Mems: Part IV

Let's have a real good look at Mems since there are interest in it.

How?

How should i write this piece of ... err.... blog?

Well, firstly, i thought it was interesting to see how the company projected itself to the investing public before it was listed. And as usual, it wasn't a surprise to find out that Mems was overly bullish in their press interviews before they open shop in the Messdaq stock exchange on Aug 11th 2004.

Here is one such article: MemsTech bullish statements..

MESDAQ-bound MEMS Technology Bhd (MemsTech) hopes to achieve US$35 million (US$1 = RM3.80) to US$40 million revenue for the financial year ending July 2005.For the nine months ended April 30 2004, the company made a net profit of RM5.86 million on a revenue of RM23.04 million.... The global MEMS market was worth about US$4 billion in 2003, and a compounded annual growth rate of about 20 per cent is not out of the question, he said.

Again it was proven that these statements were rather overly optimistic.

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

Let's leave that aside first... and focus on how the industry preceived and promoted Mems.

CIMB, in its very detailed IPO notes on Mems, said the following:

There are no comparables for Memstech on the Bursa Malaysia and this region. Only France’s Memscap is comparable but it is loss making. Hence, we believe Memstech should be considered and valued as a rapidly-growing technology company.... Hence, we think it is fair to value Memstech in line with Redtone, which we value based on 14x CY05 PER. Attaching a similar multiple of 14x to CY05 PER (average of FY05 and FY06), we arrive at a target price of RM2.00 for Memstech.

14x sounds reasonable, tiok boh?

But... ahh.... the key is.... what is their projected fy 2005/2006 earnings for Mems? Well CIMB project that sales will be around 152 million for Mems for fy 2005 and 224.2 million for fy 2006. Net earnings ass-u-med was 31.7 million for fy 2005 and 56.8 million for fy 2006.

(if u refer the above link again, Mems did a sales of 48.269 million for fy 2005. Net earnings was 13.706 million.)

Incredible isn't it? 13.706 million is very, very far off from 31.7 million!!!!

OSK called it a blue chip in the Messdaq market. OSK had a projected net profit of 35.8 million from a sales revenue of 100m for Mems fy 2005.

Again.. Mems missed the target way, way off.

How could they be so wrong in their projections???

As for Mems, it wasn't too nice of them to have made such optimistic statements before they were listed. Right onot? It might even give some folks the total wrong impressions on them...

Now consider this... Mems after their IPO was to have some 321 million shares. Which meant OSK was estimating an eps of 11.1 sen for Mems for its fy 2005, while CIMB was estimating eps of around 9.8 sen.

So based on the IPO offer price of only 0.62 sen, OSK was screaming a fair value of 1.70, while CIMB shouted out loud a fair value of 2.00 for Mems!

And so it was not too surprising that Mems ended its maiden first trading at 1.65!!!!

IPO price was only .62 sen!

Market was hot, Mems was hot and everybody went wheee-wheee home happily.

What a debut.

Now consider this.... Mems only did 13.706 million. Based on those 321 million shares (mems had a 1-for-1 bonus issue on Feb 2005), Mems actual eps should have been only 4 sen!

Do you think CIMB could have justified Mems to have a fair value of 2.00? Or Osk's estimation of a fair value of rm1.70? It would have meant that CIMB was calling for a fair value based on a earnings multiple (pe) of 50 while OSK's fair value was based on a pe of 42.5x! Incredible?

Let's brush all this aside and look at how Mems have done since listing.

Quarterly rpt on consolidated results for the financial period ended 31/7/2004

1. Sales 10.732 million.
2. Net Profit 2.348 million. (margin 21.8%)
3. Piggy Bank 56.017 million.
4. Loans 5.02 million

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

1. Sales 12.037 million.
2. Net Profit 3.119 million. (margin 25.9%)
3. Piggy Bank 49.794 million.
4. Loans 4.884 million

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

1. Sales 12.254 million.
2. Net Profit 3.202 million. (margin 26.1%)
3. Piggy Bank 45.856 million.
4. Loans 4.259 million

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

1. Sales 12.226 million.
2. Net Profit 3.290 million. (margin 26.9%)
3. Piggy Bank 45.856 million.
4. Loans 4.259 million

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

1. Sales 11.712 million.
2. Net Profit 4.095 million. (margin 34.9%)
3. Piggy Bank 38.265 million.
4. Loans 3.808 million.

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

1. Sales 11.061 million.
2. Net Profit 3.009 million. (margin 27.2%)
3. Piggy Bank 29.658 million.
4. Loans 3.893 million.

How?

That's how Mems had performed since listing, which was pretty decent i think. Yes, the cash flow is a bit questionable but all in Mems is decent.

Did Mems deserve the rather optimistic projections, assumptions from folks in CIMB, OSK and even S&P?

How?

For me, i believe this is a rather simple example of an overly-hyped stock which simply failed to meet their expectations. It reminds me of Warren Buffett's mumbling that when the tide resides, we will know who has been swimming naked. Well, from Mems actual reported quarterly earnings, we can clearly see the nakedness in Mems share price and of course the insane earnings projections assigned to Mems.

So curious to know... since Mems has not meet these so-called expectations... i wonder... i really wonder... did Mems failed or did the market itself failed? What do you reckon?

Oh, Mems last traded at 0.35 sen.

With trailing net earnings at only 13.596 million, Mems has an eps of 2.1 sen, Mems is currently trading at an earnings multiple of 16.6x current earnings. Sooooo..... after the price dropping sooooooooooooo much from the highs..... do u reckon that the current 'low price' of Mems represents a buying opportunity?