TWSCorp

One of the hotter stocks today was Tradewinds. And my oh my, cows certainly can fly! (13-06-2007: Tradewinds surges 27% in early trade )

• Tradewinds Corporation Bhd’s share price surged as much as 27% or 41 sen to RM1.89 in very active trade on June 21 after a foreign research house re-rated the counter.
  
  It opened at RM1.51, up three sen. Within the first two hours, there were 38.33 million shares done at prices ranging from RM1.51 to RM1.89.
  
  At 11am, it was trading at RM1.78, up 30 sen.
  
  The company reported net profit of RM7.86 million in the first quarter, compared with a net loss of RM23.61 million a year ago.
  
  Earnings per share was 1.28 sen versus 3.79 sen loss per share. Its net assets per share was RM2.18.

Guess what? I do have a copy of that foreign research house (Merrill Lynch).

• Trading at attractive 0.7x historical book
  With the profit turnaround in the various key divisions, we believe the group is well on track to achieve a net profit of RM118mn in 2008, from a loss of RM11mn in 2006. At the current price, the stock is trading at a decent FY08E P/E and FD P/E of 7.8x and 13.9x, respectively. Even more interestingly, TWC is only at 0.7x historical P/BV and we expect the rationalization of group assets will re-rate this multiple. Our RNAV of RM3.06 is 107% above the current share price. Meanwhile, the major shareholder’s entry price is RM2.10, 42% above the current share price.

It's a turnaround story. From a 118 million losses recorded in its fy 2006, Tradewinds is supposed to recover and achieve a net profit of 110 million by fy 2008!

Hugely optimistic!

But why am I against the possibility of a company turning around?

Is it NOT possible?

See Merrill Lynch analyst is suggesting a turnaround in 2 years! 2 long years!

And me? I do remember this stock. See this posting, Where is the Integrity of Our Financial Press?

Let me paste what was said then here so that we can stay focus on the issue of Tradewinds.

Flashback...... Feb 12 2005.

• Tradewinds breaks six-year losing streak
  
  BY JOSE BARROCK
  TRADEWINDS Corp Bhd (formerly known as Pernas International Holdings Bhd), it is believed, will report profits of about RM100mil for FY04. This represents a marked improvement, breaking a six-year losing streak.
  
  The company is expected to announce its results at the end of the month.
  
  “Tradewinds (Corp) has turned around significantly. It made about RM100mil profit after incurring losses last year. Debt too has been slashed considerably,” says a source.
  
  For the financial year ended December 2003, Tradewinds Corp suffered a net loss of RM73.7mil from RM1.1bil in sales. But the signs of improvement were already evident from the first nine months performance of the company. For the nine months ended September 2004, the company - largely involved in the hotel business, property development and plantations - posted a net profit of RM54.2mil on the back of RM938.5mil in revenue.
  
  Sources say both the plantations and sugar businesses have lent a boost to the company’s earnings.
  
  Tradewinds Corp controls as much as 53% of Tradewinds (Malaysia) Bhd, a company that owns Central Sugar Refinery Sdn Bhd, which controls as much as 40% of Malaysia’s RM1.5bil sugar market.
  
  In the future, more can be expected from Tradewinds Malaysia as the company just strengthened its position in the sugar business via the acquisition of Gula Padang Terap Sdn Bhd, from among others Tan Sri Robert Kuok Hock Nien’s PPB Group Bhd, for RM188mil.
  
  Tradewinds Corp’s hotel business, it is understood has just about broken even, but the prospects seem promising. “There are a lot of improvements ... some of the loss-making hotels have turned around. The Mutiara Pedu (Golf and Lake Resort) in Kedah and the Hilton Batang Ai (Longhouse Resort in Sarawak) have also made progress, things are looking better for the group,” the source adds. The two hotels were previously up for sale with a price tag of around RM100mil.
  Tradewinds Corp has managed to cut its debt from RM2.5bil in 2003 to the region of RM1.2bil now which will undoubtedly reduce its finance cost burden.
  
  Year to date, Tradewinds shares have gained 11 sen, having reached a 52-week high of 78.5 sen in late January this year. The counter ended trading on Tuesday at 76 sen.

Ok, IT WAS THE SAME BASED ON SOURCES reporting from the very same reporter mentioned Some mumblings and More Reporting Woes: Surely They Are Unaware!. Yes, same style, same end result.

Anyway, can you see the same resemblance?

The very same 100 million turnaround was mooted by so-called sources back on Feb 2005.

It's now 2007!

Back to that blog posting.

Let's do some digging. Tradewinds last reported quarterly earnings was on 30th Nov 2004. And this is what the company management said in its notes.

• But the signs of improvement were already evident from the first nine months performance of the company. For the nine months ended September 2004, the company - largely involved in the hotel business, property development and plantations - posted a net profit of RM54.2mil on the back of RM938.5mil in revenue.

Hmm... so TWSCorp has indeed managed to post a net profit of 54.2 mil, but this is not that accurate since this earnings performance was aided by an extra-ordinary gain of 25.991 mil as stated in TWS financial report.

Anyway, Tradewinds announced its 2004 Q4 quarterly earnings on 25th Feb 2005. It lost 1.746 million for its 2004 Q4 earnings. And only ended its fiscal year making some 52.504 million ( which was aided by an extra-ordinary gain of 25.991 mil ).

And the next fiscal year, Tradewinds lost some 46 million. ( see Quarterly rpt on consolidated results for the financial period ended 31/12/2005 )

And the next fiscal year? Tradewinds lost some 9.8 million. ( see recently announcement on Feb 2007 Quarterly rpt on consolidated results for the financial period ended 31/12/2006 )

So if you look back at that very fateful article posted on Feb 2005, saying that "Tradewinds breaks six-year losing streak", and less we forget the article itself suggested that Tradewinds will earn some 100 million, Tradewinds Corp has lost money 7 out their last 8 fiscal years.

So tell me, do I reckon that this projection is way too optimistic?

Snapshot of earnings table from Merrill Lynch.

And here is a nice chart to show you how nicely TWSCorp has been performing.



Nice to hear Merrill suggesting TWSCorp at such a wonderful price!