listing expenses.
The losses were DECLARED but much was focused on the company's future prospects. This was expected. Like at any other stock, stock are priced based on its future prospects. Hence, it was not a surprise for me to see the CEO making talk about its company's potential.

However... CEO's needs to understand that they need to deliver and they need to deliver as promised!

That's an extremely crucial point from an prospective investor point of view. Investors hate to see CEO who just makes talk cheap!

Now on the 9th June, a day before XOX was scheduled to be listed, XOX announced that it made losses!

Posted on Thursday evening:
  • XOX Group posts 1Q net loss of RM1.66m
    Written by Joseph Chin of theedgemalaysia.com
    Thursday, 09 June 2011 19:55

    KUALA LUMPUR: Mobile virtual network operator XOX Group Bhd, scheduled to list on the ACE Market on Friday, June 10, reported that it made a net loss of RM1.66 million in the quarter ended March 31.
    It said on Thursday, June 9 the loss after taxation was mainly due to the selling and distribution expenses which were necessary in creating brand awareness for XOX’s services.

    It recorded revenue of RM12.68 million on the back of about 391,000 subscribers.

    “During the current quarter XOX has also managed to record an average revenue from sales of recharge of approximately RM30 per user per month,” it said.

    Under the listing exercise, the offer price of the shares was 80 sen.

    It received 6,652 applications for 106.5 million shares with a total value of RM85.2 million, for the public tranche of 7.5 million shares.
How big a shocker is that?

The stock is supposed to be listed the very next day and on the late edition news, the stock announces it loses money!

Remember according to the prospectus, which was also repeated by the CEO to the investing public "XOX, a full-fledged mobile virtual network operator (MVNO), expects a net profit of RM19.7mil for the current FY11 against a net loss of RM15.9mil posted a year ago. It also anticipates revenue to surge more than 10 times to RM249.5mil from RM20.1mil achieved in FY10.

They PROMISED a net profit of 19.7 million. How did the company do? The company did a net loss of 1.66 million.

They PROMISED revenue to search 10 times to rm 249.5 million.

Now this one is the important issue. The revenue is the gauge on whether the company can deliver or not. And XOX said it only had a revenue of 12.68 million for the quarter!

What? What? What?

Yes. A revenue of only 12.68 million.

Multiply by 4 and you will get roughly 50 million. And 50 million is a far, far cry from 249.5 million!!!

How now?

Macam mana ni? How can? What on earth is going on?

How can the company promise a revenue target of 250 million and the company only does 12.6 million for the first quarter????

At this rate, how can any investor trust or believe that this company can make money?

And last but not least, as per the marker chatter, there are some that are wondering why shares are thrown down like crazy. Wasn't the price of the IPO at 80 sen? What's happening? Why are the sellers willing to dump the shares with such huge losses?

Aha!

This is where it pays to read the IPO prospectus!

Sorry but this is a true fact.

Open the following pdf file posted on Bursa website: http://announcements.bursamalaysia.com/.................pdf

Go to page 46.



Look at the average cost per share held by the major stake holders! Compare that to the IPO investors price of 80 sen. Compare that to the current market price!

How?

Fair game?

8 comments:

TK said...

Even the closing price is "commendable",not to mention "The opening price".

solomon said...

If one remember the StarWar D2' maybe it will say BDBD, It look like drinking XO and plunge at the drain....R2 will say come on, life still goes on, my pocket is full.

Mr ICICI said...

disgusting....

the fault lies squarely with bursa and sc for allowing such a thing to happen.

limko said...

The MD is farting and the analyst is farting and the investment banker together with the original investors made the public suckers and fools!

William Wang said...

The revenue seemed over estimated 5 times by its CEO, as such, it should also mean, IPO is also over priced by 5X. Will its price continue to drop to 16sens. This is interesting.

Digital said...

Well, not a surprise to me...it is expected. When Dali wrote about mclean on 22nd May, I already commented that mclean clone in the making is around the corner.

Take note XOX losses not past 2 years but past 4 years...see this (http://xox.investor.net.my/income-statement). 10x revenue for this year alone with about 9 months left is hard to believe too, especially when you know that the mobile market is a tough market...26million population with so many players and you cant expect much.

Moolah said...

Yes Digital it's FOUR years of losses. I refer two because two was stated in the local papers. Thanks for the correction anyway.

NoaH_见舟 said...

Latest XOX financial report....

6 months ended.
Revenue: RM35,767,000 (Forecasted RM250,000,000)
Nett Loss: (-RM4,588,000)