Ogawa World: Investing In Turnaround?

Got the following set of comments:

• newbie said...
  Can you please give your five pounds worth of what you think about OGAWA?Saw in it's latest quarterly report that it had made a very good improvement in it's profit after tax and has more than forty cents in net cash per share.It also proposed a dividend of 3 sen.Is it time for the company to make a turnaround ala DXN?

First, the briefest look at the recent stock charts of the stock chart, always does help. ( One does not need to be a pro chart reader. )

Ogawa's recent 3 month's stock performance.

How Ogawa has performed since listing.

Needless to say, Ogawa World the stock, had done really poor since listing. It's a shocker!

So what's investing in turnarounds all about?

I made an additional posting just. See Investing In Turnarounds. Do give it a good read. ( I did not want to include in this posting because it will make end up making this posting ultra long. :P )

Ogawa World was listed on April 2007. It made a whopping 40 sen or 40% premium! IPO price was 1.00 and the listing helped Ogawa World raised some 31.9 million.

Here's a good pre-IPO article for reading reference: Ogawa World aims for double-digit growth and this one is how Ogawa fared on listing: Ogawa makes strong debut on Bursa.

It's pre-listing forecast..

• 28-03-2007: Ogawa forecasts net profit of RM16m
  By Ashwin Raman
  
  Main Board-bound Ogawa World Bhd expects to post a net profit of RM16 million for the financial year ending June 30, 2007, an increase of 37% from the previous year.
  
  Its executive director Louis Chong said revenue was expected to grow 19% to RM162 million that would enable the health and wellness equipment maker to maintain its market share of over 45%...................

So how did Ogawa fared as a company since then? (yaya.. this is a stupid question because needless to say, Ogawa's performance should be poor since it's now 'branded' as a turnaround possibility! :P )

It's not only poor but it's a shocker! :P

Remember Ogawa World was listed on April 2007. Its 2007 Q4 earnings was reported on Aug 2007. Ok, it's a very small deal that Ogawa failed to live up to its IPO promised numbers. It's no biggie, really. Ogawa did 14.447 mil. It promised 16 mil. Small miss. Nothing like the horrendous miss by big companies like Titan Chemicals or AirAsia.

However... on 28th November 2007, it reported it's first loss!!! ( see Quarterly rpt on consolidated results for the financial period ended 30/9/2007 ).

Ok the loss was small but it was a warning sign!

And many would be disgusted because Ogawa World was just listed in April 2007. Go figure! Listed April 2007, November 2007 started reporting losses! Where on earth is the quality control of the IPO listing? Why so poor?

And the disgusted got more disgusted! Six later, in May 2008, Ogawa reported a loss of 2 million!!!! ( Quarterly rpt on consolidated results for the financial period ended 31/3/2008 )

And I guess one can understand why Ogawa the stock, fared so poorly!

LOL! I know.. I know.. I know... many reckons I love to tell stories! LOL!

Guilty.

Well, the reasoning is not that difficult and unreasonable because if I do not understand how the company fared so poorly, how could I ever understand if the company has a potential to be a turnaround success? Will it be as successful as say YTL Cement turnaround story back in early 2002?

Here's Ogawa's 'excuse' for its lousy fy 2008.

• Revenue for the Group has increased from RM30.17 million in the immediate preceding quarter to RM38.36 million in this quarter. The Group registered a loss before taxation of RM7.82 million as compared to loss before tax of RM2.16 million in the immediate preceding quarter as a result of lower margin, higher operating expenses, making of allowance for doubtful debts and goodwill written off.

And here's Ogawa's said in its fy 2009 earnings.

• The Group registered a profit before tax of RM3.72 million for the current quarter under review as compared to loss before tax of RM7.82 million for the corresponding period of the preceding financial year due to higher sales and margins, cost controls and partial reversal of provisions for doubtful debts that has since been recovered.

Ah... fy 2009 Q4, Ogawa reported a profit of rm 3.72 million. We need to see Q2 notes for reference because for that quarter Ogawa reported 10 million in losses!

• The Group registered a loss before tax of RM10.75 million for the current quarter under review as compared to profit before tax of RM1.14 million for the corresponding period of the preceding financial year due to lower demand for Ogawa’s products as a result of global economic slowdown, higher operating expenses and provisions made for doubtful debts and stocks.

So how?

What was the driving factor of the losses?

For fy 2008, Ogawa cited lower margin, higher operating expenses, making of allowance for doubtful debts and goodwill written off.

For first half of fy 2009, Ogawa cited lower demand for Ogawa’s products as a result of global economic slowdown, higher operating expenses and provisions made for doubtful debts and stocks.

And the second half of fy 2009, Ogawa said higher sales and margins, cost controls and partial reversal of provisions for doubtful debts that has since been recovered was driving the turnaround! (yea.. turnaround started way then)

And this is the table which highlights the porfits and losses...

Yes, Ogawa has stopped making losses for 5 consecutive quarters already. ( some critics would say that this streak includes two quarters (10 Q1 and 10 Q2) of extremely smallish profits.

And here's Ogawa's balance sheet, showing the cash and debts.

Ah.. one can see the receivables and inventory been written down in its FY 2009.

Cash... it starts off with 38.348 million. Remember some 31.9 was raised from its IPO and... apparently some 15 million was allocated for land and building acquisition. This was unitised and the 15 million had been re-allocated as 'working capital'.

The company said the following in its 10 Q4 notes.

• The Group registered a profit before tax of RM5.18 million for the current quarter under review as compared to profit before tax of RM3.72 million for the corresponding quarter of the preceding financial year. The improved performance is due mainly to higher sales achievement, higher gross profit margin and lower provisions for doubtful debts.

So Ogawa is now saying it's getting higher sales. Higher profit margins.

But sadly, Ogawa World is not stating which product is the driving factor behind the better sales in its earnings notes.

Here's Ogawa World's products: http://www.ogawaworld.net/ourproducts/relaxation/fujiiryoki_sks3000/fujiEC3000.php

And some recent news articles which might gives the investor some clues...

• Ogawa to shutter more stores as demand slows
• Ogawa aims to strengthen overseas presence
• Ogawa teams up with Aussie firm -- new product! ( see link below)
• http://www.ogawaworld.net/corporate/media/pdf/NR-OGAWA-V-Patch-Biz.pdf
• Ogawa to open concept stores by end-2010
• Ogawa to tap emerging market opportunities
• Ogawa returns to black in FY10

How?

Are we able to understand more on what's driving the current turnaround?

Is the current turnaround 'sustainable'?

Or are we seeing the turnaround but we somehow do not understand the business concept and its business products?

And ultimately, would one make the comparison in investing choices because one can easily invest in the more famous massage chair, Osim. ( Here's a quick look at Osim's numbers: here )

And last but not least, during the slowdown and bad times, how do we evaluate the 'noises' or comments from the company? Yes, how do we evaluate the management conduct so far? Have they handled the company well during the bad times?

And last but not least, the ESOS issue is worth noting. It's huge and dilutive. A 15% ESOS was proposed just last month! (yeah.. the cynics would say... what la! This company starts making back profit and the company fast hand, fast leg announces huge ESOS! See OGAWA WORLD BERHAD (“OWB” or “COMPANY”) PROPOSED ESTABLISHMENT OF AN EXECUTIVES’ SHARE OPTION SCHEME (“ESOS” OR “SCHEME”) OF UP TO FIFTEEN PERCENT (15%) OF THE ISSUED AND PAID-UP SHARE CAPITAL OF OWB (“PROPOSED ESOS”) )

Yeah.. 'all the Directors of OWB are eligible to participate in the Proposed ESO' and currently, Ogawa World has 120 million shares and the ESOS 'could' create some 18 million new shares.

ps: I have no idea if you can lose money in the stock. Please do consult your neighbourhood sotong!

Investing In Turnarounds

The following was taken from a stock forum and if not mistaken it was from 'shareinvestor' forum. Many apologies because I have lost the link, so I cannot give the due credit.

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

yes, let's not discriminate because the posting is made by one who is a hybird investor (ie one who based their strategy on TA and FA). Just give the following posting a read...

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

How many times have you seen it...?

An otherwise great company admits it has a serious problem. Could be accounting. Or a boneheaded expansion program that’s gone awry. Or perhaps the problem is merely an aggressive acquisition that takes more than one quarter to “swallow.”

Often you’ll see stocks fall 80%-90%, even when the problems in the company have nothing to do with its core business or its most valuable assets. People simply panic. Not the insiders. They are ready to pounce, and will buy millions when no one wants the stock...and sell millions when they do!

The opportunity in these kinds of situations is enormous. Remember: when a stock falls by 90%, its shares have go up by 900% just to return to their original price. Take a $5.00 stock that’s fallen to 50c – down by 90%. If management can turn things around and the stock rebounds to a new high – say $5.50 – investors who bought at $5.00 will have made 11 times their money (or 1000%). And situations like this develop all the time, every year.

You just have to look for them.

But...how can you tell the difference between a company that’s going out of business...and a company that will soon “rebound,” making new investors, who bought near the bottom, a fortune?

Actually, it’s easy. In fact, it’s so easy, once you know how to do it, you’ll wonder why you don’t buy more rebound stocks.

This kind of investing is especially appropriate considering the current market conditions. The stock market as a whole is unlikely to go much of anywhere for the next several years as rising interest rates makes it next to impossible for the broad market to move higher. But, “rebound stocks” are not correlated to the market. They trade higher (or lower) according to their own internal restructuring plans. Find the right company, after its bottomed out and you can make better than the best bull market gains, no matter what happens in the stock market as a whole.

THREE STEPS TO IDENTIFYING SUCCESSFUL TURNAROUNDS

The most important thing to figure out before you invest in a turnaround situation is whether or not the company can afford to fix itself. Basically you have to answer one question: Are there enough assets on the balance sheet to finance a turnaround?

Fortunately, figuring this out is not hard to do. You just need to make some critical calculation. It’s really very simple. What you have to do is check the company’s latest balance sheet.

Step One: How to Determine If A Company Can Afford to Restructure

Check to see if its an asset rich company, despite its debt. Does it have some valuable operating businesses as a backbone? Are there properties it could sell, if absolutely necessary, to finance its turnaround? Can non-core assets be sold to pay off debts, leaving the company’s best assets, which, managed correctly, to produce positive results?

So, while the whiners and the wailers will be crying, you are developing a plan of action, backed by facts and figures. Other investors, after seeing the stock drop +90%, will be too scared to make a rational evaluation. They'd probably have sold in a panic, right at the bottom.

Step Two: Make Sure Excellent Management Is in Place

There’s more to life than money. And there’s also more to a successful turnaround than solid financing. The key is excellent management, ones who weren’t used to losing. A turnaround business needs new officers who are fresh, aggressive and who believe they can win.

You can’t fight a winning battle with leaders who are used to losing. Thus, the second most important key to rebound success is a winning management team. Make sure new, winning management has been recruited and is in place before you buy a rebound stock. Even better, to prove their commitment, this same management buys lots of company stock, at market prices (not just options).

Step Three: Make Sure the Business Model is Sound and the Product is Good

After money and leadership, you’ve got to have a business worth saving. The key questions investors must ask is: does this potential rebound stock have a valid business model, good assets, and does it have great products?

Make sure the business you’re trying to save has solid future prospects. Don’t invest in a troubled business that only has a mediocre future.

I’m sure you’ve noticed that the analysis required to evaluate a solid rebound stock isn’t that difficult. Yes, it does take time, but these things are not hard to do: you check the company’s finances, thoroughly. You take a detailed and in-depth look at management. And you make sure the business model is proven and sound. It’s not that hard, but it can be incredibly lucrative.

Most people don’t look this closely at stocks that have fallen by 80% or 90%. Most people simply panic when they see a stock fall that much. They don’t carefully evaluate a firm’s financial position. They don’t wait and see if new management can be successfully recruited. And they don’t consider the intrinsic value of the company’s ongoing business.

If you can learn to do these things, buying rebound stocks can be the most lucrative investing you’ve ever done.

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

And the following is taken from Fools.com. Again I lost the link. :(


Here is an old Fools article..

Investing in Turnarounds

Whitney Tilson uses BJ's Wholesale Club and Office Depot as case studies to explain how he invests in companies that may be poised for a turnaround. Although both stocks are currently cheap, you would do well to look closer at the issues confronting the two companies and whether their strategies to overcome them are working.

By
March 28, 2003

Even with the severe decline in the stock market over the past three years, I find it difficult to find significantly undervalued stocks among companies that are performing well. Instead, I am typically buying stocks of businesses that have issues -- generally ones in which earnings have fallen (or, at the very least, growth rates have slowed), either due to external factors such as the weak economy or a company's own missteps. I call the latter category "turnaround situations," which means that the company needs to fix certain internal problems in order to turn itself around.

Today, I'd like to share some thoughts what I look for when investing in turnaround situations. As case studies, I'm going to use BJ's Wholesale Club (NYSE: BJ) as of today and compare it to Office Depot (NYSE: ODP) in January 2001 (a stock I bought then at $8, sold a year later at $17, and which I have recently repurchased).

When I've done well investing in turnarounds, most of the following characteristics have been true:


* A strong balance sheet
* Robust free cash flows
* Share buybacks
* Great management
* A strong competitive position
* The right strategy
* A really cheap stock

Let's take a closer look at each of these metrics and apply them to BJ's and Office Depot.

A strong balance sheet and robust free cash flows
The first question to ask in any turnaround situation is: Does the company have the financial strength to survive until it can turn itself around? Even the most brilliant turnaround plan is worthless if the company goes bankrupt before it can be implemented. So, look for a strong balance sheet or robust free cash flows -- preferably both.

At first glance, BJ's appears to score well in this area, but the picture isn't quite so rosy. While the company has $33 million of cash and no debt, it has leased most of its stores (rather than buying the land and building as, for example, Costco (Nasdaq: COST) typically does). So, BJ's is on the hook over many years for more than $1.6 billion of operating leases, contingent lease obligations, and closed club lease obligations (as of its Q3 10-Q) -- a material amount for a company whose shareholders' equity and market cap are both under $800 million.

Turning to cash flows, BJ's was free cash flow positive last year, with operating cash flow of $151 million and capital expenditures (capex) of $135 million. But it is planning a big increase in capex this year, to $215 million-$225 million, versus expected operating cash flow of $170 million-$190 million, such that the company will be free cash flow negative and end the year with $40 million-$50 million of debt. This is not an alarming amount, but the trend is worrisome and adding debt on top of the lease leverage is risky.

In January 2001, Office Depot didn't have a great balance sheet, with $378 million of net debt and even greater lease obligations. However, the company did have very healthy cash flows: in the first three quarters of FY 2000, its operating cash flow was $435 million vs. capex of only $181 million.

Share buybacks
If the company is financially healthy, yet the stock is trading well below intrinsic value, then buying back stock can create tremendous shareholder value. It's critical, however, for management to be savvy in buying back stock only when it's at low levels.

BJ's management has failed miserably in this area. Last year, the wholesaler repurchased approximately 2.6 million shares of stock at an average cost of $31.51, and since 1998, when it began repurchase activities, has repurchased approximately 9.8 million shares at an average cost of $31.69 per share.

It's bad enough that it spent $310 million buying back stock at what turned out to be very high levels, but even worse is that, with the stock down by nearly two-thirds from the price at which it was aggressively buying back stock, it has essentially suspended its repurchase program.

Office Depot, in contrast, had repurchased $781 million of its stock in the previous four quarters (from Q4 '99 to Q3 '00), at an average cost of less than $10, reducing the share count by a whopping 27%.

Great management
Great management is critical for the long-term success of any company, but it's especially important in turnaround situations, in which there is often little margin for error. My rating of BJ's management is mixed at best. I think they are good operators but, as I discuss elsewhere in this column, poor capital allocators and strategists. In January 2001, Office Depot's CEO, Bruce Nelson, had been on the job less than a year, but had an excellent track record at Viking Office Products (which had been acquired by Office Depot) and had the right strategy for turning the company around (which I discussed in The Importance of Strategy).

Strong competitive position
Companies with strong -- ideally market-leading -- competitive positions generally have the best chances of successfully turning their businesses around. BJ's is much smaller than Costco and Sam's Club (a division of Wal-Mart (NYSE: WMT), which means that it does not have comparable economies of scale, purchasing power, etc. Being a distant third in a three-horse race is not a good position. Office Depot, in contrast, is the world's largest seller of office products.

The right strategy
I have written three columns on the importance of strategy, so I won't repeat myself here. It is in this area that I have the greatest concerns for BJ's. I believe it is fundamentally competitively disadvantaged relative to the larger warehouse clubs (Costco and Sam's Club), but fundamentally competitively advantaged versus supermarkets. (BJ's prices are 40% lower than supermarkets', according to one survey BJ's cited on its recent conference call.) Therefore, I agree entirely with its management's strategy outlined in the most recent earnings release and conference call: Focus on taking share from supermarkets and differentiate BJ's from Costco and Sam's Club to avoid their competitive onslaught.

But the actions BJ's recently announced are not consistent with this strategy. For example, if it is already 40% cheaper than supermarkets, the primary competitors they've identified, then why slash prices and kill margins and cash flow? And given the harsh competitive and economic environment, why is it ramping up capex by more than 60% this year? I think it may be making the classic mistake retailers often make: worrying more about the altar at which Wall Street worships, same-store sales, rather than far more important margins, profits and cash flows.

In contrast to BJ's' imprudent actions, Bruce Nelson had exactly the right strategy to turn around Office Depot in early 2001. Rather than investing in the low-margin North American retail store base, the company closed underperforming stores and improved operations, which generated cash that was then reinvested into the higher-margin, faster-growing catalog, contract, Internet, and international businesses, where it has real competitive advantages.


A really cheap stock
My general rule of thumb is that turnarounds, even if they work, take twice as long and cost twice as much as even the most conservative estimate. So, it's especially important that the stock's valuation reflects a huge margin of safety.

BJ's stock certainly appears cheap, trading at only 8.6 times this year's consensus EPS estimates of $1.28 per share, and at $8 in January 2001, Office Depot was trading at a similarly cheap 9.4 times trailing EPS.

Conclusion
Of the seven metrics I've laid out, Office Depot in early 2001 scored very highly in nearly every area, so it's not surprising that the stock did exceptionally well (it was among the three best-performing stocks in the S&P 500 in 2001). In contrast, my analysis of BJ's reveals major issues, which is why I don't recommend it despite its seemingly cheap price.

A Look At DXN

Someone asked me about DXN the other day.

Well DXN, the stock, had been a lemon since it was listed back in 2003.

Here's how the stock performed from its listing to Aug 2009.

But since then... I am well aware, the stock has done considerably well. (LOL! I know that's an understatement. :P )


Yeah, the stock recently, went into orbit too!

Now there's a "First Interim Dividend of 4% less 25% tax and 4% tax exempt per ordinary share of RM0.25 each" which will go ex on 20th Sep 2010.

And DXN had played some really decent dividends the last year fiscal year. A set of 4 interim dividends were paid.

1. 15th Sep 2009 1st interim dividend 3% less 25% tax
2. 3rd Dec 2009 2nd interim dividend 4% less 25% tax
3. 19 March 2010 3rd interim dividend 4% less 25% tax
4. 30 June 2010 4th interim dividend 3% less 25% tax

And the last reported earnings seemed interesting too! Quarterly rpt on consolidated results for the financial period ended 31/5/2010 - DXN reported earnings was some 10.076 million and its previous year, same quarter, earnings was a mere 5.012 million.

An interesting development?

Of course I could be wrong but the very first thing I would want to discover is why is the stock such a lemon earlier?

As simple reference, I use two research reports. RHB initiated coverage on DXN back in 2005.

• 5 October 2005
  
  RHB Highlights
  
  􀁘 Initiation of Coverage: DXN Holdings Berhad (rm0.69) : “Take a Chance” on Lingzhi TRADING BUY
  
  􀁘 DXN Holdings Bhd (DXN) is principally involved in the manufacture and sale of health supplements via direct selling, as well as cultivation of mushrooms.
  
  􀁘 Amway remains the biggest local direct seller with a 10% market share compared with DXN’s 3.5%. In terms of revenue contribution by geographical area, in 1QFY02/06, 41% came from the Philippines, followed by Malaysia (23%), India (11%) and the US (7%).
  
  􀁘 DXN is at its growth stage, manifested in its current expansion plans and activities include among others, going upstream in manufacturing one of its core raw materials, production of new product categories (skin care and cosmetics and enzyme based juice drinks) and construction of a production plant in China.
  
  􀁘 Indicative fair value of RM0.88 is based on 9x FY02/06 EPS that represents a 40% discount to the consumer sector’s 1-year forward PER of 14x. The discount is to reflect the market’s reduced appetite for stocks with a small market capitalisation. Management has informally committed to a dividend payout of 40% of FY02/06 earnings. TRADING BUY.
  
  Background: DXN is engaged in the manufacture and sale of health supplements via direct selling, as well as cultivation of mushrooms. (See Chart 1 for corporate structure). Its products fall into six main categories, namely health food supplements, food and beverages, personal care products, household products, skin care and cosmetics and water treatment system. Main products manufactured and sold are made from Ganoderma (a scientific name for red mushrooms or lingzhi) mushroom extracts. Its best-selling products are mushroom-based Reishi Gano (Ganoderma mushroom essence), Ganocelium capsules and tablets, and 3-in-1 lingzhi coffee.
  
  DXN operates seven manufacturing facilities located in three countries where the labour cost is relatively cheap, namely Malaysia, Indonesia and India. Its plant in China is currently under construction.
  
  DXN’s products are primarily sold via direct selling. A plus side on DXN is that it requires upfront cash payments from stockists and distributors before goods are delivered, hence lowering credit risk. Also, all overseas sales transactions are denominated in USD, lowering DXN’s foreign exchange exposure to local currencies in the countries they operate in. As a manufacturer and a direct-selling company, DXN‘s costs mainly consist of raw materials, labour, manufacturing overheads and bonus payments to stockists and distributors. Core raw materials such as creamer and sugar are locally sourced under 2-year supply and purchase contracts with two main suppliers in the region.
  
  DXN is setting up a production plant in China to capitalise on the lower production cost in China, and better market penetration into China.
  
  DXN’s direct-selling focus reduces competition with bigger brands and other homogeneous products currently available in hypermarkets and supermarkets. Also, this focus means DXN is not vulnerable to unfavourable credit terms with these hypermarkets and supermarkets as these parties have stronger bargaining power.
  
  DXN’s business operational structure of having access to both its upstream and downstream supply chain gives the group a better position in controlling its product price.
  
  Given its increased number of and average revenue contributed by stockists and distributors, we believe there is a strong potential growth in revenue and earnings.
  
  Corporate Structure:
  
  Earning Outlook: We expect DXN’s revenue to grow by at least 10% p.a over the medium term, underpinned by: (1) The rising consumerism in the region; and (2) Greater market reach via its expanding distributor/stockist network. Despite the rising commodity prices and operating costs in general, we expect DXN’s margins to sustain thanks to DXN’s strategy of:
  
  (1) Putting up new production facilities in a low-cost country, i.e. China; (2) Moving upstream to produce some of the raw materials which DXN can produce cheaper in-house. With sustained margins, we expect the 10% p.a. topline growth to filter down to 10% growth in profit for FY02/06.
  
  Recent Developments: DXN is investing in a new plant in China that is expected to come on stream within a year from now. This plant will cater to demand from the Philippines. In September 2005, the Group signed an MOU with Ministry of Agriculture and Food Industry Sabah to commercialise Spirulina cultivation, Ganoderma and Cordyceps production, Enzyme production, integrated Kenaf cultivation and processing, sericulture, and vermiculture in Sabah.
  
  Investment Risk: Dependency on Philippines market. As mentioned earlier, this market contributes 41% to DXN’s revenue. There is an associated country risk attached to this dependency, such as political, economic and currency risks which in concert can affect consumers’ spending power in the Philippines.
  
  Low share liquidity/ small market capitalisation. The market’s weak appetite for stocks with a small market capitalisation currently. This means DXN may not trade up to our indicative fair value over the immediate to short term.
  
  Cyclical downturn in the global economy. This may affect consumer spending over the short term.
  
  Balance Sheet: DXN’s balance sheet is strong. As at 28 February 2005, its net cash stood at RM29.3m, translating to RM0.12/share.
  
  Valuation: Indicative fair value of RM0.88 is based on 9x FY02/06 EPS that represents a 40% discount to the consumer sector’s 1-year forward PER of 14x. The discount is to reflect the market’s reduced appetite for stocks with a small market capitalisation.
  
  Recommendation: We like DXN for: (1) its current business structure of controlling and effectively managing the supply chain both upstream and downstream; (2) its strong foothold in the regional market and it is ahead of many competitors in regional expansion; and (3) stable and strong financial position, apparent management team synergy and good dividend yield of 5.8% for FY02/06. We are initiating coverage on DXN with a TRADING BUY recommendation.

* RHB's earnings estimates for FY 06, FY 07 and FY 08 was 24.3 mil, 26.7 mil and 29.4 mil.

And I got a copy of iCap's notes on DXN in 2007. (BB --> :P )

• DXN Holdings Berhad (DXN, 5074)
  
  [Updated on 27/07/2007 14:41:00]
  
  Principal activities: Direct selling of health supplements,etc and property development
  Major shareholder/s: DXN Group Sdn Bhd
  
  Financial highlights (RM mln) – 28 February
  
  This week, i Capital updates DXN Holdings Bhd (DXN), a company that is principally involved in multi-level marketing (MLM). Since its listing on 30 Sep 2003, the performance of DXN’s share price has been lacklustre. This seems to be unjustifiable when we look at the group’s historical financial performance.
  
  i Capital feels that the depressed DXN share price is due to the lack of investor confidence in the group’s strategy of diversifying into other non-core activities such as property development and biodiesel. Unlike the MLM business, property development and biodiesel projects require high initial investments, which have, in the short term, affected the group’s financial position. As at FY2007, the group’s borrowings have escalated to over RM100 mln against a cash balance of RM45 mln, putting the group in a net debt position – see figure 1. What is even more worrying is that the group’s net operating cash flow has been going downhill over the past 2 years. The huge increase in property development cost and trade receivables (due to longer credit terms granted to overseas customers) has caused the group to generate a negative net operating cash flow of RM14.8 mln in FY2007.
  Before assessing the prospects of the group’s existing and new businesses, for the benefit of newer subscribers, i Capital shall briefly discuss the group’s operations.
  
  Multi-level marketing: One world, one market – a global MLM company DXN was started in 1995 by Dr Lim Siow Jin, who discovered the health benefits of Lingzhi mushroom and decided to popularise this miraculous herb and the benefits that can be derived from it. Over the years, the group has expanded its production to about 80 over Ganoderma mushroom-based products, ranging from health food supplements to personal care products. Its top three selling products are the “3-in-1” Lingzhi coffee series, Reshi Gano & Ganocelium and toothpaste products, which respectively contributed about 37.5%, 32.9% and 4.0% to the group’s total MLM revenue in FY2007. Its new product, Spirulina, contributed about RM7.1 mln or 3.7% to the group’s MLM revenue in FY2007, making it the fourth best selling product.
  R>As DXN is able to source most of its raw materials locally, it is less exposed to shortages of raw materials. For example, rubberwood sawdust and rice chaff, which are used as organic substrate to grow the Ganoderma mushroom, are available in Kedah, while Ganoderma mushrooms and Ganoderma Myceline, which are used as raw ingredients to manufacture various products, are grown on its own farm in Jitra, Kedah. Although the group currently sources its coffee powder from three suppliers, it faces pressure from the increase in coffee prices in recent years. Nevertheless, the economies of scale derived from its vertically integrated production gives the group a competitive advantage to sell its products at lower prices compared with its competitors.
  
  Unlike most MLM companies who are still struggling to gain a foothold in the local market, DXN has successfully expanded its footprint to many different parts of the world – see figure 2. Currently, the group’s top three markets are the Philippines, Malaysia and India, which respectively contributed about 47%, 21% and 11% to the group’s revenue in FY2007. The group’s global success can be attributed to its innovative marketing concept, “One world, one market”, which allows its distributors to enjoy worldwide bonuses with a single membership card. As at May 2007, the group has 3.2 mln distributors worldwide, of which 600,000 are active members. With a single membership card, DXN members are able to establish their business anywhere around the world. When the group gains a certain level of demand for its products in a particular country, it will set up an international branch to increase its visibility, as well as to provide better support for its distributors in that particular country. Although the MLM business does not require high capital investment, there are barriers for other MLM companies that want to penetrate the overseas markets. For instance, the company will need to ensure that its products are manufactured from internationally recognised Good Manufacturing Practice (GMP)-certified factories and that it must have a reliable enterprise software system to keep track of its sales and distributors’ points (points that distributors receive upon making a sale).
  
  Due to the group’s success in expanding its product range and customer base, revenue from its MLM business has been growing steadily over the past 5 years – see figure 3. However, viewing its MLM business as a cash cow and that growth from its MLM business has been slowing down over the past 3 years, the group decided to venture into other business activities that will hopefully sustain the group’s growth.
  
  Property development
  
  The return of property arm to the group
  Unknown to many, DXN has been in the property business since 1998. Under the name of DXN Development Sdn Bhd, the company was involved in residential building, industrial building as well as the building of GMP-certified factories for the group. However, when DXN underwent listing in 2003, it decided to make the group a pure MLM company and thus spun off its property business. Nevertheless, it continued to maintain a dormant property company known as DXN (KL) Sdn Bhd, which subsequently changed its name to DXN Land Sdn Bhd (DLSB) to inject the property business back into the Group. Currently, there are two subsidiaries under DLSB, Richmont Saphhire S/B and Yiked DXN Stargate S/B.
  
  Richmont Sapphire Sdn Bhd
  Richmont Sapphire Sdn Bhd (RSSB) was acquired by DLSB on 12 Oct 2005. The company has just completed a residential project, comprising 94 housing units, in Jelutong, Penang. To date, RSSB has managed to sell 23 housing units, with another 7 units pending buyers’ ability to secure housing loans from their respective banks. As the price of each housing unit is about RM568,000 (promotional price), the Richmont Residential project is targeted at middle to high income earners. With its show unit ready in early Jul 2007, the group aims to sell 50% of the 94 units by this year, with the remaining units targeted to be fully sold by the end of 2008.
  
  Yiked-DXN Stargate Sdn Bhd
  Yiked-DXN Stargate Sdn Bhd was set-up on 11 Aug 2006 as a joint venture company between Yayasan Islam Negeri Kedah (Yiked) and DXN Development Sdn Bhd to carry out a mixed development project in Mukim Pengkalan Kundur, Alor Star, Kedah.
  
  The proposed mixed development project is designed as a self-contained project, which will provide a mixture of low, medium and high cost residential units together with a wide range of supporting activities such as hypermarket, fast food restaurant and petrol station. The 307-acre project will be developed in 5 major phases, spanning 7 to 9 years, with an estimated total investment cost of RM360 mln. The first phase, encompassing 52 acres comprises 220 shop houses, 1 hypermarket and 1 petrol station. The buying interest for the first phase is encouraging, with all 220 shop houses being sold out in its initial launch and the company has even received earnest money from people who are interested in buying the shop houses that are to be developed in the second phase.
  
  Being positive over its mixed development project, DXN expects its property business to contribute significantly to its earnings over the next few years.
  
  Biodiesel expansion
  With the group’s expertise in biotechnology, it has decided to expand its research activities into bio-fuel whereby the group aims to cultivate Jatropha and Castor for the production of biodiesel. Biodiesel is a renewable fuel produced from plants. Currently, the main crops used to produce biodiesel are rapeseed (Europe), soybean (US), Jatropha (Africa and India), castor bean (Africa, China and South America) and palm oil (tropical areas). Although there are potential markets for biodiesel, the successful implementation of the biodiesel projects require intensive market research, as well as high technological capabilities.
  
  DXN has chosen to cultivate Jatropha and Castor for biodiesel production as the oils extracted from both crops are non-edible, making it cheaper and less controversial than other edible oils such as palm oil and soybean oil. As Jatropha and Castor are drought resistant plants, they grow in marginal soils, which make them non-competitive with other food crops for agricultural land. In addition, as the major demand for biodiesel comes from the US and European countries, Jatropha and Castor oil-based biodiesel can also potentially help to overcome the problem of the crystallisation of other types of biodiesel in cold climate.
  
  The group has been facing difficulties in finding suitable soils for cultivating Jatropha and Castor. In 2006, it has signed Memorandums of Understanding (MOUs) with parties such as Molek Engineering Sdn Bhd and Entrep Resources Sdn Bhd with the intention of cultivating Jatropha and Castor on a commercial basis. However, the MOUs were terminated due to the difficulties encountered in finding suitable soil to farm Jatropha and Castor.
  
  Originally, DXN proposed to develop 2 biodiesel plants with annual capacities of 400,000 tonnes each in Pahang, as well as 2 more biodiesel plants with similar capacities and 1 palm oil mill with an annual capacity of 500,000 tonnes in Sabah. However, due to the difficulty of cultivating Jatropha and Castor in time for its biodiesel plant to start commercial production, the group has decided to cut down its downstream investment (ie biodiesel plant). Due to the rapid rise in CPO prices, DXN feels that it is not lucrative to invest heavily in biodiesel plant at this point in time.
  Nevertheless, the group has found a piece of suitable land to cultivate Jatropha and Castor in the northern part of Thailand, and it is expected to take about 2 to 3 years for the crops to yield.
  
  Meanwhile, the group has already started a 10,000 tonnes/annum pilot plant in Pahang, which is currently producing biodiesel additives for its own vehicles. The group will be building another 220,000 tonnes/annum biodiesel plant in Pahang, which is expected to cost about RM50 mln. Although the group has already acquired 871,200 square feet of land in Sabah for its biodiesel project (costing RM10.4 mln), it remains conservative in making any further investments, as it is still conducting studies on the demand for Jatropha and Castor oil-based biodiesel, as well as building up its technological capabilities to meet the quality standards of the European and US markets.
  
  Conclusion and Advice
  
  At RM0.72, DXN is capitalised at RM173.4 mln. For this, what do investors get in return?
  
  Although it is disheartening to see the group falling into a net debt position and its failure to fully implement its biodiesel project, i Capital remains positive about the prospects of its MLM and property businesses and continues to see great potential in the group’s MLM business, as it continues to expand into other countries such as Mongolia, South Africa and the UK. To improve the profit margin of its MLM business, the group intends to revise its product prices on a quarterly basis rather than on a yearly basis to make it more in line with the movement in raw material prices. The group will also be exploring vertical integration, whereby it will have more control over its raw material prices and supply chain. Given that the group’s coffee product has been its top-selling product for many years, i Capital sees great potential for the group to move further downstream, such as setting up coffee cafes. While we expect revenue from the Group’s property business to contribute significantly to its earnings over the next three to five years, contribution from its biodiesel project will only be materialised from 2010 onwards. Even then, the contribution will still be insiginificant and it is also uncertain when the group will be able to breakeven with regards to its biodiesel project. While the group’s high level of debt puts it in a risky position, its MLM business continues to generate positive cash flow and the income from its property development will also help to reduce some of its bank borrowings.
  
  Currently trading at a low forward PE of 6 times and historical price to book ratio of 1.2 times, the share price of DXN remains attractive. However, i Capital revises its rating for DXN to a medium-term Buy below RM0.80.

Yeah, now I remember. :P

DXN diversified into property development on Oct 2005!!!

From a MLM player to a property developer. Yeah cows can do pole dancing too! (ps: DXN attempted to diversify into TIMBER business back in 2008! Yeah... horrors!! :P )

Anyway, what struck me most was iCapital's opening comments.

• Since its listing on 30 Sep 2003, the performance of DXN’s share price has been lacklustre. This seems to be unjustifiable when we look at the group’s historical financial performance

Ok.. let me compare that to my notes...

What would be your 'honest' evaluation of a business with those set of numbers? (*DXN raised some 28.633 million from its IPO)

Me?

1. From earnings perspective? Lacklustre and below average.
2. Balance sheet? Did not like what I see in the loans.

How else could I call it? (Ok.. dividends, is probably the only bright point)

And for me, I feel that it was justifiable that the share performance had been poor too!

So what has changed lately?

With the property divserification, here's the yearly segmental earnings table from DXN.


Ahh... that would be as a good 'indicator' of what's driving the current company's fortunes.

First, without a shadow of a doubt, the property and the 'investment' business should be flushed down the toilet! LOL! Someone should GO into DXN's office and drill into the boss head that DXN should quit their property and investment business and concentrate on what they know best, which is MLM!

Yes, the MLM is hot. Very hot. It's the driver of the company's success.

Now I was surprised that DXN fy 2011 numbers came out 'so good'. Why? Hai-O was warning about its MLM business and here is DXN.. doing great 'when' compared to its previous quarter.

But.... it's slightly... 'complicated' or 'distorted'.

Here's DXN earnings link in July 2010: Quarterly rpt on consolidated results for the financial period ended 31/5/2010

• The Group reported higher revenue of RM 67.8 million in the current quarter ended 31 May 2010 as compared to RM 60.1 million in the preceding quarter ended 28 February 2010. The increased was due to higher sales generated from multi-level marketing segment. The Group’s PBT for the current quarter was RM 12.5 million as compared to RM 7.3 million in the preceding quarter. The increased in the PBT was mainly due to the provision of RM5.65 million for diminution of investment in CLO subordinated bond in the preceding quarter

Profits increased due to the 5.65 million provision boosted gain. How? This is a one time boost, yes?

Now this is where it gets interesting. The previous quarter, April 2010: Quarterly rpt on consolidated results for the financial period ended 28/2/2010

• The Group’s PBT for the current quarter was RM 7.3 million which included the one off provision of RM 5.65 million for diminution of investment in CLO subordinated bond. By excluding the provision, the PBT achieved shall be RM12.95 million as compared to preceding quarter of RM 12.1 million, whereas the PBT margin increased from 19.4% in preceding quarter to 21.5% in current quarter. The slight increased in PBT margin was due to cost efficiency.

Eh? Profit for the prvious quarter was actually lower due to 5.65 million provision. Excluding the provision, PBT should be higher at 12.95 million.

LOL! A plus here and a minus there. :P

And so here we are.

Company is making better profits through its MLM business, balance sheet looks much, much better and the company is paying decent dividends.

How?

Just How Profitable Is AirAsia Since Listing?

Some comments from the posting: Review Of AirAsia Earnings

• I don’t understand the business model of Air Asia. I am not sure whether it declares any dividend to its shareholders since the IPO in November 2004. It keeps expanding the business through borrowing. I really admired the patient of the shareholders for looking forward good future of the company and hope it will become cash cow. :D
• ROI of (Profit after tax / Share Capital) 200% couple with EPS 22cents seems very impressive for year 2009. If I were the long term shareholder, I would ask for dividend. No point for investing a company for more than 5 years without receiving a single cent of dividend. What I am concerned is…..how the company distributes profit in cash to its shareholders given highly committed capital expenditure? Sigh.

Here's AirAsia numbers.

One thing that needs to be remembered is that AirAsia raised some 717.439 million from their IPO.

c.c stands for total capital commitment.

* for the record: AirAsia became the world's biggest customer for the Airbus A320-200 after placing an order for 175 aircraft in December 2007, with an option for 50 more. *

* fy 2007 numbers is a mess because AirAsia changed its financial year end *

Now I may be wrong but I would NOT discount the following from AirAsia earnings. Yes, the earnings table above includes all of these...

1. Forex translation gains
2. Derivative gains/losses in oil hedges
3. deferred tax benefit granted to AirAsia
4. I am lazy! :P

Why? Why? Tell my why? :D

Won't the earnings tables be distorted.

Well, not really.

1. Like it or not, the debts are here to stay. AirAsia debts is not going to vanish into thin air anytime soon and most importantly, the debts are in foreign currencies. It's embedded into AirAsia business fundamentals and given the volatility of the forex market, forex translational gains and losses is part and parcel of the business. So yes, some years AirAsia will see huge gains and some years AirAsia will see huge losses.

2. Oil hedges. Discount what the boss have saying (like no more oil hedges etc etc), oil hedges is part of AirAsia business fundamentals too! And again yes, some years AirAsia will see huge gains and some years, AirAsia will see huge losses.

3. the massive tax benefited granted to AirAsia. (Again On AirAsia's Deferred Tax Iss, according to research reports, AirAsia stands to benefit 18 BILLION in deferred taxes! ) Well, I could argue and you argue and we all argue on that 18 billion deferred tax issue but it makes no difference now. It's part of the business.

4. LOL! yes, I am lazy at times. :P

Now that table.

Now it's interesting. You could call me wrong but for me, I would treat the IPO money raised as funds raised by AirAsia. So AirAsia raised some 717.439 million from the equity market. From its Fy 2005 balance sheet, AirAsia showed a bank borrowing of a mere 0.230 million. Five and a half year later, AirAsia carries a debt of 7.586 Billion.

And needless to say it's mind boggling.

And I for one, will call it a debt bubble!

And it's worth noting that AirAsia raised some 509.217 million from its share placement sale done end FY 2009.

Anyway... during this period, since listing, AirAsia 'made' some 1.4111 Billion.

Now consider this small exercise. ( I am aware some factors are not too just! )

Say I had 7.586 Billion to invest. In 5 1/2 years my investment grew to 8.997 Billion. Yeah, I made 1.411 Billion from my investment. Investments, like fixed deposits rates are compounded annually. And if I use my annual compounded rate calculator, and compute my return rate, do you know that I am getting a mere 3.15% compounding rate? (you can use this website http://www.moneychimp.com/calculator/discount_rate_calculator.htm to confirm the result)

So if I had 7.586 Billion (LOL! I wish I had that much! :P ), and if I invest in a money market rate giving me a return of 3.15% compounded rate per year, after 5 1/2 years, I could make 1.411 billion.

Now of course, many would say.... what? Am I nuts? 3.15% only? Am I a water fish or what?

:P

Back to AirAsia. Since listing, it went from a company with practically zero borrowings to a company with 7.586 Billion borrowings.

And during this period, it only made some 1.411 billion.

Ok, I am aware that I discounted the money raised from IPO (717.349 million) and the money raised from recent share placement sale ( 509.217 million) and I am also aware that AirAsia did not borrow all these money at one go.

How?

How would judge AirAsia profitability since listing?

Quick Review Of Tomypak's Earnings

Posted earlier this week: Review Of Tomypak

Noted from that posting was that Tomypak's fy 10 Q1 earnings was rather weak and that it disappointed.

• 10 Q1 earnings did disappoint. Earnings came in at 5.151 million. Compared to the previous quarter, the decline was drastic and the explosive growth 'appears' to have ended. However some do not like the q-q comparison and they argued that if compared on a y-y basis, the growth is still impressive!
  
  Yes, it's bread or steak time now! LOL!
  
  Is this the start of the end or is this just a blip?

Tomypak announced its earnings tonight.

Here's the compiled table.

Earnings is disappointing again yes?

Company said the following:

• The Group reported a profit before taxation of RM3,718,000 for the second quarter ended 30 June 2010 compared to a profit before taxation of RM5,654,000 in the preceding quarter mainly due to the increase in raw materials prices throughout the current period and realised foreign exchange loss in the second quarter ended 30 June 2010.

How?

Review Of AirAsia Earnings

Blogged earlier this month, Positive Move That AirAsia Defers Their AirBus Order, and yes I did give AirAsia a positive set of comments!

• 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!

So I was extremely interested to see AirAsia numbers.

And I would use my last earnings review posting on AirAsia as a guide. On June 2010, I posted How Good Is AirAsia's Latest Earnings?

• This was on the Edge: Update AirAsia 1Q net profit up 10% to RM224m.
  So we have rm 224 million of profit.

AirAsia said it earned 198.9 million.

Last nights earnings was much less than what was reported in June 2010, yes?

LOL! The Star version is AirAsia Q2 net profit 43% up on higher passenger load

LOL! As the random stock master sifu would say, 'Best fit financial news'.

Typical. I guess the local media learned it too well from the US media.

Now don't get me wrong, the Star headline wasn't technically wrong because when compared to the same period last year, AirAsia did improve a lot. However, when compared to the previous quarter, AirAsia's numbers are a concern. Ok, some might argue that quarter to quarter comparison is not too accurate but surely, that decline is worth at least a mention, yes?

And for AirAsia, any sensible review should be on the debts.

Yeah, that's how pathetic it is. All these years, it wasn't about how much AirAsia earned but on how much is AirAsia borrowings.

Why?

AirAsia did it to themselves. Using debt to grow a business is acceptable at times but there must be a prudent control to make sure that the debt does not spiral out of control. Make no doubt about it - too much debts kills!

In June 2010, AirAsia managed to 'trim' its debts slightly lower (for the first time too!) to 7.186 billion.

Simple reasoning: AirAsia said it made 224 million. I will handicap all the 'extra' gains from forex, hedging etc and take that number as it is, as a whole. At 224 million, that would be some 896 million per year. Debts is at 7.186 billion. Capital commitment to new planes is 24 billion. For simplicity sake, assuming all the 24 billion is financed by borrowings as usual. This would see debts balloon to 31 billion. (it's an assumption but dare anyone say it's not possible at all?). Now a simple perspective, at the rate of 896 million, it would take AirAsia some 34.5 years to generate 31 billion of profits! (yeah, I am aware of the number of assumptions I have made here. :P ) ( And I probably should use the 'contracted' capital commitment of 15 billion)

How? Doesn't it sound out of whack? Capital commitment on new air crafts was simply out of order! ( And because AirAsia deferred the deliveries of air crafts, that gave AirAsia the breathing room. It was absolutely crucial! )

Let me say that I am impressed with the 'quality' of the earnings report. It's clear and there's tons of information in it and I wish all other listed companies use AirAsia reporting style as a benchmark! Kudos to AirAsia for this.

Total debts increased to 7.586 Billion!

( Duh! They wrote.. net gearing ratio of 2.27 times, only 1% higher then the preceding quarter!)

And this is the area of concern - the capital commitment.

To put this capital commitment into better perspective, on June 2010, from the posting How Good Is AirAsia's Latest Earnings?

• So far, AirAsia has received 70 of its A320 aircraft on order, with another 105 aircraft to be delivered through to 2015. ( Read more: AirAsia seeks to slow down A320 deliveries )

This is where the problem is.

Another 105 aircraft still needs to be delivered to AirAsia!

That's a lot of money! And as mentioned in the June posting.

• 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

And my view remains.

The cash balances for AirAsia now stands at 858 million. ( I would like to see AirAsia collect all the money due from its associates! It's no small change. )

One of my last remarks in the posting on 5th August 2010, was..

• ps: I am well aware that AirAsia's cash flows had certainly improved tremendously.

Now the critics would be real quick to say point out that I need to qualify that statement further!

Last fiscal year AirAsia had a huge placement of shares. It found investors willing to fork out money to invest in its share placement. AirAsia raised some 509 million and if one discount the money raised from that share placement, AirAsia is really, really in a poor financial state.

I agree. :P

Here's AirAsia cash flows.

From 2 quarters of operations, AirAsia generated some 483 million cash. ( That's impressive. Really! It's like a cash cow! :P)

But....

look at how AirAsia is using (burning? :P ) their cash...


That big fat arrow on top, that's where the concern is. Some 727 million was spend on 'property, plant and equipment' and I would assume that this is the acceptance of new air craft deliveries.

So despite the ability to generate that impressive 483 million cash, some 727 million was spend buying aircrafts!

Hey, basic math... money out more than money in!

And that's a not sustainable equation!

Which is why AirAsia cash flow showed a net increase of 338.384 million in borrowings! ( 619.183 - 280.789 )

How?

Cash flow is certainly AirAsia biggest problem. That aircraft order was simply too huge previously. Deferment is only a temporary solution. It does not solve anything. Currently as stated, AirAsia is contracted to accept some 14.9 billion worth of aircraft. Another 8.4 billion is authorised but not contracted. Add in the current borrowings of 7.586 billion. This is where the headache and the concern is.

And as mentioned before, I do believe that the listing of AirAsia X could help. And also maybe the listing of AirAsia Indonesia and AirAsia Thailand. This is the viable option left for AirAsia to tackle it's main problem.

M3Nergy CEO Fined 100K For Non Factual Statements!

Read the following article: Hubline, M3nergy reprimanded, top officials fined. Since I hade blogged on M3Nergy and on its CEO before, I was curious to read why and what the CEO was reprimanded for.

• On M3nergy, Bursa Securities publicly reprimanded the company, its managing director and chief executive officer Datuk Shahrazi Sha’ari, and non-executive chairman Datuk Zulkifly@Sofi Mustapha.
  
  Shahrazi and Zulkifly were fined RM10,000 each.
  
  Bursa Securities said M3nergy announced on Aug 27, 2007 that it had received an invitation from Core Attributes (M) Sdn Bhd (CASB) for the company to sell its entire stake in Malaysian Merchant Marine Bhd (MMM) consisting of 50.376 million ordinary shares (28.67% of MMM’s share capital) and 470,000 Islamic preference shares (IPS) for a cash consideration of RM33.5mil.
  
  Subsequently, on Oct 31, 2007 it announced that M3nergy and CASB signed a conditional share sale agreement for the proposed disposal.
  
  The company later announced that the proposed disposal based on varied terms, with the total number of ordinary shares reduced to 29.442 million (among others), had been completed on Dec 12, 2007.
  
  However, it is noted that of the 29.442 million MMM shares, 16.6 million MMM shares were disposed by M3nergy on Nov 28, 2007 via open market to a total of 173 buyers, and 12.842 million to two individuals via direct business transaction, none of whom was CASB.
  
  “Hence, it is apparent that the company’s earlier announcement of Oct 31, on the proposed disposal of 50.376 million ordinary shares to CASB was no longer factual and fulfils the requirements of paragraph 9.16(1). However, the company failed to comply with the obligation under paragraph 9.16(4) of the listing requirements to notify Bursa Securities of the same,” it said.
  
  In addition, the company’s announcement on Dec 12, 2007 that the disposal of 29.442 million ordinary shares of MMM to CASB had been completed on that day was not factual, inaccurate and in breach of paragraph 9.16(1)(a) of the listing requirements.
  
  Bursa Securities also said M3nergy had also breached paragraph 10.04(1) for failing to make an immediate announcement when the company issued a notice of exercise of put option to CASB on Dec 10, 2008 to require CASB to purchase all the option shares. The company only made an announcement on this on Feb 20, 2009.

Huhu!

Statements made the CEO, Shahrazi Sha’ari, was NOT FACTUAL!!!!

And the meaning of Not factual?

This is Urban Dictionary meaning:

• Something that is not factual; a made up and/or incorrect idea. A better and funnier way to say "a figment of your imagination." ( Urban Dictionary: not factual )

My English is not good. :D

My Auntie's definition is better. NOT factual means LIES!

What's yours?

How?

Is a fine of 100k enough for making NOT factual statements?

And of course I remember Shahrazi Sha’ari and his MMM stake!

On 26th July I blogged this posting That Unfair Offer On M3Nergy.

Let me repeat what was posted...

Let's see where should I start?

Hmmm... it was 29th November 2002.

There was this company called MMM or Malaysian Merchant Marine Bhd. On that day, MMM made the following announcements: Changes in Director's Interest (S135) - Shahrazi bin Sha'ari and Changes in Director's Interest (S135) - Shahrazi bin Sha'ari

The first announcement showed that Shahrazi bin Sha'ari purchased some 2,057,000 shares of MMM at a price of rm 1.00 and the second announcement showed that Shahrazi bin Sha'ari purchased some 13,393,000 shares of MMM at a price of rm 1.00 also.

Now perhaps that would sound like someone who is making a long term investment into the company.

A few days later or exactly 5 days later, the incredible happened. Shahrazi announced he was longer a shareholder! Notice of Person Ceasing (29C) - Shahrazi bin Sha'ari

Maruchi Malaysia Steel Tube Bhd announced that it was buying a 32.5% stake in MMM.

• The Board of Directors of Maruichi Malaysia Steel Tube Berhad (“Maruichi” or “the Company”) had at the Board of Directors’ Meeting held on 4 December 2002 agreed for the Company to enter into a Share Sale Agreement (“the Agreement”) with Shahrazi bin Sha’ari (“the Vendor”) in respect of the acquisition by the Company of 32.5 Million ordinary shares of RM1.00 each which is equivalent to 32.5% of the total issued and paid-up capital of Malaysian Merchant Marine Berhad (“MMM”) for a total cash consideration of RM99.9 Million (“the Proposed Acquisition”).

Well that worked to a price per share worth rm 3.07!!!!

Holy cow!

Huhu! Bought at 1.00 and within 5 days, sell it off at rm 3.07?

WOW! A 300% gain!

Good or what! :P

Who said the share market sucks?

But Maruichi shareholders were not happy.

Oh NO!!!!!!!!!!!!!!!!

• Maruichi aborts MMM deal.
  (From The Star (Malaysia))
  
  MARUICHI Malaysia Steel Tube Bhd, bowing to tremendous pressure from the authorities and minority shareholders, has aborted its plan to buy a 32.5% stake in Malaysian Merchant Marine Bhd (MMM) from Shahrazi Shaari at RM3.07 per share.
  
  In a statement to the KLSE, Maruichi said its board, at its meeting yesterday, decided to rescind the share sale and purchase agreement with Shahrazi, who is MMM chief executive officer and managing director.
  
  In a second statement later, it said that the RM99.9mil that had been paid to Shahrazi - RM35mil on Dec 4, RM64.8mil on Dec 10 and RM100,000 on Dec 11 - would be fully repaid to the … ( source: here ) ( Bursa announcement Share Sale Agreement dated 4th December 2002 pertaining to the Proposed Acquisition of 32.5 million Shares in Malaysian Merchant Marine Berhad ("MMM") )

On 17th December 2002: Changes in Director's Interest (S135) - Shahrazi bin Sha'ari

• Shahrazi acquired back the 32,500,000 shares via Snap Captal

August 2003.

• Trenergy to pay RM61 mln cash for MMM stake
  By Thomas Soon, 9.16pm
  
  Trenergy (Malaysia) Bhd is taking up a 75 per cent stake in the controlling block of 32.5 per cent in Malaysian Merchant Marine Bhd (MMM) for RM61 million cash, valuing the latter at RM2.50 per share.
  
  Under the deal, Trenergy will subscribe for a 75 per cent stake comprising 61 million new shares in SNAP Capital Sdn Bhd, which holds the 32.5 per cent stake in MMM.
  
  In a statement on Aug 28, Trenergy said the company and SNAP entered into a conditional subscription of shares agreement on the same day for the proposed subscription.
  
  MMM managing director Shahrazi Sha'ari and one Tan Sook Yen respectively hold 99.99 per cent and 0.01 per cent stakes in SNAP. Pursuant to this, SNAP will increase its paid-up capital to RM81.25 million from RM20.25 million now.
  
  This confirms theedgedaily.com report on the same day that Shahrazi had struck a deal with Trenergy for the latter to acquire a 75 per cent stake in SNAP for RM61 million.
  
  Trenergy said the acquisition price valued MMM at RM2.50 per share as SNAP's sole investment was its 32.5 per cent comprising 32.5 million shares in MMM.... (see Bursa announcement here ).

So bought at 1.00.. finally sold at 2.50. Nice eh? :D

GREAT WAY TO MAKE MONEY EH?

But amazingly despite the initial attempt to hive off the shares for a 3x gain, Shahrazi Sha'ari, remained as Managing Director and CEO of MMM until May 2006 ( see Change in Boardroom ) and stayed on as a director until November 2006. ( see Change in Boardroom )

And Shahrazi Sha'ari was featured on a Star Business article on Jan 2005.

• Monday January 24, 2005
  Interest in marine lands Shahrazi into shipping
  
  BY LEE KAR YEAN
  SHAHRAZI Sha'ari was only 37 years old when he was offered the arduous task of taking over the management of Malaysian Merchant Marine Bhd (MMM) on his return from his studies and working stint in the United States in 2001.
  
  His venture into the shipping industry was purely by choice as he was into it for the challenge and keen interest in the marine business.
  
  “I came back to Malaysia after the Sept 11 terrorists' attack on the US and I was soon offered the management post in MMM.
  
  “Many people were puzzled by my decision to join the company at that time because of the uncertainties in the world economy and the shipping business was no exception. But I took up the challenge because of my interest in the marine business, I have many friends and contacts in the shipping industry from ship captains, engineers to cooks,” he said.
  
  Shahrazi graduated with a bachelor of arts from Macalester College In Minnesota. He worked in the US for five years in a senior managerial position with a civil engineering company before his return to Malaysia.
  
  Looking back, MMM has done very well indeed under his leadership, chalking up an increase in turnover from RM38mil in the financial year ended Aug 31, 2001 to RM120mil last year. The group's after-tax profit was also up from RM8.7mil in the financial year 2001 to RM11mil in the same corresponding period last year.
  
  Shahrazi said his experience in turning around several companies came in handy. He was previously involved in the restructuring of several companies in the manufacturing, communication, engineering and construction sectors before taking the bold step to go into the shipping industry.
  
  His various senior positions included executive director of the Wira Security group of companies and chief executive officer of the Pacific Asia Consolidated group of companies.
  
  Shahrazi came on board MMM and assumed the position of chief executive officer on Aug 8, 2002.
  
  He was appointed to the board of directors of Trenergy (Malaysia) Bhd as group managing director and chief executive officer on Sept 6, 2004.
  
  “I will give myself three years to build up Trenergy,” he said. “As a CEO, it is my duty to give direction and have a vision for the company. It is my job to restore certainty to the company.”
  
  Trenergy became the largest shareholder in MMM via its acquisition of SNAP Capital Sdn Bhd. Trenergy currently holds 100% interest in SNAP Capital, which in turn owns a 28.7% stake in MMM.
  
  On the steel pipe maker Melewar Industrial Group (MIG) Bhd's decision to purchase a substantial stake in Trenergy via its wholly-owned subsidiary Melewar Steel Services Sdn Bhd, Shahrazi said the latest development would not affect the direction and agenda of the Trenergy group.
  
  “There will be no change in our direction and agenda. The Trenergy board of directors will remain,” he told StarBiz.
  
  MIG had acquired 12 million shares representing 16% in Trenergy for RM38.4mil or RM3.20 per share, making it the single largest shareholder in Trenergy.
  
  MIG said the acquisition would provide an opportunity for the group to venture into the “burgeoning” oil and gas industry and its supporting ancillary and shipping activities at a low entry cost.
  
  The move was also in line with MIG's board decision to diversify into other industries to broaden MIG's earnings base.
  
  MIG managing director Tunku Datuk Yaacob Tunku Abdullah said Trenergy was a well-managed, vibrant and profitable oil and gas player with a lot of potential.
  
  He describes oil and gas as the sunrise industry in Malaysia and MIG will see much growth in this sector in the coming years.
  
  According to analysts, the purchase by MIG is appropriate as the group's steel products will complement Trenergy's floating, production, storage and offloading operations.

Trenergy since had changed its name to M3Nergy....

A Look At Dufu's Earnings

For some strange reason, many repeatedly tried to compare Dufu with Notion. The gulf in the quality between the two companies is so clear. See Regarding DuFu as reference.

And the things is, in our markets, folks are implanted with the notion that stocks in a sector moves in tandem. Generally that's true but in the long run, quality ultimately shines. Leaders of the sectors will always remain top. They are leaders because they are usually the best in the sector (ah.. on some 'strange' occasions, the markets do have a mind of their own! LOL!). They are leaders because they lead. And they lead for justifable reasons.

And in that blog posting, I wrote..

• See? I do not understand this issue at all. If DuFu business model should be compared to Notion, then perhaps the investing public should ask a rather simple logical question. Which is better? DuFu or Notion? To suggest that there is a huge differential in pricing as an excuse to buy, is rather a no-no in my opinion.
  
  Hey, it's just an opinion, hor.
  
  So how good is Notion?
  
  Notion current earnings is 27 million. Previous fiscal year it did 22.3 million. Indicating another solid fiscal years with storng earnings growth of around 22%. Net profit margins based on current earnings is extremely, very impressive at 27%.
  
  Dufu? All one has is to refer to is a set of IPO proforma numbers. It did a 8.3 million in earnings with a net profit margin of only a mere 7.5%. ( see Quarterly rpt on consolidated results for the financial period ended 31/12/2006 ). The managment projects an earnings of 11 million for current fiscal year. That's about a growth expectations of 32%, in case you are wondering. Well for a company with no proven listed track record, would you base ur investing based on management's projections?
  
  Simple common sensing asking... if given a choice, based on these simple yardsticks, which would you go for? And if so, isn't it clear why the other one, Notion, trades at a much higher earnings multiple?
  
  So why shouldn't DuFu trade at a higher earnings multiple?

And I for one believes that the earnings multiple is not an indication of the quality of a stock.

It's insanity.

A stock that trades at a low earnings multiple simply means that the stock is trading at a low price when compared against the earnings. And to make the matters worse, the P is never a constant and the E, the E could be interpretated so differently! That's all it means, to me, at least. And if you ask my Auntie for a shorter, simpler and sweeter version, "he low earnings multiple does not make the company good. It's just says that it's simply NOT laku!" :D

Yes the low earnings multiple does not means the company is good, it's simply means the stock is traded cheaply versus its current earnings.

And sometimes, stocks are traded cheaply for a strong reason.

Remember Megan Media? The couple of years before it went bust, it traded at an earnings multiple between 4-7 times earnings! (hope my memory fails me not. :P)

Anyway Dufu reported its earnings last night.

Here's Dufu's updated numbers.

Ouch!

The decline in earnings is drastic eh?

And Dufu blamed it all on the strong RM! ( perhaps I should use the WEAK dollar! :P )

• The Group recorded profit before taxation (“PBT”) of RM1.52 million in the quarter under review (“Q2 2010”) as compared to RM2.39 million in the preceding year corresponding quarter (“Q2 2009”), a decrease of RM0.87million or 36%. The decrease in PBT is mainly due to appreciation of Ringgit Malaysia against the US Dollar during the quarter under review. However, the Group recorded PBT of RM5.86 million in the cumulative quarter to date until 30 June 2010 as compared to RM4.07 million in the preceding year corresponding cumulative quarter, an increase of RM1.79 million or 44%. The increase in PBT is mainly due to increase of sales which was resulted by better performance compared to prior year cumulative quarter.

Here is Dufu's performance since 2007.

Since I talked about the 'alternate' option, Notion Vtec, here's the comparison numbers...


And here's the interesting one year stock performance comparison chart.