Avoiding Ze funky chicken... !!

LOL!!! Yeah, ze funky chicken!

Anywayyyy..... here's an interesting issue. Could one have avoided the danger in Comsa?

1. Let's take a look at Comsa financial track recrd.



For its fiscal 2003. Yes the sales revenue was increasing BUT the classical AVOID sign was there. Look at the table above. Sales dropped to 10.452 despite the drastic increase in sales. And the net margin dropped from 13.09% to 5.94%.

For its fiscal 2004. Sales revenue soared to 222 million. However, net earnings dropped again and worse still its profit margin is now a mere 4.43%. (see how important it is to know that sales revenue growth is such a NON-ISSUE?)

Did it made sense for an investor to invest in a stock whose earnings was clearly declining?

This for me was the biggest issue any investor has to ask themselvs. If the company simply wasn't making money or the company's earnings was declining, we know very well that there was something very wrong with the company or its business!

2. Searching for value? Ze asset issue.

Ok... let's have a look. In 2003.

For fy 2003 Comsa declared that it made 10.452 million. If one opens their earnings note for their fy 2003 Q4 ( Quarterly rpt on consolidated results for the financial period ended 31/3/2003 ), one would see two disturbing issues.

(1) Total debts increased from 148 million to 210 million.
(2) The cash flow statement included is simply a blur. (go have a look.. LOL!!! )

Any value in such an 'asset' back in 2003?

How about fy2004? Take a look at Comsa fy 2004 Q4 earnings pdf file here.

See how the inventory increased tremendously? (pg 2). Inventories increased from 63 million to 90.087 million.

Aha. Simple logical question. This is a chicken business dude. When the chicken inventory increased by so much in a single year, shouldn't one suspect something fowl? (:p)

and then... the biggest giveway was so clearly stated.... in page 3.

look at the NTA section... do u see?

See how Comsa as early as in 2004 restated its NTA from 3.13 to 2.36? Ahem!!!

Now given such mess in 2004... where one clearly saw declining profits, declining margins, increasing debts, surging inventory, restatement of NTA.... weren't there enough warning signs to avoid this stock??

How about 2005? Well, RAM on 28th January 2005 sounded a real warning on Comsa.

• The rating had been placed on a negative outlook in June 2004, to reflect the imminent weakening of the Group's credit fundamentals once it sank deeper into debt to finance its overdue sinking-fund payment.
  The assumption of additional debt would have further strained Comsa’s already precarious financial position - as highlighted by its weak operational cash flow of RM4.93 million vis-à-vis a debt of RM230.5 million as at Sept 30, 2004.

So could one have easily avoided the dangers in Comsa?