What Do You Think Of MaeMode's Prospects?

I first wrote on Malaysia AE Model (MaeMode) on Wed 25 April 2007. Here's the posting: MaeMode.

Despite the impressive numbers mentioned back then (in April 2007), I said the following: "I see the classical debt built-up again....Sigh!... I guess I will call this a pass."

Here is how the stock had fared since...

Ahh... as you can CLEARLY see.. that sometimes we can call PASS on a stock based on our own simple and flawed reasoning and in Maemode case in 2007, I DID NOT LIKE the classical debt built up! But yet the stock moved up after I passed on it.

How? Did I feel like a loser? Did I feel frustrated over the missed opportunity?

No. Not me.

For me the stock exchange is always there. It's a casino (sorry but this is how I feel about it. It's my flawed opinion about stock exchanges!) and it's open all year, except on weekends and holidays. And every day, there will be winners and losers in the casino. Now, do I feel silly not to win in the casino on a given day? Do I have to gamble in the casino everyday? Must I?

But that's just me. That's just my flawed way of thinking.

Fast forward... made couple of postings of MaeMode in between... and on Jan 2010, I made the following posting, MaeMode And Its Receivables Again!

In which I made a reply to a comment in a new posting The Receivables Issue, MaeMode, Mems And Megan

• I actually feel that it's difficult to predict if any company would be the next company 'like' LCL. Nothing in life is ever truly certain and in the corporate anything that might happen could happen. And the unexpected could certainly happen too.

  So would MaeMode turn into a LCL?

  The issue of trade receivables is so simple for me. Company makes sales, company should collect them sales. All of it. A sale is never a sale until ALL the money is collected.

  Which is why when I look at a company's balance sheet, I would not like to see high receivables increasing.

  Obviously this would suggest to me that 'most likely' the management is either lousy because the company is not able to collect the money due to them. (yes, I would not complicate things here by suggesting fake sales - so for simplicity sake, let's assume all sales and receivables are legit).

  And to make matters even illogical is when I see the company's debts increasing at the same time too.

  It just does not make sense.

  Why borrow more from the bankers when there are already so much money owed to the company?

  Why can't the company collect these money instead of borrowing more?

  And from a business point of view, if one is offered to be a co-owner of such a business, would such a business proposition appeal? Won't the logical answer be NO? Why would one want to be a co-owner in a business which requires more and more funding when it cannot collect the money owed to them?

  And since I equate investing to owning a business, I would always, always shy away from such business opportunity. No matter what future prospect the company says it could achieve because in the long run, for me, without collection, such a business would most likely go no where.

  Of course, having said that, I understand I could miss out on one or two opportunities! Such mindset is never 100% fool proof because because sometimes the wheel of fortune could really turn for such a company but this is something I would not want to bet on it because I am merely speculating that changes out of the blue could happen. I would rather forgo such an opportunity and invest in a company which has no such risks.

  And sometimes, being safe, does work. Ok, I am not bringing out the goats from the farmville and let them gloat all over this posting but let me show an incident where investing using such a mindset did work out. It did prevent the investor from losing their money.

That was 30th Jan 2010.

I have not made any updates on MaeMode since then, so here's one today. :D

Comments:

In 2002, MaeMode had sales of over 107.830 million and a profit of 8.259 million.

Today? It's last 4 quarters earnings, MaeMode had sales of 402.742 million and a profit of 2.322 million.

Errr... compare 2002 and most recent 4 quarters earnings. what's your interpretation? Clearly the company did not progressed at all, right? Sales almost increased 4 times. 4 times! But yet earnings decline from 8.2 million to just 2.3 million.

And the following table, I zoom in and highlight the balance sheet item, like cash, loans and receivables.

How? In 2002, MaeMode had loans of 75.267 million. Today? It owns their bankers some 341.111 million!

Is this progress?

And then receivables again.

Look at the size of it. 341.319 million!

Receivables are what is owed to the company and hey, if Maemode can collect this 341 million, then it wouldn't need that 341.111 million in loans yes?

So why can't MaeMode collect its debts?

And from the table, these receivables have most likely grown roots in MaeMode's balance sheet! It's so clear these receivables are in there for so long already! Why? Why? Why? What's wrong?

And needless to say, if MaeMode cannot collect these debts, MaeMode will have to write these debts off!

Yes?

And when it does, I won't be surprise to see MaeMode get hit by huge loss provision!

And yes I would dearly love to see the debtor aging list!

Oh... if I were a minority shareholder, and given such a business fundamentals, I would check to see if any major shareholders thinks the same too! Yeah, have any major shareholders have been disposing their shares.

And oh... in April and May 2010, I noted the following disposals...

• MALAYSIAN AE MODELS HOLDINGS BERHAD ("MAE") - Disposal of Entire Equity Interest in Matromatic Manufacturing (M) Sdn Bhd by Matromatic Handling Systems (M) Sdn Bhd
• MALAYSIAN AE MODELS HOLDINGS BERHAD (“MAE”) - Disposal of Equity Interest in Technibuilt (M) Sdn Bhd by Technamation (M) Sdn Bhd
• MALAYSIAN AE MODELS HOLDINGS BERHAD ("MAE or the Company") - Disposal of Equity Interest in Indusmech Engineering (M) Sdn Bhd

Hmmm... how would you interpret such disposals?

MaeMode last traded at 50 sen.

How? What do you think of MaeMode's prospects?

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

Edit... some extra food for thought.

2005, MaeMode had a rights issue. That raised some 31.7 million.

2008, MaeMode had a 10% placement. That raised some 13.245 million.

Axis Inc Lodges Police Report!

Oh no!!!!

Just when I thought I could have a nice weekend enjoying the World Cup, I noticed this news clip on the Edge Financial Daily: Axis Inc directors lodge police report over missing records

• KUALA LUMPUR: AXIS INCORPORATION BHD 's board of directors has lodged a police report over several official documents and records belonging to Axis and its units which have gone missing.
  
  It said on Friday, June 11 that it had on Wednesday lodged the report over the missing records of the company and its units Asiapin Sdn Bhd, Chongee Enterprises Sdn Bhd and GBC Marketing Pte Ltd from 2004 to 2008 at the offices in Johor Baru, Tangkak and in Singapore.
  
  The missing records included documents in relation to the purchase of machinery sent to contract manufacturers in Cambodia and/or Vietnam; bank statements and cheque butts; payment vouchers and supporting documents for payments made to the contract manufacturers in Cambodia.
  
  Also missing were documents, letters, e-mails and correspondences between Axis group and the contract manufacturers; documents in relation to the orders placed with the contract manufacturers by buyers; documents of raw materials bought for the contract manufacturers (ncluding purchase orders and delivery orders).
  
  The report also claimed that documents on the account of monies received from the Bumiputera issue in 2004 and the sale of Ganad assets in 2007-2008 were missing.
  
  "As a result of the above missing records, Axis Group of companies in 2009 had to write off substantial amount of its assets and receivables due to the lack of documentary support of these assets and receivables," it said.
  
  The company said the present Axis Board was unable to answer certain queries posed by Bursa Malaysia Securities Bhd.

Dear lord!!!

Let me get this correct.

Axis Inc is blaming that because of these missing documents, Axis Inc had to write off substantial amount of these assets and receivables!

• .. lodged the report over the missing records of the company and its units Asiapin Sdn Bhd, Chongee Enterprises Sdn Bhd and GBC Marketing Pte Ltd from 2004 to 2008 at the offices in Johor Baru, Tangkak and in Singapore.

Gee how nice!

Now I had written on Axis before. Aug 2008, I wrote A Deeper Look At Axis Inc.

Let me reproduce one of the compiled tables here again.

Clearly visible and questionable was the 2006 fiscal year earnings, in which its earnings slumped big time from 14 mil to 8 million but the massive sudden increase in loans from 85 million to 184 million stood out sorely. Receivables jumped insanely from 82 million to 166 million!

The next fiscal year 2007, Axis had a bumper year! Axis Inc the stock had a bumper year too!

Bumper year means good stock, yes? Apparently, the market liked what it saw when Axis net earnings jumped from 8 million to 25 million!

But sadly, the market discounted the incredible balance sheet weakness! (see the above compiled table again). Loans soared to an incredible 240 million and trade receivables stood out sorely at 200 million!

Today, Axis is saying "As a result of the above missing records, Axis Group of companies in 2009 had to write off substantial amount of its assets and receivables due to the lack of documentary support of these assets and receivables,"

Consider the fact that record profits helped drove up the stock in 2007.
Consider the fact that the record profits came with the insane jump in receivables!

Now all the records and documents are all missing! Would anyone be able to examine the debt aging reports? Will anyone understand why the receivables jumped? And without these records, how could anyone determine the validity of the profits made in 2007, since the documents are all missing?!!

WOW!

Like this also can!

What a wonderful world we live in!

Are we all Ah Bengs and Ah Lians???

First we have the Kenmark CEO saga. Now apparently Axis wants its throne back!

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

ps:

I wrote on Axis back on 31st July 2008: Regarding The Plunge Of Axis!!

This was followed by A Deeper Look At Axis Inc and then by More On Axis Inc and Update on Axis Inc.

In the posting More On Axis Inc

• The external auditor, Messrs Horwath are unable to obtain sufficient appropriate audit evidence and explanations to ascertain the following:- (b) the recoverability of the outstanding balances due from the Contract Manufacturers (net of the settlement subsequent to 31 March 2008) in relation to the trade receivables and advances)

Axis since then saw the company being hit by huge provision of bad debts and then served with writ of summons by its banker, Maybank and later saw its auditors, BDO Consulting Sdn Bhd, alleging that 'some serious discrepancies with regard to transactions that had led to earlier write-offs from the company’s books'.

Do see this brilliant article on Star Businessweek: Once rescuer Axis now needs rescue

Can Kenmark Survive?

Kenmark shares were slaughtered yesterday. It plunged some 46%! It went from 27 sen to a mere 14 sen!



And surprisingly Bursa CEO calls Kenmark MD’s behaviour irresponsible

Now the biggest questions for me are the following...

1. Would we see more losses from the company?
2. Can the company survive?
3. Would we see more disposal of shares by the major shareholders?
4. What about Ishak - the so-called friendster?

These are massive questions, yes?

Yes, I know it's getting tedious and perhaps boring but besides these issues, there's something not right.

Yes! Something happened and it's not right!!!

Posted yesterday: Kenmark Finally Discloses In Detail Why It Suffered 146 Million In Losses But...

In that posting, I included data from a worksheet which Kenmark submitted in its announcement to Bursa.

This morning I clicked on my 'source' of data, Debtor Aging.xls and I found it to be an invalid address. Then I realised Kenmark has removed that worksheet and replaced it with another new one.

They said the following...

• Further to the Company’s announcement on 8 June 2010 in respect of the reply to Bursa Securities on the quarterly results for the financial period ended 31 March 2010, the Board wishes to inform that the “Debtors Aging” attachment file was inadvertently forwarded with the announcement. The attachment file is errorneous as it only contains the debtors aging for affected companies where provisions for doubtful debt were made. Attached is the corrected file indicating the summary of the total debtors and the aging analysis of the Kenmark Group.

Well let me say this. I do not think it was erroneous. Instead, I am glad I saw and took the snapshot of the file. And most importantly, that 'debtors aging' showed one important data, which is the debt that was written off came from 3 main debtors, which are BILLION CREATOR (HK) LTD, DAILY EMPIRE TRADING LIMITED and EVER VICTORY (HK) LTD.

Why did Kenmark want to remove the file?

Did these 3 companies who saw their debts being written off by Kenmark stood out sorely????? ( refer Kenmark Finally Discloses In Detail Why It Suffered 146 Million In Losses But...)

Take Billion Creator. It owed Billion Dynamic Sdn Bhd 44.565 million. Billion Dynamic wrote the whole sum off. Billion Creator owed Kenmark Industrial 7.1 million. Kenmark Industrial wrote off 4.23 million off to just 2.875 million and Billion Creator still owes Kenmark (Labuan) close to 3 million.

I cannot help thinking. If I am Billion Creator, and I see Kenmark writing off close to 49 million off from what I owe them, what should I do about the remaining 5.8 million owed to Kenmark group of companies?

How?

My say?

The fact that bulk of the write down came from 3 companies and given what has transpired, Kenmark should NOT have removed the file. This is a rather important disclosure of information to the investing public!

Anyway.. back to the main issue.

1. Would we see more losses from the company?

The general impairment of fixed assets was scary. Given the limited data, there's no way I can ass-u-me that there will be NO MORE impairment of fixed assets.

Remember, Kenmark only did a 10% general impairment of fixed asset left idle due to the current interruption of its business.

And the more I thought about it, the more I am baffled.

Kenmark's reported earnings submitted was for the period ending 31/03/2010 and the current mess only happened on the last week of May 2010.

First thing that came to my mind, how could Kenmark provided for such general impairment of fixed asset since the current interruption of business only happened end May 2010? It was like Kenmark was providing for losses for events that had not happened.

Then I came to my senses. :P

Sales revenue... sales revenue... check out the sales revenue.

On Feb 2010's reporting quarter, Kenmark said it had 101 million in sales. Ok that sales figure is so questionable now, given what is happening, because the previous reporting quarter in Nov 2009, Kenmark sales revenue was only some 35 million. So on a q-q-q basis, sales went from 35 million to 101 million to just 18 million (current quarter, Kenmark sales was only some 18 million).

Leaving out issue of 'fudged' numbers, from 101 million to 18 million, is indeed a serious interruption of business.

Which meant that Kenmark's troubles was known months ago!

That would be my assumption. Yes I ass-u-me and if I am wrong, I am making an ass out of you and me.

Now if that's the case, then most likely than not, it is possible to see more general impairment of fixed asset left idle! That would be guess! And I again I stress, I am guessing and I could be wrong.

How much impairment would we see? Well current quarter of general impairment of 10% already equated some 29 million! So go figure. My guess is that the figures would be huge the next quarter!

Provision of bad debts.

Let's have a look at the resubmitted Debtor Aging summary1.xls (yeah, it's a summary!)

Now the file is too wide, so I again hid some columns and showed debtor aging from 150 days onwards.

And I added myself a total of the debts over 150 days and more. See the arrow highlights in the table below.

Why am I doing this? (click on the table above for a larger view)

Come next quarter, these figures would be 180 days and above already and by any industry standard, such debts are pretty much doubtful.

And what do we have? After the provision of bad debts, Kenmark's receivables over 150 days is more than 51 million.

How much of these would be bad?

Did another calculation. The receivables over 210 days is about 9.878 million. This would the figure I would ass-u-me could be written off come the next quarter! Yes, meaning to say, it's possible to see provision of bad debts of at least 9.8 million come the next quarter!

That's my flawed guess. Ok?

Next... Can the company survive?

Let's see the bare facts.

Cash on hand as reported for the period ending 31/3/2010 was stated as 440 thousand!

Total loans outstanding is 139.043 million!!!!!

And trade payables is a massive 83.958 million!!!!

Can Kenmark even pay its bills???

Perhaps sale of assets is imminent!

But how much are the assets really worth?????

Kenmark's impairment of its machinery from its current quarter is a whopping 15 million!!!!!

What's the exact book value of these machinery?

How?

I do not even know how to ass-u-me its assets value.

3. Would we see more disposal of shares by the major shareholders?

Last night Kenmark siad its Taiwanese shareholder, Chen Wen-Ling also reduced its stake. LOL! The other day, was James Hwang.

Which makes it all so disgusting.

Really.

Think about it.

Given the state of the horrible mess Kenmark is in, the major shareholders and the boss, had been disposing their shares like plague!

Would they continue to dispose their shares?

Think about it.

Lastly, What about Ishak - the so-called friendster?

Hey, he was the friendster who lend the helping hand hor. And he bought his stake on 1st and 2nd June. That was when Kenmark was below 10 sen.

So how? Is this friendster really a 'Robin Hood' or is the friendster in for pure profits only?

Go think about it....

Kenmark Finally Discloses In Detail Why It Suffered 146 Million In Losses But...

So what do we have? Kenmark submitted its quarterly earnings, which was clearly an insult to the investing public in the manner they presented the report in which they showed utter no respect to the investing public by NOT disclosing how much was provided in their provision for doubtful debts! Thank goodness the folks at Market Surveillance, Securities Commission realised that this is not right as it was not only misleading AND there was no effort from Kenmark to show how it had suffered so much losses. Hence the stock was suspended yesterday. Now Kenmark did made a reply and because it did the stock will resume trading today.

However, for those who took a look at what was reported must have been shocked at what was submitted to Bursa.

Comments:

1. Fixed asset - general impairment = 29.383 million.
2. Fixed asset – full impairment as idle asset = 22.439 million.

WOW!

So we have fixed asset general and full impairment causing losses of over 51 million!

Now I am not an accountant or auditor but if I have vested interested in Kenmark, I would definitely would want to see WHY such a huge provision is needed on its fixed asset.

Then we have provision of doubtful debts.

General provision at 100% (exceed 12mths) = 69.206 million!!!

Size of the provision is mind boggling!

Now if you look at point #2

Fixed asset – full impairment as idle asset = 22.439 million.

This is explained by the following..

Yes, from the above, we can see that provision for 'idle assets' consisting of machinery totals a whopping 15 million!

Key word, idle.

And of course, the inquiry mind wants to know the original book value of the machinery and needless to say why the machinery are left idle!

Common business sense, why did Kenmark buy such valuable machinery but only to be left idle!

Regarding point #1.

1. Fixed asset - general impairment = 29.383 million

Assets not fully utilised due to current interruption of business amounts to a whopping 29.3 million.

What's interesting is its assets in Vietnam. The impairment losses totals some 23.2 million and this is only a 10% impairment. Yeah.. go figure the size of its plants in Vietnam. And given the size of the plant, how come Kenmark business the previous years, never show any potential at all? Don't you wonder? I certainly do.

Source: Appendix A.doc

Next we have the doubtful debts issue - the 69.2 million issue!

Now the provision of bad debts comes from 3 companies.

1. Kenmark Industrial Co. (M) Bhd
2. Billion Dynamic Sdn Bhd
3. Kenmark (Labuan) Limited

Kenmark Industrial.

Firstly the screen shot belows shows that it is such a joke how Kenmark conduct its business! Its business aging has columns for over 330 days!!!

Now because the aging has so many columns, I will show only from 180 days onwards..

(the above table is clicakable for a larger view)

Comments.

The above table shows the before and after bad debts provision.

From the formula embedded, Kenmark's amount is only considered due after 180 days. In layman's term, this mean, you can buy a product from Kenmark, the product is only due for payment after 180 days! ( ps. if one is interested in looking at Kenmark from a business investing perspective, one could dig out recent quarterly earnings and look at Kenmark's recent OPERATING PROFIT MARGINS and evaluate if there was any justification for Kenmark to run business in such a manner, ie allow its customers to pay only after 180 days. Why? If the margin is small (ie 10% or less) then common sense would dictate that it's simply suicidal to conduct business in such a manner!)

From the worksheet, it appears that some 25.182 million was written off as bad debts from Kenmark Industrial Co. (M) Sdn Bhd. (you can get this figure by subtracting 20.379 million from 45.562 million.)

Note the 3 'big' companies benefiting from the provision of bad debts: BILLION CREATOR (HK) LTD and DAILY EMPIRE TRADING LIMITED and EVER VICTORY (HK) LTD.

Now if I suspect something is amiss or if I suspect any hanky panky, I would dig up more info in these 3 companies. Yeah, check if there is 'freindly' relationship between these 2 companies and Kenmark.

Oh yeah, the amount due which is over 330 days totals 24.641 million!!!

Next we have Billion Dynamic Sdn Bhd.

Hmmm... Billion Dynamic Sdn Bhd and Billion Creator (HK) Ltd ..... hmmmm.... first name... same!

!!!

Very straight forward!! (the above table is clickable for a larger view)

Billion Creator (HK) Ltd owes Billion Dynamic Sdn Bhd 44.565 million. This amount is over 330 days.

Wiped clean!!

!!!!

No more debts owing from Billion Creator to Billion Dynamic!!!

Simply. Easy peasy!

Lastly, we have Kenmark (Labuan) Limited.

(the above table is clickable for a larger view)

Not much provision was made but note the 3 companies again. BILLION CREATOR (HK) LTD and DAILY EMPIRE TRADING LIMITED and EVER VICTORY (HK) LTD.

The bulk of Kenmark's debts comes from these 3 companies.

And it seems that Billion Creator (HK) is the luckiest company in this saga. Owed Kenmark and subsidiaries so mcuh money, now most wiped clean. No need to pay!

Good or what?

Source: Debtor Aging.xls

So how?

Do you like what you see?

One big question for me...

ok, one can just slam Kenmark for being a bad business for allowing its customers (or 3 companies - Billion Creator, Daily Empire Trading and Ever Victory) to run up such massive debts on a relatively insane credit terms of over 180 days but what I want to know is why now?

Yes, why now.

Take their quarterly announcement reported last year. (I will paste what I had posted previously)

May 2009: Quarterly rpt on consolidated results for the financial period ended 31/3/2009
2008 Q4
Sales 38.775 million Net LOSS 0.084 million Receivables 163.773 Million Cash 2.222 million Total borrowings 144.574 million.

Yes, receivables last year was already an insane 163.773 million.

Now what I want to know is, from this 163.773 million, how many of the debts were over 180 days? Were there any debts over 330 days back then?

Sorry but surely the inquisitive mind would want to know, yes?

And how long ago has Brilliant Creator being a customer of Kenmark?

These are the simple questions that needs to be answered.

And yes, the ownership in these 3 companies. Are they 'friendly' to Kenmark boss? How close is the friendship?

Last but not least...

We all know Kenmark boss was said to be sick or unconsicous or maybe kidnapped. (Sorry, I simply do not know what to believe, hor)....

From Bursa website: http://announcements.bursamalaysia.com/EDMS/edmsweb.nsf/LsvAllByID/20BC43B4778D69064825773C003C329F?OpenDocument

• Further to our announcement dated 3 June 2010, the Directors wish to inform that based on the Record of Depositors dated 7 June 2010, the shareholding of Mr Hwang Ding Kuo @ James Hwang is 14,193,792 Kenmark shares or approximately 7.96%.Mr James Hwang on 23 April 2010 notified that he has 53,363,092 Kenmark shares (29.93%).This announcement is dated 8 June 2010.

Yeah, finally when queried, Kenmark finally disclosed the above information!

I wonder if no query, when would Kenmark disclose?

From owning 29.93% on 23 April 2010, James Hwang shareholding suddenly shrank to a mere 7.9%

Go figure!

Yes, the boss has been dumping his shares like mad!!!!

What's MOST UTTERLY DISGUSTIBATING is....

1. No disclosure on when his shares were sold.

2. No disclosure on the price transacted.

Surely this is not acceptable!!!!!!

( see also: Theory On Kenmark's Soaring Trade Receivables And Massive Provision Of Bad Debts )

Theory On Kenmark's Soaring Trade Receivables And Massive Provision Of Bad Debts

Got an extremely good reply from Richard Cranium on the posting A Deeper Look At Kenmark Losses

• How about this for a theory?
  
  1. They "moved" all the stocks to a friendly or a shell company, accounting for a significant rise in receivables.
  
  2. The sales figures subsequently dropped as there is no more inventory due to (1).
  
  It would be interesting to see where the stock went to i.e. which distributors/retailers has the largest intake. Won't surprise me if these are in China or place far away from Malaysian law.
  
  Just a hunch,

That's a pretty interesting theory or hunch. :D

Let me reuse the same frame as what I had posted earlier and put the focus on Sales, Inventory and TRADE PAYABLES.


I put in trade payables because sometimes sales do not come directly from a company's inventory. Meaning to say, sometimes a company could buy a product from another source and then re-sell that product.

The recent earnings again...

Feb 2010: Quarterly rpt on consolidated results for the financial period ended 31/12/2009
2009 Q3
Sales 101.441 million Net Profit 4.769 million Inventory 22.847 million Trade Payables 106.347 million.

Nov 2009: Quarterly rpt on consolidated results for the financial period ended 30/9/2009
2009 Q2
Sales 35.334 million Net Profit 3.718 million Inventory 28.241 million Trade Payabales 103.577 million.

Aug 2009: Quarterly rpt on consolidated results for the financial period ended 30/6/2009
2009 Q1
Sales 57.686 million Net Profit 1.013 million Inventory 38.687 million. Trade Payables 63.958 million!

(Moolah: OMIGOOOOOOSH! Jackpot!



Compare the inventory in this quarter versus what was reported on Nov 2009! See how inventory declined from 38.687 million to 28.241 million the next quarter. See how Trade payables soared from 63.958 million to 103.557 million!

How could the payables jumped so high? Sales this quarter was only 57.686 million and the next quarter sales plunged to 35.334 million???!!!! And payables increased by 39.599 million!

Questionable issue or what??? )

May 2009: Quarterly rpt on consolidated results for the financial period ended 31/3/2009
2008 Q4
Sales 38.775 million Net LOSS 0.084 million Inventory 30.853 million Trade payables 34.310 million!

(Moolah: WOW!

Trade payables in Q4 was only 34.310 million. The next quarter it was 63.958 million. And the next quarter it was 103.557 million. And the next quarter 106.347 million!!!!!!!!!!!!

Holy cow!!!)


And the following was from last night:

Last night, June 2010:
2009 Q4
Sales 18.762 million Net LOSS: 146.552 million Inventory 20.104 million Trade payables 83.958 million!!!!

WOW!

Exactly!

When one views the inventory and trade payables together, it paints one new ugly picture altogether!!!!

How now brown cow?????

Tell me if this is not sheer financial shenanigans!

A Deeper Look At Kenmark Losses

Last night I wrote Kenmark Suffers 146 Million In Losses!. It was rather lacking, so I decided to make a better posting on it.

Firstly let me dig up some recent earnings...

Feb 2010: Quarterly rpt on consolidated results for the financial period ended 31/12/2009
2009 Q3
Sales 101.441 million Net Profit 4.769 million Receivables 248.662 Million Cash 2.210 million Total borrowings 142.203 million.

(Moolah: Comparisons are made versus the previous quarter. Sales. Sales for the quarter was incredible. Over 101.441 million. Last quarter 35.334 million only. What happened? Why the sudden surge?)

Nov 2009: Quarterly rpt on consolidated results for the financial period ended 30/9/2009
2009 Q2
Sales 35.334 million Net Profit 3.718 million Receivables 225.317 Million Cash 2.298 million Total borrowings 143.354 million.

Aug 2009: Quarterly rpt on consolidated results for the financial period ended 30/6/2009
2009 Q1
Sales 57.686 million Net Profit 1.013 million Receivables 207.584 Million Cash 2.202 million Total borrowings 144.463 million.

(Moolah: Comparisons are made versus the previous quarter.Look at how the receivables 'suddenly jumped' to 207.584 million. Last quarter, receivables were 'only' 163.773 million. And the fact the next quarter the receivables jumped again to 225.317 million! What on earth is happening??? Compare the receivables to the sales revenue! Unreal isn't it? 2009 Q1 Kenmark had sales revenue of 57.686 million, yet it carried receivables of 207.584 million!!!! Insanity! How on earth can any company run a business in such a fashion? A cash balance of only 2.2 million and total debts of 144.463 million? Was there any way possible such a business could survive???? And from an investor perspective (and mentioned before in the posting, More Incredible News Flow From Kenmark! , quote: "Perhaps it was grossly over priced at 90 sen given the state of its business fundamentals, in which its poor balance sheet was clearly visible!")

May 2009: Quarterly rpt on consolidated results for the financial period ended 31/3/2009
2008 Q4
Sales 38.775 million Net LOSS 0.084 million Receivables 163.773 Million Cash 2.222 million Total borrowings 144.574 million.

And the following was from last night:

Last night, June 2010:
2009 Q4
Sales 18.762 million Net LOSS: 146.552 million Receivables 152.339 Million Cash 0.440 million Total borrowings 139.043 million.

Sales suddenly plummet to only 18.762 million!!!!
Cash is clearly gone.
Massive provision of doubtful debts is made resulting the company losing 146.552 million.
So massive that the company declined to state EXACTLY how much bad debts was written off!
And the debts of 139 million looks incredibly massive when the company has almost no money!

ps: when receivables keep ballooning like in Kenmark's case, these receivables sooner rather than later will need to be revised as bad debts!

And we have the incredible news of the boss - 'runaway', 'sick', 'unconscious'.....and best of all, a helping hand from an old friend who decided to purchases tons and tons of shares BEFORE he got the call for help! (I wonder if the call was made in a conscious or unconscious state?) ( see More Incredible News Flow From Kenmark!)

And to cap it all... they claim it's now a kidnap case!


Seriously... who does the company think we are?

Ah Beng or Ah Lian?

Oh yeah.. the helping friend... he was so fortunate to buy container loads of the stock on the 1st and 2nd June.

Do compare the prices then and today (27 sen).

And if Kenmark share goes any much higher, this helping friend, sure is well paid for helping out eh?

And of course the jealous guys or the sour cows (LOL!) would accuse... 'plunge the stocks on bad news, grab as much as possible when the shares are almost worthless and the push it up, up and away!'

LOL! They are only jealous!

But seriously.... do you blame them for being jealous?!


( see Theory On Kenmark's Soaring Trade Receivables And Massive Provision Of Bad Debts also)

Kenmark Suffers 146 Million In Losses!

Kenmark released its earnings. The results wasn't unexpected. Kenmark posts RM146m net loss in 4Q.

How the losses occurred was disgusting as expected!

And how Kenmark explained its losses was also disgusting as expected.

Just a mention of a provision of doubtful debts and impairment provision of assets. That's all.

Nothing else.

Hello! Our name is not Ah Beng or Ah Lian!

Can Kenmark show some respect?

How much was the provision of doubtful debts?????

Why is that so important?

Because in the posting Kenmark: MD and Deputy GM 'resigns', Share Plummets Big Time!!!

It was mentioned that trade receivables soared to rm 248 million!

Again I ask why so much? How come? Any hanky panky?

Look at the receivables reported its earnings today.

LOL! Did you see the cash balances left? What a joke!

Receivables is now only 151 million!

And as mentioned in the posting More Incredible News Flow From Kenmark!

• Kenmark still has not submitted its earnings. How? Any hanky panky? Why did the incredible surge in receivables happen? Receivables totals 248 million! What if these receivables cannot be collected? Provision of bad debts?

Receivables has now shrunk by 97 million to 151 million.

But that 151 million is still a worry. What if more provision of bad debts is needed? How much more?

And the biggest question is why did the receivables surge in the first place?

Sadly all this matters not.

The stock just seems to be a hot stock. For whatever reason, it matters not.

Sigh!

I wonder what SC has to say about all this.

Such a laughing stock.

Zelan Hit By Massive Losses

In the posting, So What Is OSK Saying Now About MMC, one of the stuff mentioned was the continued losses in Zelan.

Zelan announced its earnings last Thursday, 27th May 2010.

I was expecting losses from Zelan but the size of the losses were staggering! 184 million in losses for the quarter and over 254 million in losses for the fiscal year!

What was glaring for me in Zelan's balance sheet was its trade receivables. It stands at a whopping 621 million and needless to say the massive decline in cash balances as shown in the balance sheet snap shot below.


Back in 2008, it changed it's financial year end. See earnings report on May 2008: Quarterly rpt on consolidated results for the financial period ended 31/3/2008

See how Zelan's receivables simply exploded when once compares Zelan's receivables ending at 31st March 2008 with 31st Jan 2007? 31st Jan 2007, Zelan's receivables was at 206 million. At 31st March 2008, receivables blew up to 805 million!

A year later in 2009, Zelan recorded its first annual fiscal losses. Quarterly rpt on consolidated results for the financial period ended 31/3/2009

It's receivables 'fell' or 'improved' to some 705 million. And cash balances is now at 92 million.

Today receivables is at 621 million. Cash balances at 43 million.

How?

On one hand, we can say Zelan's receivables have indeed been 'improving' since May 2008. But at 621 million, the receivables is a lot. the size of the receivables is a worry. Why? Because the longer it remains in the balance sheet, the receivables do have to be reevaluated and if it cannot be collected, it has to be reclassified as bad debts and ultimately Zelan would be hit by bigger losses caused by provision for bad debts. (Yeah, some would ask how did the amounts receivables got so big in the first place?)

And due to the size of the losses, Zelan the stock, is getting hit big time. At this moment of time, Zelan last traded at 47 sen.

Here's Zelan's most recent 3 year stock chart.

OilCorp's Fiscal year Losses Explodes To 405 Million!

The issue with OilCorp was so glaring.

The growth in the trade receivables was astronomical. My initial posting on OilCorp was in 2007, when I wrote, OilCorp and OilCorp II

Quote:

• And yes OilCorp share has been rising.
  All I can say is do not confuse a lousy share with a bull market!
  In a hot market any share does stand a possibility of rising.
  However, to use fundamental reasoning as a reason to buy this share is simply a pure insult to all investors!

In the first posting OilCorp (written in July 2007), if you scroll right to the bottom and open the quarterly earnings link, Quarterly rpt on consolidated results for the financial period ended 31/3/2007, look at the trade receivables then. It was 336.107 million. The previous year was 284 million.

A year later, Dec 2008, I wrote the following OilCorp and Its Trade Receivables. OilCorp's trade receivables has now exploded to 498.257 million back in 2008.

I asked back then..

• 'Two' fiscal years ago or 8 quarters ago, OilCorp's trade receivables were at 224 million.
  It's receivables this very day is at 498 million.
  An increase of some 274 million!!

Exactly!

That was the the problem.

OilCorp announced its earnings today. It lost a whopping 175 million for the quarter! Which meant that its annual losses was a shocking 405 million!!!!!!!!!!!!!!

I was eager to see its balance sheet and look at the receivables amount. I was pretty darn sure that provision of bad debts had to be made in regards to its receivables.

Receivables is now only 82.188 million!

OMIGOSH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

You can see the previous year same quarter total in the next column. It was only 474 million.

Well as they said... do the math!!!!!!!!!!!!!!!!

That was all I needed to see.

This morning I noted on the Business Times:

• Bursa eyes bigger retail growth
  The chief of Malaysia's stock exchange wants to see certain regulatory constraints removed to help improve retail participation in stock trading.

Why doesn't the Chief Of Malaysia stock exchange understand a very basic issue.

If the wants a bigger retail participation something drastic needed to be done with companies like OilCorp being listed in the stock exchange. Yeah, stop wishing and start cleaning and getting rid of them bad apples listed in the stock exchange.

LCL Hit With 334 Million Losses!

LCL reported its earnings. It wasn't pretty!

Flashback:

In the posting, More Comments On LCL, I highlighted LCL's receivables.

• Trade receivables - 221.436 million
  Amount due from customers for contract works - 154.107 million
  Amount due from related companies - 41.641 million

Assuming and having faith that all these receivables are in order, I would be concerned which of these figures are from its work done in Dubai.

As the sum is rather substantial and with Dubai World current debt issue, surely one has to ask if the debts cannot be collected. And if they cannot be collected, these debts would have to be re-classified as bad debts, which would equate to losses.

And last but not least, given LCL's current financial position, can LCL afford any more delay in its collection of debts?

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

Company said the following in its notes:

• Compared to the cumulative preceding year corresponding quarters, the Group’s revenue decreased by 33.3% to RM309.8 million as compared to RM465.0 million previously recorded. This is mainly due to the lower progress billing for most of the on-going Dubai projects which are close to completion by 4th quarter 2009. The Group has also recorded a loss before taxation of RM392.2 million as compared to profit before taxation of RM4.2 million as compared to the preceding year quarter. The losses were mainly attributed to the delay in the projects resulting in cost overrun arising from the prolongation of projects, additional costs incurred in down-sizing our operations in Dubai, ie retrenchment, logistics and pre-mature termination of accommodation arrangement, impairment of assets, writing down of contracts (work in progress) and allowance of doubtful debts.

From the company's balance sheet:

113 Million in provision of doubtful debts and 170 million write down of contracts!

And this again highlights why the trade receivables are so important. When the receivables snow balls so high, it usually means the company has a problem in collection of debts and when collection of debts cannot be made, provision is a must and the company earnings will be hit big time!

So how deep in trouble is LCL now?

Total loans is still high at 398.464 million!

And here are LCL's current asset.


The amount due from customers for contract works is now wiped clean to just 87 thousand as LCL wrote down some 170 million worth of contract works. Receivables are still high at 121 million.

Company's cash flow.

LCL paid some 24 million in financial costs!

How?


Do you think LCL can make it through this extremely tough patch?

On Star Business: LCL posts higher loss on lower progress billings

• Wednesday February 24, 2010
  
  LCL posts higher loss on lower progress billings
  
  PETALING JAYA: LCL Corp Bhd incurred a sharply higher net loss of RM334.72mil for its fourth quarter ended Dec 31 from a net loss of RM17.39mil in the previous corresponding period.
  
  Revenue for the quarter fell to RM66.11mil from RM115.89mil previously while basic loss per share was 233.85 sen against a loss of 12.15 sen before.
  
  For its financial year ended Dec 31, the company had a net loss of RM393.35mil compared with a net profit of RM9.35mil previously while revenue for the period fell to RM309.83mil versus RM464.98mil.
  
  In a filing with Bursa Malaysia yesterday, the company said the results were mainly due to lower progress billings for most of its ongoing Dubai projects.
  
  “The losses were mainly attributed to the delay in the projects resulting in cost overrun arising from the prolongation of projects and additional costs incurred in downsizing our operations in Dubai,” it said.
  
  LCL Corp said its classification as a PN17-status company, and the appointment of a receiver and manager to LCL Furniture Sdn Bhd, a major contributor to its operations, “had severely hampered the operations of the group on an ongoing concern basis.”
  
  “The board of directors is of the view that without the meaningful recovery of our debt from our customers and the success of the debt-restructuring scheme with all our lenders and creditors, the prospects of the group remain uncertain,” it said.
  
  Due to the fallout from the Dubai financial crisis, LCL Corp, which has several projects there, has been struggling to recoup its outstanding bills from its Middle East customers.
  
  As at Dec 31, it said the group had credit facilities from financial institutions totalling RM455.27mil which are guaranteed by LCL Corp.
  
  Accordingly, LCL Corp was contingently liable to the extent of credit facilities utilised by the subsidiary companies amounting to about RM269.67mil, the company said.
  

The Receivables Issue, MaeMode, Mems And Megan

Comments from the posting MaeMode And Its Receivables Again!

• solomon said...
  With receivables 1.5x of shareholder equities and the company's RM300 million loans, I think this company financial is very very weak.
  
  From the company cashflow statement, interest paid per quarter is RM7million x 4 quarters = RM30mil annually. The cash balance of RM31mil is only managed to pay off the one year interest.
  
  Brother Moolah, "pi po pi po" I think this company need a financial doctor ASAP.///If the bankers pull the brake, could it be the next LCL? Please advise me.

I actually feel that it's difficult to predict if any company would be the next company 'like' LCL. Nothing in life is ever truly certain and in the corporate anything that might happen could happen. And the unexpected could certainly happen too.

So would MaeMode turn into a LCL?

The issue of trade receivables is so simple for me. Company makes sales, company should collect them sales. All of it. A sale is never a sale until ALL the money is collected.

Which is why when I look at a company's balance sheet, I would not like to see high receivables increasing.

Obviously this would suggest to me that 'most likely' the management is either lousy because the company is not able to collect the money due to them. (yes, I would not complicate things here by suggesting fake sales - so for simplicity sake, let's assume all sales and receivables are legit).

And to make matters even illogical is when I see the company's debts increasing at the same time too.

It just does not make sense.

Why borrow more from the bankers when there are already so much money owed to the company?

Why can't the company collect these money instead of borrowing more?

And from a business point of view, if one is offered to be a co-owner of such a business, would such a business proposition appeal? Won't the logical answer be NO? Why would one want to be a co-owner in a business which requires more and more funding when it cannot collect the money owed to them?

And since I equate investing to owning a business, I would always, always shy away from such business opportunity. No matter what future prospect the company says it could achieve because in the long run, for me, without collection, such a business would most likely go no where.

Of course, having said that, I understand I could miss out on one or two opportunities! Such mindset is never 100% fool proof because because sometimes the wheel of fortune could really turn for such a company but this is something I would not want to bet on it because I am merely speculating that changes out of the blue could happen. I would rather forgo such an opportunity and invest in a company which has no such risks.

And sometimes, being safe, does work. Ok, I am not bringing out the goats from the farmville and let them gloat all over this posting but let me show an incident where investing using such a mindset did work out. It did prevent the investor from losing their money.

Here's my most famous example written way back on Oct 2005, Megan

• And then their trade receivables increased by some 17 million to an unbelievable 270 million! Holy moo-moo cow! What kind of business is Megan running? Selling without collection?

Yup, the classical selling without collection and debts increased soared too. Rest were history as Megan turned into one massive accounting fraud!

Or how about Mems technology. Yet another deeply troubled company too. From the posting Mems Tech Directors Charged!!

• A couple of months later, I wrote A Brief Look at Mems Latest Quarterly Earnings
  
  It was astonishing! All the warnings signs were lit. Trade receivables were insanely high when compared to its sales revenue. Cash depleted to a mere 3.191 million and loans increased by 7.441 million to 50.796 million!

Now coincidentally Mems reported its earnings last night.

It lost an incredible 21.1 million!

And the main culprit? A 20.9 million provision for doubtful debts!!!

Yup, as mentioned in yesterday's posting MaeMode And Its Receivables Again!

• And I wonder, since it's the receivables are in MaeModes books for so long, what if these receivables are scrutinised and review in depth? What if a huge portion needs to be reclassified as doubtful debts??? And when this happens, due to size of the receivables, won't MaeMode get hit by huge loss provision for these doubtful debts??

Again this is a possibility yes?

Maemode's receivables is at a totally unreal 355 million!

It's simply way too much!

And for the long term investor the risk has got to be what if these debts needs to be reclassified as doubtful debts??? Won't MaeMode get hit by huge loss provision for these debts???