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: YIKON

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?

Nope!

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)

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

Sales 7.179 million
Net profit 0.079 million.

3. 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.

4. 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??

Wah!

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!!!!