Mems: Part 2

I was reading yesterday Chetan Parikh’s editorial piece, Macrofactors and microfactors in value investing.

The concept of earning power has a definite and important place in in­vestment theory. It combines a history of actual earnings performance over a period of years with a reasonable expectation that the past level or trend will be approximated unless extraordinary conditions supervene. This performance may be measured in terms of either (1) the earnings per share of common stock or (2) the rate of return earned on the common stock equity (Security Analysis, Principles and Technique, 1962, p. 468).

Ahhh..I was just looking at Mems quoted price….which prompted me to mumble this out loud…:D

Yeah, I wrote about it earlier. See: S&P Coverage on Mems.. S&P opened coverage on 30th Sept 2005 on Mems when it was trading at 64 sen with a HOLD target price of 73 sen.

Anywayyyy…. Mems is now traded at a price of 37 sen.

Fiyoooo….die standing lah…just imagine if I had follow S&P word for word in their recommendation…kena paku lah!

See the unreal dangers of blindly following these recommendations?

Are the foreign based research reports any better?

An analyst report is an analyst report is an analyst report is an report.

Are these reports partial or impartial?

Ok… back to the concept of earning power.

Let me quote again…

It combines a history of actual earnings performance over a period of years with a reasonable expectation that the past level or trend will be approximated unless extraordinary conditions supervene.

The key point for me is REASONABLE EXPECTATION.

Now look at how S&P expectation. As mentioned earlier..

As can seen from the table posted by S&P, Mems did managed to post a net earnings of 13.7 million for its fiscal year 2005. What i see next is S&P projecting a net earnings of 17.9 million for Mems fiscal year 2006. Oh, this works out to be a growth rate of 31%. And the next fiscal 2007, Mems is projected to earn a net earnings of 47.6 million.

Wow!from 13.7 -> 17.9 -> 47.6!!!!

Sayyyyyy ... isn't S&P is projecting a compounded annual growth rate of 86.4% for Mems next two fiscal years??

I keep asking me-self this….a 86.4% compounded annual growth rate for the next two fiscal year?

Does Mems earnings power deserve such highly optimistic expectation?

Isn’t it just wayyyyyyyyyyyyy too lebih?

Consider this other issue olso: Does the current/trailing earnings matter?

At 64 sen, based on current/trailing net profit of 13.7 million, Mems earnings per share is only 2.1 sen which equates to an earnings multiple of 30.4x. Yes, no doubt that Mems has a great track record and has a very solid looking balance sheet… BUT… based on such pricing and the moneytary size of Mems earnings (13.7 million is rather smallish isn’t it?), isn’t one an paying an overly optimistic price for the stock? Remember the issue of pay less, get more and pay more, get less? Does Mems even deserves a 30.x times earnings multiple?

At 37 sen… Mems is trading at a current earnings multiple of 17x earnings.

How? 37 sen wor. A bargain? A steel? Or no I see?

:P

Mieco

Does a tumbling share represent an investment opportunity?

Take an investment grade share. The share price tumbles. Does this equate to an investment opportunity? Without a shadow of doubt that whenever a share displays some weakness in their fundamentals, which in returns causes its share price to fall, it does provides the investor with an opportunity... but in the case of investment, this (opportunity) should be examined in great detail because this investment is only deemed valid provided if the weakness or subdued financial performance is only a temporary situation. Well, if the subdued performance should drag on or continue for a longer time, this would then render the stock unattractive as the temporary weakness had caused a serious deterioration in the company’s fundamentals.

As Ah Poh says, what used to be good might not be good in the future. And if it ain’t good, it just ain't good.

Tiok boh?

In short, whenever we see a weakness in a stock's financial performance (which leads to lower price) sometimes this could be an opportunity to invest in PROVIDED if the weak financial performance is only temporary.

Determining and evaluating the weakness in the financial performance is utmost important, else our investment result will kena hantem kaw-kaw by our eagerness, our greed or perhaps our foolishness in trying to search for moola making opportunities in the share market.

Err… making moola out of nothing at all?

Issit really all that simple in the share market?

Let’s take an example: Mieco Chipboard.

Yes, Mieco used to be an investment grade stock. It was a stock which had a very impressive balance sheet, net cash and no debts (at it’s peak it had a net cash of 180+ million and no debts) and it had a pretty decent net profit margins.

See Mieco

The first chart of Mieco showed the 3 year chart of Mieco. It used to trade around the low 1.00 region. As the market rose during 2000 to 2004, Mieco’s investors were rewarded handsomely with the stock peaking around the 3.00 mark.

So when the stock start declining in 2004 from it’s peak, was this an opportunity to invest in this stock or was it simply a death trap?

A detailed study of the company’s quarterly earnings is a must. Have a look here for Mieco’s quarterly earnings table. ( Click here )

See the coloured boxes. Those are my warning flags in me opinion. see ( here for some comments )

Anywayyy… let’s consider the following chain of events.

As noted, the first sign of weakness in the company’s earnings happened when Mieco announced its 03 q4 earnings on 24th May 2005. Price of Mieco then was 2.89. It was trading around an earnings multiple of 19x based on trailing earnings.

There was a huge increase in the company’s borrowings. Now this one is debatable cause Mieco’s borrowings was incurred because it wanted to built a brand new factory. Capex was estimated at around 300 million.

And the next flag was raised in Mieco’s 04 q1 earnings announced on 20th Aug 2004. There was a drastic drop in Mieco’s net profit margins. A company which was consistently performing with net profit margins around 17-18% dropped to 12%. And the company is now in a net debt position. Mieco was trading around 2.40.

Sooooo….at this moment of time…..was Mieco an opportunity? Or wassit simply a death trap?

The pros were suggesting that Mieco has great future ahead. With the new factory, Mieco’s future earnings will be boosted. So with the share price dropping from around 3.00… surely now around 2.40… this would be a grand opportunity to invest in Mieco, tiok boh?

The cons? New factory is costing a bomb. Now coupled with declining margins, isn’t it too early to jump in? Shouldn’t one be more prudent and wait and see if the declining profit margin is only a temporary thingy? And shouldn’t one wait till one get confirmation when the factory will be completed and when the production will start? Cause if the declining earnings continues, some could view as a serious problem since Mieco has now a huge burden with its huge capex plan. Tiok boh?

What if I wait another 3 months for its next earnings report?

And in the next quarter, 04 q2, Mieco’s net profit margins has now slumped to just 10%. Total cash is now at 84.3 million with net loans at 149.6 million. For comparison sake, take 03 q2, just a year ago, Mieco used to have zero loans and a net cash of 182 million.

How?

Mieco despite the warning flags raised last traded at 2.70 on 26th Nov 2004. Isn’t this the time to kiss and say goodbye to this stock?

Or should one invest in it based on the fact that everything should turnout ok once Mieco’s new plant is completed and operational?

Ahh… but when?

Take a look at the next for quarters earnings. Things never did improve. The waiting for the new factory is still but a wait.

In the meantime, Mieco’s earnings has slumped to a mere 120k for it’s last reported earnings (in the peak, Mieco earned around 8-9 million per quarter). Total loans now stood at 225 million versus cash of 22.3 million. From being a share with a net cash of 182 million, Mieco is now a share with a net debt of over 203 million.

Ahem… what a turnaround.

Is this the same Mieco? Issit?

Remember what Ah Poh said about what used to be good might not be good in the future?

Back in perhaps 2001, an investor investing in Mieco was investing in a company with decent earnings growth. A company which had a solid balance sheet.

Now? An investor investor in Mieco is investing in a company with has some serious balance sheet issue and the investor is HOPING that its earnings will turnaround.

What a huge difference! No?

And even if Mieco’s earnings does turnaround… isn't there a possibility that whatever earning derived from its new plant might be used to pay for its debts? And if so, what’s left then for the investor?

How?

Mieco last traded at 1.37. Its warrants closed at 0.50.

Still think that now is an opportunity to invest in the stock?

How about avoiding?

How about selling?

Yes, again… there is no doubt that when Mieco’s new factory is fully operational, there is a huge possibility that Mieco’s earnings will turnaround.

But the biggest issue is: WHEN!

When?

Bila?

Consider this.. if Mieco’s new plant needs another 6 months or so to start producing (if only hor.. me have no idea when its factory is ready) and in the meantime Mieco’s quarterly earnings continues to decay...just imagine what would happen to Mieco’s share price? Isn’t there not a possibility that the share price might continue to drop some more if and if Mieco’s earnings does not improve?

Isn’t it more prudent to avoid the share until we have better earning visibility?

Why be a hero in a hard place?

Why take such unwarranted risk in the stock market?

Do we want to end up as a zero? A zoro? Or a Soh-loh?

Think about it dude… :D

Megan

For those that know me would realise that I am extremely prejudiced against Megan Media for as I view it as an unreal potential investment trap. Why an investment trap? Yes, Megan reported earnings does looks interesting given its current traded share price (rm 1.04) but there are just simply too many faults within the company’s fundamentals.

Why the continued interest in it?

Err..case studies on shares like Megan Media are simply great for it teaches the investor what to watch out for and to understand the potential pitfalls in an any investment.

Hence, it was no surprise that I paid some kind of attention on today’s write-up in Star Business: Megan Media

I almost die-larfing when I read the following…

To handle the repayment of its RM385.45mil borrowings (incurred to fund the expansion of its production lines), Dr Adam said: “We are cash rich and should not have any problems.”

So how does one define being cash rich?

First of all, the initial statement isn’t even correct!

Take a look at Megan’s total borrowings as stated in Megan’s own earning notes:

Click here

Doesn’t it not state that Megan’s total net borrowings totals 634.871 million?

Isn’t it such a blatant shenanigan?

So how much does Megan has in its piggy bank? Err… 24.160 million.

Sooooooooooooooo u have 24.160 million… but u have loans totalling 634.871 million. Like this u call cash rich ka? ( click here )


Amazing isn’t it?

And if u look at the above cash-flow link again…another classical example of another company which consumes cash more than it can generates!

Company announced in its lastest quarterly earnings that it made 12.969 million ( down from 21.1 million a quarter ago) for the first quarter of this current fiscal year.

Cash at the start of the quarter was 29.571 million. Cash at end of the period was only 24.160 million. So despite saying it made 12.969 million, the bottom-line, the company’s piggy bank shrank by some 5.411 million.

Worse still…if I compare based on a quarterly basis, total borrowings increased by some 41.88 million if i compare with Megan’s previous quarter. The piggy bank moola shrank and the bank loans increased.

Net profit margin shrank.

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?

So when this bugger PROMOTES Megan in the media by proudly proclaiming that Megan is cash rich and should not have any problems handing their debts…

Err…. isn’t it just way too farnee????

Me thinks so lah!

Oh, given that Megan’s core product is technology based, shouldn’t there be a concern if its product has a sustainable competitive advantage?

Think of the current situation: Megan is consuming cash faster than it can generates. The Godzilla-sized debts issue. The trade receivables build-up issue.

Given such issues and concerns…say if I am a potential investor… if these issues represent the clear and present issue that Megan has to address… what’s left for me, the kuci-kuci mai investor if Megan's product suddenly gets out-dated? Technology mah.

How?

What about this thing called the thumb drive? Isn’t it such a handy little new thingy? Isn’t it so easy to use?

How?

Do u think it is wise to invest in Megan?

Surely there is another much better alternative investment out there for me and me moola.

Tiok boh?

Top of ze World...

Being Top so geng kah?

Top Glove just released their quarterly earnings last nite and the local media quickly trumpeted its achievements.

See: Top Glove

TOP Glove Corp Bhd has recorded a net profit of RM58.1mil for its financial year ended Aug 31, up 47% from a net profit of RM39.5mil reported for the corresponding period last year.

The company posted a pre-tax profit of RM65.75mil on revenue of RM641.8mil for the period, beating the RM634.4mil revenue projected by analysts polled by Reuters stimates.

For the fourth quarter ended Aug 31, the group recorded revenue of RM194.8mil, representing an increase of 58% against revenue of RM123.3mil achieved during the previous corresponding quarter.

Pre-tax profit for the quarter under review increased to RM17.6mil from RM15.2mil a year ago.

Net profit up 47% wor. Terror hor…

However….what puzzles me is… where is ze Moola?

Mana pergi tok?

If i remember correctly, Jason Zweig stated somewhere (cannot remember which page lah) in the Fourth Revised edition of the legendary Benjamin Graham’s book, “The Intelligent Investor”…the best definition of a good business is that the good business generates more cash than it consumes.

The good business is generating more cash of the company’s piggy bank and the company’s piggy bank grows at a healthy pace.

Think about it.

Isn’t this what we want for our investment?

Now if a company keeps growing in size and expanding and expanding….sales is growing lah, net earnings is also growing at a fantastic rate….but then... somehow the end result is not there.. cos the company’s piggy bank is NOT reflecting the excellent result. Yup, company sales are increasing, net profits are increasing BUT cash is depleting. And in some drastic cases, the company’s loans are increasing too.

And this is my current prejudice against Top Glove.

Where is ze Moola?

Top Glove announced it MADE a net profit of 58.1 million for the current fiscal year 2005.

Fantastic! Bravo! Superb!

However.. open the company’s earnings excel file.. and look at the CF worksheet.
Line 41: Cash and cash equivalent at beginning of the year was 16.168 million

Line 43: Cash and cash equivalent at end of end of period was 4.616 million.

Ahem.

4.616 million wor… and according to the company it MADE 58.1 million. Isn’t the company consuming MORE cash than it generates? How? Would u justify Top Glove being a top business?

And Top Glove’s total borrowings now total 154 million. Errr… a year ago… how much ar?

Sooooooooooo despite it’s great sales and net profit growth… it’s bottom-line certainly ain’t too top-looking for me.

Btw…in my opinion, the need to have some sort of understanding of the explosive growth in Top Glove is kinda important.

So far, it looks to me it has been 'quite' prudent in the number of factories it has been adding per year. Yes, adding a new factory per year is indeed aggressive but i think it has not been too aggressive. (tiok boh?) From a management point of view, consideration should be given regarding the ability for Top Glove to manage the growth in its factories. (Layman's view: Buying and managing a business is always manageable, but if u buy 'too much' businesses, then the very obvious issue, is can we manage all these factories?) Yup, the issue of managing and cordination of all factories in a profitable and efficient manner becomes a concern if the company increases the number of factories too fast.

Whereas, the increment in production line should be a much easier task to handle compared to the number of factories. (tiok boh?)

Now one probably ask why all this? Growth in a company is always good however commonsense would tell us that excessive growth might pose some danger too. As such, this is why I am not discounting this issue.

Which is what is happening in Top Glove isn’t it? The company is expanding and expanding and expanding. Buy/adding a new factory here and there… but all these capex comes with a huge borrowing cost… and in me opinion…i the end result just does not justify all these expansions. Take a look at their Thailand and China segmental results. Does it justify all the moola spend expanding into these markets?

How? What say u?

Am I too prejudiced against what Top Glove has achieved so far?

Lawar kah Melewar?

One of the best selling advice that I have read is:

A stock begins to show decaying fundamentals, such as lower profit margins or lower return on invested capital

Hmm… decaying fundamentals? Err… Ah Poh says ‘Fat-Kan-Moh’ isn’t it? :D

Doesn't this mean that the company ain't the same anymore? Say if i invest in a company (errr.. Ah Poh says we ONLY want to invest in a GOOD company… hor!) and the company fundamentals starts to decay, isn’t this telling me that the company ain’t NO longer good?

So should i kasi chance sama dia?

Or should I just lari kuat-kuat?

Do the H&H on it? HOLD and HOPE that company will become good again in the future?

However, the logical thing that should be considered is the issue ‘when’. When will the good again happen? One year? Two year? Three Year? Four year? Am I willing to hold that long? And while I am holding, what will happen to the stock price? If the stock fundamental continues to deteriorate and decay, what would happen to the stock price? Would the stock price decay too? Isn’t that not a possibility? Would I look kleber holding and hoping a stock and watch the stock price decay along with the stock fundamental?

So isn't the best time to sell a stick is when the stock begins to show decaying fundamentals, such as lower profit margins etc etc?

How?

Here is another famous teaching:

Remember that a stock represents a business, and, when its management or its products fail you, sell -- without delay and without sentimentality.

Sooooooo........ I was looking at Melewar Industrial Group which announced their latest quarterly earnings recently.

Now Melewar used to be that stock called Maruichi and yes Maruichi used to be a decent stock considering its track record…

        Sales      Net Profit  Margin
2001    378.328    59.502      15.73%
2002    352.320    53.935      15.31%
2003    390.849    56.201      14.38%
2004    462.255    64.441      13.94%

So there was some justifications for an investor to buy and hold this stock since 2001. The company was indeed making some decent moola.

Now take a look at the following quarterly earnings table from Melewar, which took over Maruichi’s operations since the beginning of FY 2005. Have a look here: Melewar's track record

From fy 2001 to fy 2004, this stock represented a company which was had net profit margin around 13-15%. Which was pretty decent.

However, since the start of fy 2005, the classical lower net profit margin started to emerge.

For 2005 Q1, a lower net profit margin of only 9.69% was seen. Two quarters later, 2005 Q3, Melewar net profit dropped to an alarming 6.48%.

So from a company having net profit margin of around 13-15%, this company is now operating on a much lower net profit margin of only 6.48%.

Now applying the best selling advice, ie selling a stock which BEGINS to show signs of decaying fundamentals, such as lower net profit margin, shouldn’t one acknowledge this issue and sold Melewar after it reported its 2005 Q3 earnings?

A fundamental sell signal had been generated on 16th December 2004.

Quarterly rpt on consolidated results for the financial period ended 31/10/2004

Now look at the subsequent quarterly earnings from Melewar. Look at the very latest quarterly earnings, Melewar announced a truly shocking quarterly earnings of only 1.252 million or a net profit margin of only 0.84%.

They say a picture paints a thousand words….

Have a look here !!

Ah…yes... when a stock displays some weakness in their fundamentals it does provides one with opportunity... but in the case of investment, this (opportunity) is provided if the weakness or subdued financial performance is only a temporary situation. Cos if the subdued performance would drag on or continue for a long(er) time, surely this would render the stock investment as unattractive.

Tiok boh?

So what i am saying is this... when we see a weakness in a stock's financial performance (which leads to lower price) sometimes this is an opportunity to invest in PROVIDED if the weak financial performance is temporary, ie a blip. For if the weakness continues, some might even view it or define it as deterioration in the company's financial fundamentals.

Remember the previous mumbling of ACPi? (see I wanna Hold your hand.. )

ACPi used to be a share trading at around 3.14++…

Now? ACPi trades around 0.66 sen.

This is the same unreal risk if the decay in Melewar’s fundamentals continues. If Melewar's quarterly earnings decay somemore, the stock price has a rather good chance of decaying also!

Soooo…. if some half-baked bugger asked u to bet on Melewar….what would you do?

Does it make much sense in betting Melewar rite now? Betting on a company whose earnings is on a clear downtrend? Betting on a stock when we are unsure when its earnings will turnaround? Does it sound like a smart bet?

You tell me… I could be wrong here…

(Melewar is now trading @ 1.26. Its warrants is trading @ 0.205)

:D

Bear Market Rallies

Hmm... i am having my thoughts again on the issue of this bear market rallies. I find this as rather interesting cos if u ever notice a plunging stock(s), they just do not go straight down. They plunge, they have nice huge rallies and then they plunge even more.

Here's two interesting postings in my opinion on the US markets...

1. Bear Market Phasing

2. Rally Days are a Normal Part of Multi-Week Stock Market Crashes

Yeah, i know it does involve charts... but hey... let's be open minded and give it a read... Anyway this reminds me of this one section of the book, Bull.

"Think of yourself standing on the corner of a high building in a hurricane with a bag of feathers. Throw the feathers in the air. You don't know how high they will go. You don't know how far they will go. Above all, you don't know how long they will stay up. Yet you know one thing with absolute certainty: eventually on some unknown flight path, at an unknown time, at an unknown location, the feathers will hit the ground, absolutely, guaranteed. These are situations where you absolutely know the outcome of a long-term interval, though you absolutely cannot know the short-term periods in between. That is almost perfectly analogous to the stock market."

(those above comments were taken from the book Bull, with the original comments originating from Sandra Ward's interview with Jeremy Grantham posted in Barron's 2001, entitled After the Deluge)

Moola Bola?

No bet where got syiok to watch the bola?

Heard dat b4?

Came across this interesting piece: Norwegian loses 60 000 GBP in one match!

Well, he bet on the league leaders Start to beat the bottom place team at odds of 1.50. (A dollar bet would yield a winning return of 50 sen).

The focus was not on the teams performances after the match, but on the referee. Aalesund was given two penalties during the match. The first one was a very lucky one and the ref has already announced that he made a mistake. The second one was fair, but the red card to Start defender Atle Roar Haaland was very harsh. The two penalties for sure turned the match the right way for Aafk.

How?

You tengkuk bola?

or u chiak bola? or u kasi bola?

What's your say?

I wanna HOLD your hand..

Why does one wanna hold onto an investment?

Hmmm..... my answer? Simple. If the investment is still bearing fruits, surely it's a no-brainer to HOLD on to our investment. Tiok boh?

If your dah-ling continues to gives u ever-everlasting luv... surely u wanna hold onto all dat loving. Tiok boh?

Same with footsie... if a team continues winning... doesn't it makes sense NOT to bet AGAINST it? Tiok boh?

Same with stocks, isn't it? If and IF the company earnings remain as strong as ever dun u want to hold on to ur investment for as long as possible? I would. Wouldn't you?

Unless... of course the company has been losing money for a number of quarters and as them sifu say, their earnings outlook is rather cloudy or has low future earnings visibility. Or as me Ah Poh says the next meal dunno when and where it would come from. Eat rice or eat porridge olso dunno!

Sooooo for us, ze kuci-kuci-mai investor.... u think it's wise to HOLD and HOPE that the earnings will recover in the future?

Buy and hold long term?

Forever and ever?

What if the earnings take longer to recover?

Then how?

Will that stock's share price depreciate while one HOLD and HOPE?

Can we discount that share price depreciating from happening?

What if share drop teruk-teruk?

Where is the complaint department? Is there one?

Tiok boh?

Soooo... take ACPi

For Fy 2003 it made 23 million. For Fy 2004 it lost 26 million. Last fy 2005 it lost 33.8 million.

Soooo... back to the main issue.. if one bought ACPi based on fy 2003 earnings performance, why is one still HOLDING on to a stock has been losing money for its last two fiscal year?

Does it make sense?

Do we know precisely when it's earnings will turnaround?

Do you? I don't!

Take this write-up from Dynaquest (15th April 2005) ACPi was priced then at 0.96. Dynaquest gave it a HOLD recommendation.

With the negative factors outnumbering the positive for a long time, most of the institutional investors and retailers alike have made their exit. This largely explained the plunge in the share price from RM3.16 during the market rally in March 2004 to slightly below par in early 2005. As most of the weak holders would have disposed of their holdings, the downside risk at the current hammered down level is foreseen to be reasonably low. Nevertheless, a BUY call still does not appear timely until we see some lights in the construction industry. The investors are also now spoilt with plentiful of buying opportunities in other growing sectors of the economy. The still dark operating scenario, hence, remains a good excuse for potential investors to shy away and wait for more convincing leads. We would rank ACPI as a HOLD for the moment.

LOL!! "As most weaker share holders have disposed their earnings.."? I tell u what... those shareholders who sold once they realised that ACPi's earnings fundamentals were decaying, these were the smarter investors for ACPi share price dropped from rm3.16.

anyway.... have a look here at Dynaquest's write-up (31st May 2005) . ACPi price has now dropped to rm 0.79 from rm 0.96. See how it wasn't that wise to hold on to a stock which is losing money?

ACPi last traded today at rm 0.655.

See how buy and hold doesn't work?

We cannot simply hold onto to a rotten investment and hope it recover, can we?

Dun we want to hold on to only to 'winning' investments?

Btw.. ACPi recorded a small turnaround in it's earnings (a profit of 4 million) for its last reporting quarter. How? Is this the turnaround?

Anywayyyyyyyy... S&P initiates covereage on ACPi with a HOLD

interesting comments:

"Our main concern, however, is that the domestic outlook for demand for ACP's products remains lackluster, given indications of continued austerity in infrastructure spending, coupled with the potential for softening building construction,"

"Valuing ACP is challenging, given the low visibility for future projects, "

Another HOLD?

Anywayyyyy.... what still baffles me.... those so-called-investors.... why are they still HOLDING on to this stock?

Isn't it simply way past its sell date?

Way back then there was some justifications to invest in this stock based on fy 2002 or fy 2003 earnings. However, all bets were off once this share started losing money. There was simply no earnings visibility. And if one had sold the stock then, one might have had managed to sold the stock when it was trading around rm3.16.

To HOLD and wait for the earnings to recover.... just loook at the end result. ACPi is now trading at rm 0.655.

When will its earnings recover? And it simply amazes me that annother HOLD recommendation has been recommended given the fact the analyst itself concurred that ACPi has a low earnings visibility.

Now if ACPi earnings does recover... holding on might have some justifications.... but.... if the earnings take a much longer time to recover... what if ACPi continues to lose money for this fiscal year... what would happen to ACPi's stock price? Won't it get hammered? Why take such risk? And worse still, what's the reward for holding on?

See why HOLDING might not be a wise suggestion?

What say you?

The Equity and The Economy Strategist

Isn't the following interesting?

1. Aug 29: CLSA raises Malaysia mart weighting to 9pc

CLSA Asia Pacific Markets has increased its recommended market weighting on Malaysia to 9 per cent from 7 per cent on expectations that it may outperform other markets amid a more bearish regional outlook.

CLSA’s global strategist Christopher Wood noted that the Malaysian market had historically outperformed during periods of global slowdown.

CLSA gave Malaysia the highest weighting in the region after South Korea, Taiwan and Hong Kong.

2. Sep 21: Gloomy outlook on M'sia from CLSA

That's why his analysis early this month titled Labouring made many people in Malaysia's halls of power sit up and take notice. In the most bearish assessment so far, Dr Walker estimated that Malaysia's economy will grow 'only 2.5 per cent in 2006, driven by a 5 per cent contraction in exports on the back of euro weakness'.

That's remarkably gloomy.

It isn't clear if Dr Walker thinks the worst will come, but he does predict two things: China will slow appreciably, and the US dollar will strengthen against the euro, possibly to reach parity next year. According to him, Malaysia's export-driven growth will suffer on both counts.

Dr Walker's argument can be boiled down thus: By deliberately keeping the ringgit undervalued, Malaysia is locking itself into low value-added, labour-intensive export products, whereas an appreciating ringgit would have encouraged higher value-added production.

3. Oct 13: CLSA overweights M'sia

CLSA Ltd, which is expected to start its stockbroking operations here on
Oct 24, is overweight on Malaysia given the good dividend payout and the low risk involved, its country head CLSA Chris Michael Lobello.

He said: “Primarily, we see Malaysia being defensive at the time and
over the period, we’ve seen Asia and global market falling a bit, but Malaysia has been holding up strong.

“It has strong dividend yields and other number of factors that help support, but the house view’s is very much overweight for Malaysia right now.

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

:D

Looks like CLSA equity strategist is much more optmistic about our market here than their own CLSA economist strategist....

Oh .... the latest report... i wonder ... with CLSA opening shop here on Oct 24th... i wonder... if i should discount the issue of whether the report is partial or impartial?

how?

like them phooney phoney footie pundits... me think i shall hide under me turtle shell or as they say i would just sit on the fence lor.... me not suggesting or implying anything... ok?

But if u like to leave ur opinions.... do feel free to do so... ok?

:D

Nicorp and ze Sauce!

Last Friday, Oct 7th 2005, there was an article on Star Biz on Nicorp.

See: Nicorp bids for contracts in O&G Sector

[Snip]

• “Naim Indah is very happy with its performance. The company's plans to venture into the oil and gas sector is a diversification strategy,” said a source close to the company.
  He said that venturing into this sector was a right move following the surge of oil prices.
  Naim Indah is believed to be close to securing local contracts worth several hundred million ringgit.
  As of end March this year, Naim Indah posted a net profit of RM6mil on the back of RM22.3mil in revenue. Its debts stood at RM2.8mil with RM137,000 in finance costs.
  Securing any contracts in this sector is expected to be significant for Naim Indah as it can mark a turning point for the company.
  

[snip]

It really bugs the hell out of me whenever i read in the newsmedia this phrase "according to source(s)."

Hello world! What source(s) are we toking here? Maggie Sauce? or Chili Sauce? or issit See-Yaw?

So according to this sauce... “Naim Indah is very happy with its performance."

Sayyyyyy.... correct me if i am wrong here.... aren't we ONLY happy if and when OUR company is making big, big Moola?

Tiok boh?

We make moola... we be happy. Tiok boh? Sing when we are winning, eh?

Well just how is Nicorp doing?

Yes... "As of end March this year, Naim Indah posted a net profit of RM6mil on the back of RM22.3mil in revenue" .

That statement is true.

But.... but.... butt.... butttt.....

Six months have passed since then.

And 2 quarterly earnings have been posted by Nicorp since then...

see: Nicorp's last 5 quarters earnings

How brown cow?

Naim only has a sales revenue of around 3.71 million for the first half of the year. And a loss of 709k for the first half of the year.

Kakakaka....

Die larfing lah.....

And i wonder... i really wonder..... who this source is? The source who is allegedly close to Nicorp. The source who proudly proclaims to the planet Malaysia that Nicorp is very happy with its performance.

Hmmm.... i just wonder who and what this source is lah!!!

yeah... maybe... perhaps... it was plain old Maggie Sauce!

yeah.....

Show Me Ze Sauce!!!

:D

Nicorp's 400 million JV

Saw a couple of announcement made by Nicorp.

1. Nicorp: 400million JV

2. Nicorp: Disposal of shares

Things that needs to be considered....

1. The JV. How much is Nicorp's stake worth?

2. Why is there such a fair-sized disposal by insiders on the eve of such 'good' news for Nicorp? Do they know something that we dun?

Oh... Nicorp has 450.819 million shares.

based on Uzma 'estimates' .. for fy 2006, this JV would generate a profit after tax of 10 million. So how much is Nicorp's stake worth? Share half-half? 50-50?

If this assumption is ngam, then one is looking a PAT of only 5 million or an earnings per share of only 1.1 sen for Nicorp.

how? So geng ka?

:D

If ze Market continues to rise..

Read this interesting piece the other day...

• Asset allocation and evaluation of results
  
  “During the strong market of the 1990s, most investors who rode the wave ignored traditional ideas about valuation. Some money managers remained invested on the basis of a practical calculation: "If the market continues to rise and I'm not participating, I'll lose my job. But if it falls dramatically, I'll be in the same situation as everyone else." Others were conscious market cynics who thought they could successfully exploit the foolishness of others. Momentum investors didn't need an opinion about valuation. They were consciously saying, "The market may be overvalued-we don't know and we don't care. All we know is, it's been going up, and we're going to invest as long as it does-and get off the train before everyone else." The problem lies in executing the greater-fool theory. If you get off every time the market ticks down and then reestab­lish your position when the market starts to go up again, you're going to get killed, because even rising markets fluctuate on the way up. And if you wait, you risk going down with everyone else.

This got me thinking.. hmm... if the market continue to rise ... am i gonna miss Ze opportunity?

Should an investor's reasonings to invest and hold a stock be based on that particular stock's underlining fundamentals or should it be based on the prevailing market conditions?

What say u?

Me? I prefer doing it based on what i know best. If a stock is over-valued, i would sell. If a stock's fundamentals is deteriorating, i would sell. If a stock is fairly priced, it simply means it is fairly priced. And if a stock is worth investing then it is worth investing. And if the management or owner of the stock attempts any funky corporate manouveres to cheat me, ain't it a no-brainer to kiss the stock goodbye forever and ever?

To base my investment reasonings on the stock market? Should i invest in a stock because the stock market is going up? Gosh! It's simply beyond me because there is simply no way i could tell if the stock market is coming or going! Me pants would definitely be on fire if ever i told u i could. So where is the market heading? Issit bull or issit bear? I have simply no idea! I dunno lah. Do you?

Anywayyyy..... in short.... i would rather miss such opportunity.... and if the market goes flying, it goes flying... so be it.... as Ah Beng Kor would sing in his bath-tub.. Que Sera Sera mah... :D

err.... this is just me personal opinion lah... and if u dun agree, do feel free to leave ur comments, ya? :D

The last bit of that write-up is certainly a great reminder to all... i think... :D

• Finally, there is the challenge of evaluating results. For stretches of time, a stock picker may outperform the market for reasons that have nothing to do with skill. He may simply be in sync with the biases of the market-favoring telecommunications stocks, for example, during a pe­riod when the market as a whole favors them. Or he may be lucky. The "random walk" theory posits that if a large number of monkeys pick stocks by throwing darts at stock tables, half will do better than the aver­age stock picker and half will do worse. If the winning monkeys then re­peat the exercise once each year for ten years in a row, one out of 1,024 will beat the average every year, merely on the basis of probabilities. A stock picker who beats the S&P 500 ten years running will almost surely be lionized as having a special genius-and some may-but others will do so merely as a matter of chance.”

Hmmm... doesn't it make sense? During 1999-2002 .... there were a lot of cheap stocks..... The underlining market was simply cheap and stock picking was simply easy then... .... so stay modest lah....dun get so big-headed lah... whatever good results achieved then... doesn't mean much really. The underlining market was simply cheap and stock picking was simply easy then... :D

Oh.... and.... if any stock picker(s) starts boasting their investment results based on these periods of time, say 1999-2002 or even 2003, and starts giving investing advice(s) based on their so-called excellent track record....do take it with a pinch of salt! For these buggers might not be as geng as u thought, they were simply lucky to be investing in a period of time where stocks were simply cheap! So dun simply-simply call any1 sifu and dun simply-simply follow lor.

But then.... stock investment is not a game of follow you, follow me mah.... tiok boh?

:D

It Pays to Read!

Read this one commentary ( Why punters should start reading ) by R. Sivanithy posted on Business-Times online on 7th Oct 2005.

QUOTE:

HOW many retail investors take the trouble to fully read research recommendations that brokers issue, especially when these recommendations are on small caps or second liners? From observation and anecdotal accounts from dealers, the answer is: very few. Instead of scrutinising reports to judge if the assumptions or projections are reasonable, there is a strong tendency among small investors to just look at the heading and target price of a research report before jumping in (or out, as the case may be)....

How to achieve this? A good starting point would be for retail players to read critically the dozens of reports issued each week before taking the plunge, especially for companies that have no earnings yet but whose shares have risen to all-time highs. This way, brokers will be forced to be more circumspect in recommendations, while investors may well be spared the pain of large losses in the future. Who knows, if everyone does this, all concerned may actually learn something in the process.

End Quote

yup... yup

Gotta remind me-self this..... R E A D ...... R E A D !!!

:D

Which reminds me of S&P coverage on Mems. Now if i am interested in Mems, shouldn't i judge if S&P's projections and assumptions made are reasonable onot? Would Mems being to grow at an annual compounded rate of 86.4% for the next 2 years as suggested by S&P?

How?

:D

S&P coverage on Mems

Looking at this report made on Mems Technology by S&P on Sept 30th (Mems traded price then was 0.64): Click here for the report

What catches my attention is the way they do it. The way they justify their recommendation for the stock. Sibeh geng lah.

here is a snippet from that report:

Recommendation
• We initiate coverage on MemsTech with a Buy recommendation and a 12-month target price of MYR0.73 – which is based on 10x projected FY07 (Jul.) EPS.

Profit & Loss

FY Jul./MYR mln                2004    2005   2006F     2007F
Revenue                        33.8    48.3   80.3      223.1
Net Profit                       8.2     13.7   17.9      47.6 

As can seen from the table posted by S&P, Mems did managed to post a net earnings of 13.7 million for its fiscal year 2005. What i see next is S&P projecting a net earnings of 17.9 million for Mems fiscal year 2006. Oh, this works out to be a growth rate of 31%. And the next fiscal 2007, Mems is projected to earn a net earnings of 47.6 million.

Wow!

from 13.7 -> 17.9 -> 47.6!!!!

Sayyyyyy ... isn't S&P is projecting a compounded annual growth rate of 86.4% for Mems next two fiscal years??

Sibeh geng lah!

See onot? Sooooooo kleber lah. First, they jack their projections sooooooooo high. Then they justifies the cheapness in the stock by stating that Mems is trading on an earnings multiple of only 10x fy 2007. Of course, the key was ze FY 2007 earnings projection. A projection based on Mems achieving an annual compounded growth rate of 86.4%.

Hmm.... Mems Tech currently has 651,786,100 shares. Based on current earnings of 13.7 million, Mems has an earnings per share of 2.1 sen. Mems opening price today is 61 sen, which means currently Mems is trading at earnings multiple of 29x based on current earnings.

How?

Do you think it is justifiable to invest in Mems based on S&P's rosy earnings projections?

Oh... comes 2007.... i wonder if any1 will remember this rosy write-up from S&P?