Tuesday, August 23, 2011

KNM: Of Profit Guidance And Corporate Governance

From the posting: And So KNM Reported Its Earnings ..

  • K C said...
    KNM's ebitda for the half year 2011 is 78 m, and if annualized, 156 m. That EBITda amounts to less than half of the management guidance. KNM is a "big head devil". If you look at its earnings, 6 month pretax earnings is 8 m, or just 0.8% of the turnover. What is its ROE? 0.5%! Having more than a billion total debt, it just needs the interest rate to go up by 100 basis points to wipe out any profit! Some more the management keep on giving false hope to investors, just to do the wrong thing; to boost up share price. Do you want to invest in this type of company? KNM is too expensive at 50 sen is one of the most outrages investment understatements of the year
Some more the management keep on giving false hope to investors, just to do the wrong thing; to boost up share price

Flashback March 2008: Some Musings on KNM Reports

In that posting, I pointed out that in RHB's report, RHB mentioned the following:
  • Management is giving guidance that FY08-09 net earnings to be around rm450million and rm700 million respectively.
Let's compare KNM's guidance versus actual performance.
  • fy 2008, KNM made 336.175 million. (KNM guided 450 million)
  • fy 2009, KNM made 257.847 million. (KMM guided 700 million)
And judging from this set of quarterly earnings it looks like KNM will come up very short against its own guidance.

And like K C said..."the management keep on giving false hope to investors, just to do the wrong thing; to boost up share price "

I totally agree!

Its simply shambolic that the management makes empty promises to the investing public!

 And this is not the first time KNM had done this!

So let me ask the gatekeepers a simple question : "Does this represent good corporate governance that a company management makes empty promises to deliver profits to the investing public?"

Think about it..... seriously.

Do you want every single company to make bold statements that they will make XYZ profit but only to fall terribly, terribly short?

Company X will say in their profit guidance 'I will make 20 million' in a briefing to the investing public.. What do you expect the analysts in the briefing to do? Do you expect to come out and say... 'Nah, company X is totally BS!' or 'In your dreams! Those profits are not achievable!'

No you don't!

The analysts would be obliged to value company X based on that 20 million.

And since the 20 million is already a very extremely optimistic guidance, the share price of Company X will have to be upgraded!

But then ... when.... fiscal year comes... that 20 million is no where to be seen!

Now let me ask... has company X made a mockery of the market?

Isn't K C spot on by saying "the management keep on giving false hope to investors, just to do the wrong thing; to boost up share price "

Just to boost up the share price... the company management give the investing public false hope.

And so I ask... does this represent good corporate governance?

Or do you think KNM should be censored for making such wild profit guidance?


I wonder if the gatekeepers are aware of what's happening.

And yeah the earnings again...

Can you see that the pretax profit is less than the after tax profit?

Why? KNM's got a nice fat tax benefit!!! ( Do read past postings )

And if we minus out the tax benefit, can we see how ridiculously small KNM's profits are????

( ps: K C, yeah the balance sheet is actually even weaker compared to its previous quarters. Loans increased, receivables increased a lot.... ) 


M.A. Wind said...

Horrific earnings, a small margin squeeze and they are losing money. This was once one of the high flyers. I know one friend who bought a truckload of these shares, all based on the hyphe a few years ago, he will be sitting on a huge loss.

I know very knowledgeable investors in Singapore whose mother company is involved in the Oil & Gas industry. They were horribly cheated in this industry in Malaysia and vowed never to invest there again.

Avatar said...

Yeah, good post Moolah and KC. How these companies continue to operate is an astonishing *miracle*.

Well, sooner or later the game of musical chairs has to stop and the one left standing will :(

Avatar said...

BTW - Moolah, I think your pleas to the regulatory authorities are in vain.

Look at the role model of capitalism in the world, the US. Even with whistle-blowers such as Harry Markopolos directly contacting the US SC with proof 10 years before, they just ignored it. And scandals after scandals just as Enron and the MBS NINJA loans were swept under the carpet.

Why would you expect things to be different here, I wonder?

Moolah said...

BTW - Moolah, I think your pleas to the regulatory authorities are in vain


Avatar, as long as there is a reader, I do no think my plea has failed.

Avatar said...

Keep up the good fight then Moolah. I appreciate your great updates on the stock market esp. the 'not-so-good' companies on Bursa.

Moolah said...

Avatar, I do HOPE one day we will see more fighting this very cause for a better corporate governance in our local stock market.

Maybe one day, you will join this fight too.

And maybe one day, commonsense will prevail and good corporate governance will rule day.


K C said...

Oh Moolah,
You (we) are definitely wrong again on KNM. OSK maintain trading buy for KNM at RM2.20, better than MIDF Research. OSK's Ny Chu Ying's recommendation is based on 13X FY2012 earnings! So many experts extensive research has shown that KNM will make about 200m net profit for 2012. But how much did they make for the first half again?

M.A. Wind said...

"Moolah, I think your pleas to the regulatory authorities are in vain."

I am chasing them already for three years in one particular case, and they are starting to get fed up with it (or rather me), soon there will be a decision.

Never give up my friend, never ever. If you give up, they have won, that is what they want you to do.

If dozens, hundreds or even thousands of people would do the same, that would make a big difference.

As a start, you can give your feedback on the CG Blueprint. Let them know what you think about them, this is your chance!

Moolah said...

K C: I am always flawed. :P

Moolah said...

M: Nah. Won't quit. (Retire maybe. LOL! )

My blog still around after these few years. Will continue to write and ..... hope.


M.A. Wind said...

I actually meant this for Avatar ....


Not a good result for MAS, the never ending story ....

Avatar said...

M.A. Wind,

Good to see there are people still so passionate about corporate governance. I just feel jaded about the whole stock market and economy as a whole. It's really shocking to me that generally, people are so opposed to a recession. You'd think it might be a good thing for the industry to take a breather and see whether our whole economy is headed on the right road or otherwise.

Further it's funny my favorite subjects are corporate law and accounting. And yet, the abuse of corporations in evading legal responsibility and dodgy creative accounting is funding a lot of misery in the world today. Profits at the expense of all else... sigh.

Hah... sorry Moolah, just releasing some steam here :)

Moolah said...

LOL! No problem.

ps: If you interested in writing, please remember that SC welcomes feedback from everyone on the Blueprint issue. Yes, everyone!

So please, if you some bright ideas or strong criticism, just send your feedback or email your opinions and views to CGblueprint@seccom.com.my. You need to do this by 15 September 2011.

Or if you prefer to send in writing, mail it to:

CG Blueprint Team
Securities Commission Malaysia
3, Persiaran Bukit Kiara, Bukit Kiara
50490 Kuala Lumpur, Malaysia