Saturday, December 31, 2005

Megan: Part VI

One of the great advice given by investment guru, the late Philip Fisher, was that one should exit a stock once the fundamentals of the stock starts to deteriorate. Or as Warren Buffett says he would hold on to a stock for many years as long as the economics of the business didn't change dramatically for the worse. (key word: 'as long as')

It is such a great common sense advice.

Look at Megan. Few years back. Fiscal year 2002. Megan reported sales of 139.078 million. Net Profit was 23.807 million. And that is a nice profit margin of 17.03%. Now if anyone asked me back then, i would have to agree that perhaps Megan could have been a decent investment choice way back then in 2002.

But look at it now.

Things have changed.

Folks need to realise this factor.

What used to be good can change.

Good can become bad.

This is life.

And then good becomes bad, what do u want to do about it?

Take Megan into perspective.

Its current half year sales revenue is at 497 million. Its net earnings is 16.926 million.

We are now looking at a company with only a net profit margin of 3.4%.

And 3.4% net profit margin is not the same as 17.03%.

Isn't it crystal clear that the economics of the business has changed dramatically for the worse?

A company whose business economics was enabling the company to generate net profit margin of around 17% has DETERIORATED so much that the company is only generating a mere net profit margin of 3.4%.

And i am only talking about the earnings performance.

What about the debts issue?

Just take the simpliest of comparison. A year ago, same period, Megan only (only?) carried debts totalling 482 million. Now? Debts total 725.151 million. That's an increase of 243 million or an increase of 50.4% over a year.

Common sense question?

What kind of business in the world requires so much money?

And what kind of returns?

Well, according to Megan, during this period a net profit of made 53.675 million.

Well, if you look at it, perhaps you could argue that the profit is decent but the biggest issue is Where did Ze Moola go?

If they make soooo much, surely the piggy bank will show some signs of improvement. Right onot?

And then the trade receivables that practically went Ka-Booom!!

I mean it's truly incredible. Such a total farce!

A year ago, same period, trade receivables totalled 231.821 million.

Now? This trade receivables totals some 331.357 million. An increase of 99.536 million. An increase of 42.9%!

With the trades receivables blowing up by 42.9%, where is the justification for Megan to borrow soooooo much money?

Who on earth borrows money by so much and the only visible return or the only visible wealth generated is the money owed to the company?

Isn't Megan simply financing its customers?

And what if some of these customers debts turn bad? How then?

Is this the right way to run a business?

And from a business perspective, would you really want to own a business like this?

So again...

Is it or is not crystal clear that Megan's economic of business has changed dramatically for the worse?

Somtimes, I really wonder.

Is it really all that difficult to see?

Is it really all that difficult to see that perhaps we had made a mistake in our stock selection?

Humans make errors and will always making error over and over and over again.


Doesn't it just make sense to admit our mistake?

Or are we going to hold and hope that the market will become hot (and HOPEFULLY Megan moves up too) and in the process helping us to rectifiy our investment mistake!

Will the market really be that kind to us?

Or as Warren Buffett said, "Do we have to make money back the same way we lost it?"

I have read before that it is never easy distinguishing and differentiating between a temporary setback in business economics and a real collapse in the economics of the business.

Perhaps sometimes one is afraid to sell and acknowledge their mistake because they could be selling a stock after purchasing the stock just a couple of months ago.

Why afraid?

Perhaps scared of being branded a trader or scared that such short term activities could develop into a nasty habit of buying and selling stocks too often.

Yes, I do agree very much with all of it but if one has made a mistake, shouldn't one admit to it?

What is so wrong in selling a stock because we realised that we have made a mistake in our stock selection?

Isn't it more important to do what is right?

Not selling?

What if the mistake gets bigger as the stock price could diminish as per the stock fundamentals?

Remember Warren Buffett's saying to stop digging when we find ourselves in a hole?

Here is an interesting educating article:

One of the most common investing rules you hear quoted is Sell Losers and Let Winners Run, but there are exceptions...

In that article there is a check list of telltale signs of a potential loser ...

Most investors look for the following telltale signs of concern to determine if a particular stock might become a 'loser':

Declining sales quarter-to-quarter and year-to-year
Rising debt levels
Declining profit margins
Rising inventory levels
Changes in regulatory or legal environment
Emerging competitiors or technologies
Rising interest rates
An emerging overall bear market
Events that negatively impact future earnings
Mergers and acquisitions
Management changes
Institutional or insider selling
Dividend cut or elimination
Concerns over accounting procedures

Run the above checklist on Megan... :P

How many telltale warning flags do you spot?


Quick links:

Megan: Part II
Megan: Part III
Megan: Part IV
Megan: Part V

Friday, December 30, 2005

Megan: Part V


Me just glanced thru Megan's reported earnings.

Quarterly rpt on consolidated results for the financial period ended 31/10/2005

Sales 248.323 million
Net profit 3.957 million
Piggy bank cash 97.587 million
Total loans 725.151 million
Trades receivables 333.357 million


The last quarter we had the following (see Megan: Part IV ) :

1. Sales 248.859 million.
2. Net profit 12.969 million.
3. Total loans is now some rm634 million.
4. Trade receivable is now some rm270 million.
5. Piggy bank cash is now only rm28.810 million.

Which means that...

1. Sales is flat.

2. Net profit is only 3.957 million!
Last quarter net profit was 12.969. Last year same quarter 15.113 million.
Year-to-date net profit is only 16.926 million vs 29.418 million

3. Piggy bank cash is now at 97.587 million.
Looking good? However, if you look at the cash flow, this piggy bank cash is artifically boosted because Megan increased their loans. And the cash flow statement showed that Megan's petty cash is boosted by 61.234 million from their financing activities.

4. Ze financing activities.
LOL! Total loans is now at an incredible 725.151 million. The previous quarter loans was just (just?) at 634 million! Which meant that Megan loans increased by 91.151 million.


Tell me... Isn't all this financing activities made by Megan a bit too much?

A little, tiny, weenie bit too much?


(at this rate... rm1 billion in loans is no problem to reach hor!)

5. Trade receivables is now at 333.357 million.
Which increased by some 63.357 million!!
LOL!!! Strange way to do business isn't it?
Borrow so much money... errr... to finance their trade debtors kah?


Every quarter, their fundamentals keep deteriorating.


Still buy and hope?

Oh... this is Megan's press statement.

MEGAN RESULTS FOR FINANCIAL PERIOD ENDED 31 OCTOBER 2005 Global demand of DVD-R is expected to reach 6.0 billion pieces in 2006

How do you rate their press statement?


Quick links:

Megan: Part II
Megan: Part III
Megan: Part IV

Hello, Goodbye 2005

Do you like this song by the Fab4?

You say yes, I say no.
You say stop and I say go go go, oh no.
You say goodbye and I say hello Hello hello
I don't know why you say goodbye,
I say hello Hello hello
I don't know why you say goodbye, I say hello.

I say high, you say low.
You say why and I say I don't know, oh no.
You say goodbye and I say hello...

Love that song!! :)

Well... 2005 Market trading has ended.

The Bursa Malaysia Index inded at 899.7.


So has 2005 been good to you?
Did you make a killing?

Or has it simply been frustrating?

Got myself thinking of what i wrote back in Oct:
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

I am glad I wasn't influenced by the market in my investing decisions.

Ze Market simply comes and goes.

Is it saying goodbye or is it simply saying hello?

Me say?

Hello 2006!!!!!

Wishing all readers a very Happy New Year.

May 2006 brings success and good fortune to all!!

Thursday, December 29, 2005

Glomac: Part III

Judging from the earnings we witnessed, Glomac's half-year net profit of 14.178 million simply paled in comparison to OSK full year estimate earnings of 52.8 million.

Well the first thing I was interested is whether OSK realised that such earnings simply underperformed OSK's rosy expectations.

Well, OSK acknowledged this fact by remarking the following.

  • Below expectations. Glomac’s annualized 1HFY06 results were 46.2% below our full year forecast RM52.8m and 38.4% below consensus estimates. The shortfall was largely due to extremely weak 1Q results due to a mismatch of revenue and cost. Recall that Glomac expensed off marketing costs of RM7m in 1Q while billings from Suria Stonor had not kicked in yet.

Ah... but OSK still continued to remain positive with Glomac...
  • Unbilled sales stood at RM384m. With the inclusion of sales of Suria Stonor units, Glomac’s unbilled sales ballooned up to RM384m compared to RM298m as at end July. This represents 1.1x our FY06 top-line forecast.

There is unblilled sales mah. (Actually, me too smart on this unbilled sales thingy. I have no idea why a property develper has stuff like billed and unbilled sales in their books.. )

  • Resilience of earnings to interest rates hike. We believe Glomac’s sales will not be totally vulnerable to risk of interest rates hike. At least RM376m or 49% of Glomac’s FY06 launches of RM766m are high-end or niche developments, the buyers of which tend to be less sensitive to a rise in interest rates.

Hmm... I was just wondering about if the recent interest hike would be a concern or not. With higher rates, there is a possiblity that the rates would damper property sales. But OSK deem this as a non-issue. Cos according to OSK, Glomac properties are high-end or niche developments for the rich buggers. The rich uncles and aunties. According to OSK, these rich buyers tend to be less sensitive to interest rates hikes.

Hmm... true kah?

I wonder if all rich uncles and aunties think the same way....

  • Maintain earnings forecast. We believe Glomac’s series of disappointing performance is over. Stronger quarterly performance should be in store as contribution from Suria Stonor has started to flow in. With sales to-date being double of last year, earnings performance should be stellar. We are maintaining FY06 and FY07 earnings forecast at RM52.8m and RM80.5m respectively.

Hmm... half year to date, Glomac managed net profit of only 14.178 milion.

Now if OSK maintains such earnings for FY 2006, then Glomac should be earning some 38.6 million for the remaining 2 quarters of Glomac's current fiscal year.

Oh this works out to some 19.3 million per quarter.

This quarter, Glomac only managed to earn 9.811 million.

Hmm.... OSK is still soooooooooooooo optimisitc on Glomac.

Glomac closed yesterday at 0.995 sen (ehm... when OSK recommended a buy on Glomac in Sept 2005, Glomac was trading at 1.36!) and OSK maintains their buy target price of 1.96 for Glomac.

Soooooo... tell me.... should i follow their recommendation and buy this stock?


Glomac: Part II

Looking at Glomac earning results, I was wondering what kind of reaction we would have from the local brokerages.

I know OSK is one research house that covers this stock.

So i thought it would be interesting to dig a bit and see what OSK wrote about Glomac previously.

In Sept 2005, OSK had this coverage on Glomac:
Glomac: Seen It's Darkest Hour

Note the very interesting first line.

Glomac's annualized 1QFY06 results was a sharp 64.9% below consensus estimates and 69.9% below our full year forecast.

Remember, Glomac only managed a net profit of around 4.367 million, was down some 56.7% against the previous quarter net profit of 9.811 million.

Now the most interesting or rather the most glaring thingy in my opinion is that OSK is projecting/estimating that Glomac will achieve some 52.8 million for this fy 2006.


And what was even more interesting is that this 52.8 million has been revised down by some 9%!

Amazing! Glomac announced a mere 4.367 million earnings for the first quarter for fy 2006, down some 56.7% on a q-q basis, OSK only revised their estimate earnings by a mere 9% to 52.8million.

Meaning OSK still expects Glomac to make some 48.4 million for the remaining 3 quarters for fy 2006.

Which works out to some 16.1 million earnings per quarter.


Rather optimistic again, isn't it?

Look at what they were saying then:

Trimming FY04/06 earnings forecast by 9.0% to RM52.8m to account for:
1) the abovementioned marketing expenses
2) lower launches (RM65m vs. RM113m earlier) at the Puchong project.
3) These were offset by higher GDV (RM300m raised to RM352m), completion rate (20% raised to 30%) and take-up (60% raised to 70%) at Suria Stonor.
4) We also incorporating RM6.0m contribution from new project Glomac Boulevard.

Look at point 2. The issue of lower launches. Well, as per what OSK is saying, it looks like Glomac is having lower launches but what makes me wonder is the issue of the lower launches. Cos a lower launch of rm65 mil vs rm113 million is pretty significant isn't it?


And the next point OSK mentions:

FY07 earnings forecast is however raised to RM80.5m from the previous RM73.7m on stronger impact from Suria Stonor.

Wah! If fy 2006 was rosy, fy 2007 is even projected to be more rosier for Glomac.

Earnings is forecasted to reach 80.5 million!

Terror is terror is terror!

Glomac then was trading at a price of 1.36. OSK had a target of 1.96.

Which is pretty incredible.

An upside potential of 49.4% for a stock whose quarter-on-quarter earnings slumped by as much as 56.7%.


next.... OSK latest write-up on Glomac!


Property developer, Glomac, announced its fy 2005 Q2 quarterly earnings last nite.

Quarterly rpt on consolidated results for the financial period ended 31/10/2005

Sales 75.236 million
Net Profit 9.811 million

Which was significantly higher than its fy 2005 Q1 earnings.

Sales 46.507 million
Net Profit 4.367 million

Great improvement from its fy 2005 Q1 earnings. This good performance drew a nice write-up in the Business Times today:
Glomac Q2 net more than doubles

So what's wrong with the rosy picture painted?

Well if we were to compare the fy 2005 half-yearly results versus same period fy 2004 half-yearly results, we get the following:

Sales 121.743 million versus 130.904 million
Net Profit 14.178 million versus 20.274 million.

How? Sales now looks flat, while fy 2005 net profit of 14.178 mil pales in comparison to Glomac's fy 2004 earnings of 20.274 million.

So which is a better yardstick to use?

A quarter-on-quarter (q-q) comparison ? or a year-on-year (y-y) comparison?

Here is the past 7 quarterly net profit performance from Glomac. Read from left to right. (right being the latest quarter).

8.871 mil -> 10.086 mil -> 10.188 mil -> 9.801 mil -> 9.985 mil -> 4.367 mil -> 9.811 mil


How would you want to interpret Glomac's earnings performance?

Yes, Glomac did well for the current reported quarter but would you not agree that its current year-to-date earnings performace still pale in comparison when compared to its previous year earnings?

Wednesday, December 28, 2005

Gold and Yikon: Part II

Flashback: (see Gold and Yikon )

I still retain Yikon as my top pick. When I introduced the stock, it was RM2.50 a share and now it's RM4.40 after six months. The counter has been ignored. Not much research has been done due to the fact that it's a second board stock.

But look at its business model, which comprises 100% gold exports, and gold has done very well. I think gold will continue to go up from about US$510 an ounce now to my target of US$800 or US$900 in two or three years.

Given Yikon's 100% exports to Hong Kong, can you imagine a Malaysian company exporting gold to Hong Kong, the Middle East, and India and China, and with its franchise of goldsmith shops in China? The potential is great.

They have opened 11 goldsmith shops in China, and are opening a 12th one next month. Of course, its current PE is very high, but I think people are looking at its potential in China. Yikon is the only gold manufacturing company in Malaysia, and is cash rich.

The company has a huge state-of-the-art plant in Penang. If you look at the Singapore company that manufactures gold wafers like them, you can see that Yikon's technology and machines are far more advanced than those of its Singapore counterpart, which is a smaller company.

Yikon buys scrap gold and processes that into pure gold wafers. The gold jewellery you buy is 91.6% pure and Yikon makes pure gold wafers of 99.9% purity.

Well.... Yikon announced its 2005 Q4 earnings today.

Quarterly rpt on consolidated results for the financial period ended 31/10/2005

Sales 56.517 million
Net earnings 21 thousand.

Yup, a net profit of 21 thousand for this quarter.

Which meant that Yikon's net earnings for fy 2005 is 327 thousand.

327 thousand ringgit and not 327 million ringgit!


What? Where is Ze Moola?

Yikon closed todat at 4.76. This company is worth some 195 million!

Is there gold in there or what?


Mieco: Part II - Ze Buy Recommendation!

The Issue of Ze Buy Recommendation made by iCapital.

A lot has been said about iCapital buy recommendation on Mieco Chipboard.

Why? The investment manager had a buy recommendation made on Mieco last Aug 2004. Mieco price then was 2.36.

This was what the company wrote in its conclusion to recommend the stock and its warrant as a longer term buy.

After the Lipis plant, no huge capital expenditure is expected from Mieco. At a price of RM2.36 and RM1.09 for its warrants, Mieco is capitalised at just over RM600 mln. With its expansion underway, the book value and level of sales would not be useful yardsticks. What we think is more relevant is to value Mieco based on its normalised level of expanded operations.

What would this be ? First, one has to bear in mind that the main factor driving Mieco in the coming years would be regional growth, especially China, which is more attractive than just local growth. Secondly, as i Capital expects China’s economy to do marvellously well in the coming decade, a well-managed exposure to China, either direct or indirect, can be exciting and probably very rewarding. Thirdly, Mieco is expected to fully utilise its enlarged capacity by 2007. With expected sales of around RM600 mln in the medium-term, this would imply a normalised earning power of around RM90 mln. Capitalised this at 7% would give us a value of RM4.14 per Mieco share or a 43% discount. In addition, with an expected dividend yield of around 4%, i Capital rates Mieco Chipboard as a longer term Buy.

For those who love warrants, Mieco has warrants that can be converted on a 1 for 1 basis at RM1.20 per share from Apr 2006 to Apr 2009. Proceeds from the warrants are expected to be used to repay its long-term loans. However, even though Mieco has long-term borrowings of RM149.6 mln, it also has cash of more than RM182 mln and strong cash flow.

let's understand and rationalise what iCapital had said.

Mieco, used to be a company operating with a huge cash hoard of over 180 million. So what does the company do? The company decides to emark on a huge capital expansion to built a state of art factory at a cost of over 300 million. To partly fund for this expansion, the company issued warrrants and raised some Islamic private debt securities to fund this exapansion.

Now with this expansion program, Mieco future is deemed to be great because there is regional growth, with China being touted as a huge prospect.

And once the factory is fully utilised, Mieco's earnings is targeted to reach some 90 million.

Do note that for fy 2001 Mieco earned 21 million, fy 2002 Mieco earned 26 million and fy 2003 Mieco earned 31 million. So based on the past earnings history, so iCapital is expecting Mieco's earnings to triple.
(wah.. fairly optmistic hor!)

And then it seduced and introduced to the readers the potential in Mieco's warrants.

Also note the following issue.

When iCapital made its recommendations on 27th Aug 2004, Mieco had already announced its earnings on 20th Aug. Meaning, iCapital had a chance to review Mieco's performance before making those recommendations.

Oh, did i forgot not to mention that iCapital is known to have have vested interest in the stock then?

Anyway here is the compiled quarterly earnings table of Mieco (
Click here )

So how did Mieco do for its fy 2004 Q1 earnings? Obviously, the debt issue stood up like a sore thumb. The company went from a company with a nett cash of over 180 million to a company with cash balance of 176 million and debts of over 149 million. Well, some say debt is needed to finance growth. Let's leave this issue aside for now. Look at the profit and the profit margin box. Mieco's total net profit fell to around 6.377 million. Net profit margin also declined from 17-18% the past 3 quarters to just 12.8%.

How does one rate such decline in profitability?

A worry because a decline in proftiability would suggest huge price competition in their business (and iCapital acknowledged the following fact: Vanachai Public Co Ltd of Thailand, Mieco’s regional competitor, is believed to have a slightly larger capacity than Mieco.). And when you embark on a huge capex amidst huge price competition, from a business perspective, wouldn't you be worried?

Or perhaps that quarterly earnings is just a blip? No worries, everything will just be fine!


Now matter what, in iCapital's judgement, Mieco is worth a longer term buy because they based their reasoning that once Mieco factory is up and running, iCapital ass-u-me-s that Mieco earnings power will reach some 90 million.

Was their buy reasoning justifiable?

What about the issue of debt build-up, depleting cash, decay in fundamental earnings (lower earnings and lower earnings margins)?


At around 2.36, Mieco was trading around a pe of 15x current earnings.

Was this a justifiable buying opporunity then?

Remember the issue that prospects does not necessarily equate to net profits? The regional growth prospect and China is but a prospect. And what about Thailand's Vanachai? Do you think that this Thailand company would not compete for this rice bowl?

Anyway, a year later, in Aug 2005, Mieco announced its 2005 Q1 earnings.

Net earnings 2.486 million (vs the poor 6.377 million a year ago)
Net earnings margins 4.3%
(vs the poor 12.85% a year ago)
Piggy bank cash 18.133 mil
(vs 182 million a year ago)
Total loans 190.6 million
(vs Zero debts some 7 quarters ago!)


Based on the above facts, isn't it very clear that the fundamentals of the company and the economics of the company's business has simply deteriorated very badly?

And common sense tells one that this is the CON of the stock. One can argue that this might be a temporary thingy BUT woudn't it be wrong to consider this as a clear and present issue?

The pros? The prospects. The potentials. But when will it happen? How good will it be? And until the company does convert its potential into reality, these pros for Mieco is just an unknown factor. A possibility.

Now commonsense thinking lah....
clear and present vs unknown future.

Weigh out the pros versus the cons. Which side does it make sense to bet on?

Well, RAM recognised the serious deterioration in Mieco's earnings and balance sheet issues and RAM downgrades Mieco with a negative outlook on Mieco's Islamic notes in Sept 2005.

The increase in revenue, however, did not equate to an increase in profitability as profit declined due to weaker selling prices, lower optimal capacity utilisation rate of its new plant and to a lesser extent, the rising costs of raw materials.

Mieco was trading around a price of 1.90. And it soon tumbled after this downgrade from RAM!

Ah, with the tumbling price, iCapital quickly issued some press statements. Now, instead of acknowledging the serious deterioration in iCapital's fundamentals and acknowledge the fact that perhaps iCapital has simply err-ed in their recommendation of Mieco, iCapital instead made the following statement.

“The fall in price will be a temporary phenomenon. Due to strong demand for chipboards both locally and internationally, it is only a matter of time before prices recover. Another contributor to the fall in margin was the increase in raw material prices. But even with the falling margin, operating profit held up well,” says independent investment advisor Capital Dynamics Sdn Bhd.

Temporary. Everything will be all right according to them.

But...but.... buttt.....

yes, falling prices could be temporary phenomenon. However, the main issue is whether if company has a product that is competitive advantage to withstand this so-called temporary phenomenon. And as Capital Dynamics note themselves that the fall in margin is caused by increased in raw material prices.

So what does this mean?

Materials cost increase, the company's margins get hit, so doesn't it mean that the company product is simply not competitive enough to allow Mieco to pass the cost down to the end-users?

Shouldn't one have considered this issue?

"So it's a matter of time before prices recover due to strong demand for chipboards locally and internationally"

Oh yes... there is always a possibility that prices would recover... but when? What if it takes much longer to recover? When? Hold till the new factory starts to contribute earnings? When? When will this happen? Next earnings? or the next? or the next? Say the turnaround can be seen at the next earnings, which will be Nov 2005. That's another 2 months plus.... would the stock price hold till then? Meaning when waiting for the earnings to recover, what if the stock slumps another 20%? or 30%? or 40%?

Mieco had now slumped to a price of around 1.40. Down significantly from the recommended longer term buy at around 2.36 a year ago.

And on 26th Sept 2005, iCapital issued another report.

Once again, Mieco Chipboard (Mieco) has caught investors' attention, after a local rating agency belatedly revised its rating on Mieco's Al Murabahah Commercial Paper (MCP)/Medium-Term Note Programme (MMTN). At RM1.37, Mieco is currently capitalised at only RM288mln plus RM55 mln for its 100.0 mln warrants. Is the downgrade justified?

LOL! Was the downgrade justifiable or not? You be the judge.

Anyway, in its conclusion, iCapital mentioned the following.

i Capital views that a decline in Mieco's operating profitability, if it happens, will not strain Mieco's debt-servicing ability. This is because Mieco's positive operating cash flow, future conversion of warrants and its ability to raise additional borrowings, if necessary, can raise cash for Mieco to retire its maturing MTTNs. On the chipboard industry, the strong demand for chipboards will not allow the pressure on pricing arising from the additional capacity, to sustain in the longer run. China’s economic growth is picking up momentum again. So is Japan’s. On the other hand, if the low price is more prolonged than expected, the smaller players in the region or those whose capacity come on-stream later will probably close down first, and in the process, allowing the price of chipboard to rise again. One should not forget that chipboard prices are also cyclical. Should one downgrade a palm oil plantation company because palm oil prices have dropped ? Therefore, i Capital does not see the need for an outlook downgrade on Mieco's Islamic debts. With this, i Capital retains its rating on Mieco Chipboard as a Buy for the longer term.

Ahem! Despite those clear and present issues in Mieco, iCapital adamantly retained its rating on Mieco as a BUY for the longer term. (pls note the vested interest in Mieco was acknowledged by iCapital)

Price of Mieco then 1.37.

On November 22nd 2005, Mieco announced its 2005 Q3 earnings.

Quarterly rpt on consolidated results for the financial period ended 30/9/2005

Mieco posted a net loss of 3.742 million!
Piggy bank is now only 16.883 million!
Total loans stood at 210.849 million.

Remember the issue of waiting for the next quarter? or the next?

Well the Nov result showed a loss!

Are we gonna to hold and hope that the factory starts to deliver its promised results?

Compare the end result of holding on to the stock from Sept 2005 to now.

Is it wise to use a hold and hope investing strategy on a stock whose earnings is clearly on the downtrend?

Now remember the roundtable discussion Star Biz had recently? (
Investors need longer time horizon ).

iCapital mentioned the following:

We still have a buy on Mieco Chipboard, basically because the company's decline in earnings was due to a change in accounting standards and the cyclical factor – most of the capacities came in at the same time, in Thailand and in Malaysia.

So, the price of chipboard fell but the underlying demand is actually very strong, and being in a cyclical industry (and the fact that a chunk of the production is geared towards the fast-growing Asian region) it's a question of time the prices will have to stabilise. In fact, I think there are signs that prices have started to recover.

iCapital described Mieco performance as a decline in earnings!!! WOW!


Mieco's ytd (3 quarter) net loss is 1.136 million.

How nicely put! A decline in earnings.

Anyway, iCapital cited the change in accounting standards and the cyclical factor is causing the decline in earnings.

Makes me wonder. Especially the cyclical factor. What about the optimistic strong regional growth mentioned by iCapital last Aug. How come Mieco's chipbooards is now deemed to have a cyclical factor?

Anyway, again ass-u-ming that the cyclical factor is real and should not be discounted... then what then for Mieco?

Cyclical mah. So when will the wheel of fortune smile on Mieco again?

Big issue now, isn't it? When?

You know why? Cos Mieco now has a huge balance sheet issue. And with the cyclical factors affecting Mieco's product pricing, shouldn't this be a huge issue? A huge, huge handicap to Mieco's business and an even bigger handicap for Mieco's minority shareholders.

And if so, don't you find it very strange that iCapital still has a buy on Mieco?

Hmmm.... and what is even more interesting is the following...

1. At 2.36, a buy for the longer term.
2. At 1.37, still a buy for the longer term.
3. At 1.00 (yup Mieco is now trading at 1.00!!), Mieco is still a BUY!!!


And all this while... Mieco's fundamentals is clearly decaying. Cash is clearly depleting. Loans building up. Profitability margins have been eroding. And worse of all, Mieco is now losing money.

And wouldn't you find it strange that iCapital still has a buy rating on it?

Now consider the vested interests it has, do you rate their ratings and recommendations as partial or impartial?

Oh... here's another important issue to consider.

remember Bandar Raya's plan to distribute Mieco shares?

now just for info ... this deal is still pending... now assuming it goes thru...

let's work out some implications..

Mieco has 210 million shares total.

Out of this portion... Bandaraya plans to distribute 119.1 million to its shareholders. (wah that's some 56% wor!)

Now.... key issue for them minority Mieco shareholders is... what will these Bandaraya shareholders do after receiving these shares?

Will they keep? or will they sell?

Reason to keep? Err... err.... Mieco too cheap to sell? Hold for long term mah!

Reason to sell? Hoi.. Mieco losing moola mah. so Mooooola in me pocket better than paper money which might diminish if Mieco's performance does not improve soon! Tiok boh?

soooo how?

what do you reckon will happen?

(part one can be found here: mieco

Tuesday, December 27, 2005

Melewar: Part II

Here is an update to this blog entry: Lawar kah Melewar?

As mentioned in that posting, one of the best investment advice i have read is the following:

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

Another way of saying it is:

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

And think of this saying by the great Warren Buffett:

A stock doesn't know who owns it. You may have all of those feelings and emotions as the stock goes up or down, but the stock doesn't give a damn.

Melewar Industrial Group reported its earnings on 23rd December 2005.

Quarterly rpt on consolidated results for the financial period ended 31/10/2005

Sales 128.095 million
net loss 4.443 million

Compare these earnings performances with Melewar's track record:
Melewar's track record

Isn't this company fundamentals on a clear decline?

And here is where the understanding and knowing the business itself was very important cos investing is never as simple as investing based on yardsticks. Commonsense and being rational is rather important too!

Now, Melewar used to be called Maruichi Malaysia Steel Tube. Maruichi's original owners had since sold its business to Melewar group in 2003.

And since the original owners had exited the business, we are essentially looking at two different stocks. Tiok boh?

And the track record posted in
Melewar's track record clearly showed it all. After the exit of the original shareholders in 2003, the performance of the company started to decline. The fundamentals of the company has changed too as previously, the old owners operated Maruichi strictly on a nett cash balance sheet. The new owners is running Melewar group in a nett debt of over 200 million. Two different stocks isn't it?

Either way, commosense tells us that this stock of old and this stock of current simply ain't the same.


Yes, the stock used to be good but the stock ain't the same stock as before because of new management.

Based on current available facts, in which we have a company with decaying fundamentals, do you think that it is prudent to ass-u-me that since the stock used to be good, it will be good again in the future?

Look at the stock and its fundamentals.

Isn't it simply not the same anymore?

Is it wise to make such a bet?

Oh, Melewar closed the previous day trading at 1.12 and its warrants is at 0.17. ( When i wrote on Melewar, it was trading @ 1.26 and its warrants is trading @ 0.205))

Impressive year for MessDaq IPOS.

Given the issues mentioned and highlighted in the following two posts:

Oh MessDaq
Comments on IPO

My fingers were itching when i found out that Star Business today had an article:
Impressive year for Mesdaq IPOs

From a business-perspective, it would definately make sense for Bursa Malaysia to highlight these issues. As a business-entity, Bursa is now focused on the Moola itself. This is its responsibility to its shareholders. To make Moola.

However, making moola at all costs?

Is it wise and feasible?

Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?

Anyway, as mentioned in the article, there were simply more new listings in the Messdaq than in the main board or the second board. And the article does shed some light on why is it so.

“For many companies, a listing via Mesdaq was less cumbersome because there were fewer requirements to fulfil,” an analyst with a research house said.. ( EASIER!)

In the case of Mesdaq, companies do not need to show a profit track record. (Lousy company can also list wor!)

“The listing on Mesdaq allows young companies and less-established ones to focus on growth and improving earnings in the early years of listing without having to worry too much about meeting the exchange's stringent rules and regulations, especially on earnings,” he said.

“The cost of entry into Mesdaq is lower (including listing exercise) while allowing companies flexibility to grow globally,” he said.

Those were some of the reasons why the Messdaq seduced more listing...

Now consider some of the following issues mentioned in this blog.

Isn't there one too many companies which lost money after being listed on the Messdaq? (see
Oh MessDaq ). For example, Litespeed announced it lost money a few days after being listed!! Or companies like EB Capital and DVM.

Now, why is it such a big deal?

Yeah, yeah, yeah... the Messdaq is a good hunting ground for speculators and punters. A lot of fortune has been made.

What about the losers?

Yeah, they deserve to pay the price for their foolishness... but take the following issue mentioned in
Karensoft "Move over who: Part Vii"

When Kenanga first wrote on Karensoft, Kenanga stated that Karensoft some 69.2 million shares then.

Get this... at 0.96 sen, Karensoft then had a market capital of rm65.8 million


Karensoft (which had a 1-for-2 bonus issue in June 2005) now has some 115.015 million shares.

Now at 0.065 sen, Karensoft market value (market cap) is only some 7.475 million.

Soooooooooooo ...... from 2nd Dec 2004 to 20th Dec 2005, some 58.35 million in market value has simply vanished!

This for me is the huge issue. Huge Issue. Cos most of the messdaq stocks have been trading at a rather high price before crashing. Look at Karensoft, one of them Messdaq stocks had a market value was much as 65.8 million on Dec 2nd 2004. Now, almost a year later some 58.35 million has vanished!!

Think about it.

For a stock like Karensoft, this stock had the means to erase some 58.35 million in market capital from our stock exchange. And this is only one of them troubled Messdaq stock. Aren't the numbers mind boggling?

Do such listings create or ultimately destroy value?


If an investor bought and hold such a share, what would happen to their value of their shareholding?

See the importance of creating value in the market and not quantity?

Yes, yes, yes in this incident, the investor was probably wrong and silly to buy and hold a poor quality stock but let's think in regard to the market itself. Yes, Mr.Market.

Can the market survive without these 'investors'?

Can the market exist without any minority shareholders?

Can the market survive if all there exists is rather poor quality stocks?

Who would want to invest in a poor business?

Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?

Is bigger neccessary better?

Think about it.

Saturday, December 24, 2005

Gold and Yikon.

It's about that time of the year when we have the local financial newspapers highlighting the past events for 2005 and also the potential outlook for 2006. And sometimes, these papers arranges and moderates roundtable discussions on issues regarding the stock market. The Star Business had one such roundtable discussion which caught my attention (see Investors need longer time horizon ).

Now in this discussion, there was this talk on this one stock that caught my attention:

If you click on it, you would find a stock on a fantastic run.

Just twelve months ago, this stock was trading at a low of 82 sen. Stock closed yesterday at a price of 4.76. (a pull back from a recent high of 4.90)

Natutrally the bragging rights belong to that investment manager who did mention this stock as his stock pick in one such roundtable discussion in July 2005.

This is what he mentioned then:

The fifth one, I will pick a situational play, Yikon. It's like your Lion Parkson, but this one's just got a licence, the first given by the Chinese government to have country-wide goldsmith shops.

They got a national licence, not a provincial one, to set up goldsmith shops all over China.

They have started deploying shops this year in major cities.

The shops are doing pretty well in in the department stores and stand-alone shops. They are putting their right people there, which is very important.

Profit margins are better than in the Malaysian market where there is a glut.

Year to date, this stock has been the second best performing in Malaysia, up 140%.

This is what was mentioned in today's article:

I still retain Yikon as my top pick. When I introduced the stock, it was RM2.50 a share and now it's RM4.40 after six months. The counter has been ignored. Not much research has been done due to the fact that it's a second board stock.

But look at its business model, which comprises 100% gold exports, and gold has done very well. I think gold will continue to go up from about US$510 an ounce now to my target of US$800 or US$900 in two or three years.

Given Yikon's 100% exports to Hong Kong, can you imagine a Malaysian company exporting gold to Hong Kong, the Middle East, and India and China, and with its franchise of goldsmith shops in China? The potential is great.

They have opened 11 goldsmith shops in China, and are opening a 12th one next month. Of course, its current PE is very high, but I think people are looking at its potential in China. Yikon is the only gold manufacturing company in Malaysia, and is cash rich.

The company has a huge state-of-the-art plant in Penang. If you look at the Singapore company that manufactures gold wafers like them, you can see that Yikon's technology and machines are far more advanced than those of its Singapore counterpart, which is a smaller company.

Yikon buys scrap gold and processes that into pure gold wafers. The gold jewellery you buy is 91.6% pure and Yikon makes pure gold wafers of 99.9% purity.

Of course, I am envious! Imagine making an investment in a stock a year ago at less than a dollar (err.. getting at the absolute low would probably be asking too much, isn't it?) and the stock is now trading at around 4.76!!

How come I dun have this stock? How come?

Why I no buy the bugger?

Wouldn't it have been nice if we knew this would happen?

And it would be even nicer if i had bought the stock. Tiok boh?

I would be getting my new car and I would probably be in an island enjoying my holidays right now... yeah... wouldn't it be nice?... yeah... dream on Buster!

And let's just be honest... such a buy is beyond me. Way beyond me!

There is simply no way I would and could have jumped into this little ship sailing away to the island of my dreams.

So what then? Am i being 'Jay' here or what?


Now since, i had a post about learning from our mistakes, well, from an investing point of view, I think i should be asking myself this: Did I miss this opportunity or perhaps this stock was one of them stocks in the sharemarket that is simply beyond my circle of competency?

Well, the best way is to have a good at Yikon itself.

What kind of track record does Yikon have? Was it impressive?

Here is what Yikon has earned has done since fy 2001. (read from left (2001) to right (latest)

6.711 million -> 5.80 million -> 1.940 million -> 0.704 million (fy 2004).
Hardly impressive right?

Would I have invested in such a stock?

Would you?

Hence, what was mentioned in today's roundtable discussion really amuses me.

Yeah gold is doing extremely well but what Yikon itself?

Is Yikon doing well?

Was the association that since gold is doing good, Yikon should also do good, justifiable?

Here is four of Yikon's most recent quarterly earnings.

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

Sales 10.776 million
Net loss 0.158 million! (ahem)

Quarterly rpt on consolidated results for the financial period ended 31/1/2005

Sales 7.179 million
Net profit 0.079 million.

Quarterly rpt on consolidated results for the financial period ended 30/4/2005

Sales 4.163 million (waa declining sales??)
Net profit 0.057 million.

Quarterly rpt on consolidated results for the financial period ended 31/7/2005

Sales 9.136 million (huge improvement)
Net profit 0.169 milion.

So we have.. a total trailing net profit of only 147 thousand! (ytd net profit 3 quarters is slighty better at 306 thousand!)

And more interesting is the following commentary reviewing Yikon's current year-to-date performance from the management own notes attached to their last earnings report.

The turnover of the Group has reduced by 32.8% in the current reporting quarter as compared to the preceding year. This is mainly due to reduced in sales of gold in current quarter. Sale of gold only occurs when customers settle their purchase in cash rather than physical gold. However, this does not lower the gross profit of the Group as the margin derives from the sales of gold is negligible.

Hmmm... interesting... very interesting... 'margin derived from sales of gold is negligible wor!'.

Anway, Yikon has a current most recent 4 quarters earnings of only 147 thousand (ah.. its annualised earnings is perhaps higher... at around... 400 thousand... LOL!!... and oh, of course, currently, Yikon's PE is extremely high!)

Oh btw... at around 4.76... Yikon is valued at some 194 million!!

Based on such financial performance, do you think that such valuations are justifiable??


So how?

Did i miss a good investment opportunity?
Would i have purchased Yikon as an investment then?
How about now?

Nah.. i really dun see myself making such an investment. No way Jose!

Is a missed opportunity a mistake?

Yes, the stock price is on a fantastic golden run.. but.. there is no way i could make a justification to invest in such a stock.

And when such things happen, i just have to remind myself that perhaps this is one of them thingys that it's not destined for me ler..

As my granny used to say, "What's not yours is not yours. See open a bit lah!"

You just cannot win everything in anything, can u?

hey it's Christmas Eve dude...

Yeah... yeah.... :)

Oh... one of me buddy posted me a really farnee card..... enjoy lah: Click here!

here's wishing everyone.....

A Merry, Merry Christmas!

Ho Ho Ho!!!!

Thursday, December 22, 2005

Looking Ahead to 2006.

December 22nd 2005.

Another day, another year is gonna pass us by.


How has 2005 treated you?

Wanna look back before we look ahead to 2006?

Well, I have been giving this a good thought. In investing or in trading in the sharemarket, before we look ahead again, don't you think that perhaps it is best that we look behind and examine the investing mistakes, the trading mistakes we have made over the years? As Jess Livermore stated: "It takes a long time to learn all the lessons of all his mistakes." Or how about this other statement by Livermore: "If a man didn't make mistakes he'd own the world in a month. But if he didn't profit by his mistakes he wouldn't own a blessed thing." Or as Warren Buffett puts it: "Regarding learning from your mistakes, the best thing to do is to learn from the other guy's mistakes. As Patton used to say, "It's an honor to die for your country, but make sure the other guys gets the honor." Our approach is really to try and learn vicariously."

So what I am want to try and do is this.

I want to create a blog entry for all to participate. And then I will compile everything into one nice little blog entry.

How game for it?

Here is how you can do it:

1. Post me your comments.

2. If you have a blog, post me a link to your blog entry. And I will get your remarks and views up.

3. If you are totally shy about it, send me an email to

4. And if you read any interesting articles on the net, post the link (and not the article in full).

Cheers and Merry Christmas All.

And I hope that 2006 brings good fortune to everyone!


Wednesday, December 21, 2005

Move Over Who?: Part VII

Truly incredible, isn't it?

Me do think so lah.

Remember i wrote in Part III the following?

Company was burning up cash fast.
Loans were increasing!

And the company simply had an enormous problem with their sales collections. If one cannot collect, sooner or later, these debts are deemed doubtful and when it drags on longer it is deemed bad debts. And when it happens, the company has to write it off as a loss. And Karensoft's trade receivables were simply ballooning! It was totally incredible!

Ahh... this trade receivables indeed became a whopping problem.

Variance Between Audited And Unaudited Results For Financial Year Ended 31 December 2004

The Board, with the recommendation of the Audit Committee and external auditors, has made an additional specific provision for doubtful accounts amounting to RM4,952,000. The said additional provision, amongst others, has resulted in the Group registering an audited net loss after tax of RM3,930,000 for the financial year ended 31 December 2004. When compared to the unaudited net profit after tax of RM977,000 previously announced, the above is a deviation of more than 10%.

See? The external auditors recognised this issue. These account receivables were simply questionable to the point that they recommend it to be classified as doubtful debts.

And by doing so, Karensoft had to reclassify and account for for these doubful accounts totalling some rm4.952 million.

Which meant that Karensoft has lost rm3.930 million for fy 2004!

Which meant that Karensoft has lost money two fiscal years in a row!!!

Which meant that Karensoft has lost each year since being listed in the Messdaq!!!!!


And since the losses is derived from doublful accounts, there were some who even questioned the whole integrity of Karensoft sales, especially when their trade receivables kept ballooning each single quarter. Yup, the intergrity of their sales!

And consider this.. a doubtful accounts totalling rm4.952 million is really a lot when one considers that Karensoft's fiscal year 2004 sales only totaled 6.1 million. See the justifcation in questioning the integrity of their sales?

When a company reports 6.1 million in sales, how could 4.952 million be doubtful?

Kinda blows ur mind away, doesn't it?

And yet again... the whole issue of quality control over the companies seeking listing on the Messdaq comes to mind...

Just how did these companies got listed?


Oh and this was Karensoft last reported earnings.

Quarterly rpt on consolidated results for the financial period ended 30/9/2005

Lost money yet again! And look at the ytd losses. Incredible. Just incredible.

Now now consider this issue.

When Kenanga first wrote on Karensoft, Kenanga stated that Karensoft some 69.2 million shares then.

Get this... at 0.96 sen, Karensoft then had a market capital of rm65.8 million


Karensoft (which had a 1-for-2 bonus issue in June 2005) now has some 115.015 million shares.

Now at 0.065 sen, Karensoft market value (market cap) is only some 7.475 million.

Soooooooooooo ...... from 2nd Dec 2004 to 20th Dec 2005, some 58.35 million in market value has simply vanished!

Would you call this as Value Creation or would you consider as Value Destruction?


me think i shall call it the end.... for now.... :P

Quick ref:

Move Over Who?
Move Over Who?: Part II
Move Over Who?: Part III
Move Over Who?: Part IV
Move Over Who?: Part V
Move Over Who?: Part VI

Move Over Who?: Part VI

Could i end the story at Part V?

No way Jose. We only started!

So what about Karensoft management? The stock is being sold down and all kind of market tok is flying all over all the place.

So on the 7th April, Karensoft nicely had an article in the Star Biz:
KarenSoft CEO quashes talk of directors leaving

The article was full of questionable issues!

Besides panic selling by shareholders and the sale of shares by Chee himself, he said the bearish market compounded the problem.

LOL! He himself sold shares. If the boss sells by the truck loads, how and what kind of impressions will others have on the share? Why doesn't he admit that his shares were FORCE-SOLD in the market? Blaming the bearish market? Omigod! Gee! And if me Ah Poh read this, she would probably gave him a good rollicking!

Let's give the whole series of events a thought or two..

1) they announce their big software package,

2) then Kenanga gave it a huge write-up, and of course basing everything on the expected/estimated sales of this software package (now if software fails to deliver, Karensoft at 0.96 was sold to the investing public based on a sky high pe valuations of 81x!).

3) A private placement had to be postponed... (ahh depends on how u read it.. what if no funds in believe in this software package? Placement buyers are investors too mah... if cannot make money or chances are slim to make money, u think they want ka?)

4) Share has been falling steadily all this while..

5) Announcements were made showing that ze bossie's shares were being forced sold!

6) A lame article comes out in Star on that day...

7) From 0.96 to 0.255...WOW!!

And it just doesn't end here. A couple of days later, news came out that Karensoft's placement shares were placed out at a price of 28 sen.

KARENSOFT TECHNOLOGY BHD has fixed the issue price of the final tranche of the new 6.25 million 10 sen shares for private placement at 28 sen per share.

AmMerchant Bank Bhd in a statement on behalf of Karensoft said the issue price of 28 sen per share was based on the five days' weighted average market price of Karensoft's shares from April 4 to 8, 2005.

Naturally, there were a lot of unhappy folks. Some felt that these actions were unjust.

Some even brought out the issue that the placement price is too low compared to Karensoft's IPO price.

And the Edge Weekly promptly had a write-up on this isse on the 19th April 2005:
Corporate: KarenSoft's rationale for share placement

Fair or unfair, somehow i felt that from day one, investors should have had known what they were investing in. As mentioned earlier, Karensoft had basically nothing except a potential winner in their software suite. However, sadly, they should have realised that one rule of thumb, potential prospect simply does not equate to profits. And if they had invested in Karensoft, they should have realised that they are merely speculating on Karensoft based on this factor.

And when you speculate, you should realise the risk involved.

And most important, acknowledge the mistakes if and when we are wrong.

To buy and hold such investment is one reason why the buy and hold fails one time too many!

Don't you think so?

Oh.... it does not even end here!!!

to be continued..... Part VII!!!

Quick ref:

Move Over Who?
Move Over Who?: Part II
Move Over Who?: Part III
Move Over Who?: Part IV
Move Over Who?: Part V

Move Over Who?: Part V

So Kenanga remained positively optmistic on Karensoft prospects based on the premise that Karensoft's Execsuite software will take off.

Meanwhile, the stock continued to slide.

And on the 25th March, Karensoft ended the trading day at 0.65.

Well, that's down a whopping 31 sen or 32% from the day Kenanga boldly proclaimed Karensoft's potential product winner.

And the next day, all hell broke loose.

28th March 2005.

The sell-off. Karensoft lost 20 sen on that trading day.

Karensoft ended that day at 0.45.

And of course the Bursa querried but as usual the answer given was rather lame.

Two tradings later, Karensoft closed at 0.235.


So at 0.235, this was getting rather malu for Kenanga. So they had to explained themselves and explain to the poor investors who had followed their rather shockingly poor investment advice. Remember it was just in Dec 2nd that Karensoft was trading at 0.96. Now it was at 0.235. So Kenanga fast-fast wrote the following:
Investment case weakened by poor equities market

Here's a complilation of comments again on this issue.

So we have Kenanga iniating coverage on Karensoft at a price of 0.96. Price now 0.235.
Ahem.... so they do an update.... (decent thing to do... BUT isn't it too bloody late? from 0.96 to 0.235... i wonder how many Kenanga's followers has gone to holland orediii????)

So anywayyyyyyyy....

1. they start with Investment case weakened by poor equities market? LOL!!!! comeon.... where there is honey, there is money la!!!!!..... so if Karensoft is really that good.... why aren't those local fm buying their story? What a poor lame excuse, really!

2. Postponement of companies placement shares! Again simple logical question is needed to be asked. If Karensoft potential really good, why no buyers for their placement shares? Why not laku?

3. WORSE of all.... look at their insinuations! Quote: karensoft could be an attractive merger or acquisition target for it remains an attractive software house. Omiiiiiiiigosh!!!!!! Wow! Ini macam olso can, ka?

Soooo...... do we really need research coverage such as this????

==>> The insinuations of the potential merger is soo, soo scandalous. Karensoft at this moment of time is a poor recommendation. Why can't they simply admit they have flawed? To throw in this insinuation is simply giving investors/punters/speculators false hope. Isn't it? Look at the share price today. It is trading at a price of a mere 6.5 sen!

Kenanga is now negative, because Karensoft can NOT proceed with a PP. Like that one, also can .....! Yes, this is very strange, either their software is very good, and then money will come in, or it isn't. Still, the scale of their operations is so unbelievable small.

I think this CCH is also one "interesting" guy:
Contents :
We refer to your letter dated 29 March 2005 in respect of the unusual market activity of KarenSoft Technology Berhad (the "Company" or "KRNSOFT")'s shares. In accordance with the Corporate Disclosure Policy on Response To Unusual Market Activity pursuant to paragraph 9.11 of the Listing Requirements of Bursa Malaysia Securities Berhad, the Board of Directors of KRNSOFT after having made due enquiries, wishes to inform that, to the best of its knowledge, the Board of Directors is not aware of:-

1. any undisclosed material development in the Company's business; or
2. any other reasons to account for the unusual market activity.
This announcement is dated 29 March 2005.

(b)Disposed by CCH
29/03/2005 3,541,900
30/03/2005 1,542,600
31/03/2005 1,480,300
01/04/2005 6,104,100
04/04/2005 2,906,000

Circumstances by reason of which change has occurred : FORCE SELLING BY BROKERS
Date of notice : 06/04/2005

(c)Volume and share prices of Karensoft for the past few days:
29/03/2005 7,719,200 (RM0.34)

30/03/2005 9,365,300 (RM0.33)
31/03/2005 8,341,300 (RM0.29)
01/04/2005 13,921,600 (RM0.23)
04/04/2005 10,768,500 (RM0.26)
05/04/2005 2,320,800 (RM0.26)
06/04/2005 2,493,400 (RM0.25)


Shocking? More to follow!... Wait for Part VI!!!

Quick ref:

Move Over Who?
Move Over Who?: Part II
Move Over Who?: Part III
Move Over Who?: Part IV

Move Over Who?: Part IV

Let's review what happened so far.

So far we have a rather interesting case: potential prospect versus actual performance.

The potential prospect is Karensoft execsuite could sell like hot cakes.
The actual performane? Very poor so far.

Would a bet on Karensoft made sense at 0.96 sen?

Look at the picture above.

Look at the 2005 vertical line. Look at how Karensoft started its plunge just after the December period. See the implications on it?


Came Feb 28th 2005.

Karensoft closed the trading day at 0.78 sen. (down from that lofty 0.96 sen in Dec 2004)

Karensoft reported its 2004 Q4 earnings.

Quarterly rpt on consolidated results for the financial period ended 31/12/2004

1. Sales 1.543 million
2. Net Profit 0.164 million
3. Cash 2.990 million
4. Loans 4.799 (up again!)
5. Trade receivables 12.962 million (WOW!!! this company has no collections or what??)

So the initial reaction was.... Where is the Moola? Where? 164 thousand in net earnings wor. Peanuts, isn't it?

And here is what Kenanga said in its review of performance.

Going forward, margins and hence earnings should be more exciting especially from 1Q05 as revenue and earnings from its Execsuite software kicks in (already some RM41k in sales was locked in in 4Q despite the late launch last year). The Execsuite will nevertheless be the key earnings driver for Karensoft going forward as it is expected to contribute to in excess of 60% of turnover in FY05.
We are maintaining our projections for FY05-FY07.

Our BUY rating on Karensoft is very much based on the premise that its Execsuite software takes off. We remain positive that this “one software”, an alternative to the Microsoft Office will be successful given the favourable pricing of the product vis-à-vis the Microsoft Office, the attractive vendor commissions to promote the product as well as the successful bundling of its products with PC/notebook manufacturers which enables cheaper overall pricing of their PC/notebook. Based on a fair P/E of 15x for FY05, Karensoft is fairly valued at RM1.46.

They maintained their lofty projections and their BUY rating on Karensoft despite it was rather clear that Karensoft actual performance did not match Kenanga's optimism.

Coming next in Part V....drama starts... the selldowns begins!!!....

Quick ref:

Move Over Who?
Move Over Who?: Part II
Move Over Who?: Part III
Move Over Who?: Part IV

Tuesday, December 20, 2005

Move Over Who?: Part III

So where was i?

Oh 1st December 2004.

Flashback from Part II:

Karensoft is seeking an extension to their proposed private placement.Huge implications here. What is wrong? Not laku wor. Why? How come? In a hot, hot market where placement shares were in such a demand, Karensoft is seeking an extension.

Interestingly... or perhaps should i say strangely... came Move over Bill, Karensoft coming through! .. the article/ the write-up... proclaiming Karensoft's huge potential...was published 2nd December 2004!

A write-up insinuating a possible 53% upside for buyers of Karensoft.

According to Kenanga, potentially Karensoft might have a terror, sibeh geng software.

The ExecSuite will be the key earnings driver for Karensoft from FY05 and beyond. The ExecSuite will also not only transform Karensoft from purely being an ERP player to a real competitor in the Office Suite market, it would potentially enhance business opportunities abroad as the market for the ExecSuite is global.

As there is no direct competition for Karensoft’s ExecSuite in the local market, we are using a fair P/E of 15x for FY05 EPS which translates to a fair value of RM1.46. This suggests a 52% upside from current level. Bear in mind that our forecast is still fairly conservative and has potential of further upgrades if ExecSuite gains momentum. BUY

Potentially, Karensoft could make tons of Moola....

but... potentially does not necessary equates to profits.

For everything is gambled on Karensoft's management ability to turn potential into profits.


ahh yes, ze ExecSuite is a prospect, will it deliver or not is one issue... but without it.... Karensoft is rather poor. It's there for all to see.

Look at Part I and Part II. These events happened before this article came out.

Karensoft's current net earnings was only 164k and its ytd net profit was of 0.98 million.

Company was burning up cash fast.

Loans were increasing!

And the company simply had an enormous problem with their sales collections. If one cannot collect, sooner or later, these debts are deemed doubtful and when it drags on longer it is deemed bad debts. And when it happens, the company has to write it off as a loss. And Karensoft's trade receivables were simply ballooning! It was totally incredible!


And if one looks at Kenanga's write-up... it's actually there.... in the smaller prints....

They actually estimated a total net profit of 0.8 million for Fy 2004 for Karensoft (see the column under 04e). And at 0.96, they were recommending Karensoft based on a pe multiple of 81x!

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

they justifies their buy recommendations by arguing that Karensoft will makea whopping 6.8 million for FY 2005.

Will they or not.... that's what the investor had to decide!!!

Doesn't it pay to read the fine prints?


Here is a compilation of comments/views on Karensoft's potential back then.

no way i will buy there are so many alternative to ms office.. some more free one like open office :D

But .... afterwards I also read a few stories about companies/government agencies turning back to MO, people used to the MSFT software, etc.

I use M Office for a very long time, and although I don't like some things, it is quite good, and the de facto standard, so very hard to beat.

yes, firstly i do think the software business is a really tough business. It does not have a strong competitive edge in its business economics. Too many hurdles in the business.

And i wud agree very much that nothing beats MO and that KarenSoft's ES might not sell as great as suggested by Kenanga.

However... i really do applaud KarenSoft .... for making the effort to produce its own software package, a software package that actually competes against the big M.

i think what karensoft create is not that great coz we can get the source code form the internet n just customised it. n to challange Microsoft Ofiice product,even others competitor likes lotus n others pun bungkus.

one more, to compete with prirate software in malaysia where people can buy software for rm5. software programmer tak boleh cari makan kat sini.


The huge potential from Karensoft was proposed to the investing public/speculators/punters.


Would you have followed?

Or would you realise that investing is not a game of follow me, follow you?

Mau ikut or tak nak?

to be cont.... Part IV!