MaeMode III

Malaysian AE Models (MaeMode) announced its earnings last night.

Here is the updated financial data for MaeMode.



1. Earnings growth is there, no doubt. Back in 2002, it earned 8.259 million. 5 years later it earned some 16.218 million. Earnings grew at an annual compounded rate of 14.45%. Impressive. Fantastic!

2. Margins are terrible. Back in 2002, net earnings margins was around 7.6%. Now? It's only 4.3%.

3. Cash management is terrible. The evidence of debt built up is there to be seen. Back in 2002, MaeMode was in a nett debt of 65 million. 5 years later, it is now in a nett debt position of 150 million. Which meant that the nett debt grew at an annual compounded rate of 18.2%!

Is the debt built up justifiable?

4. Trade receivables. WOW! Warning bells all over. A year ago it was 109 million. Now it's 243 million.

If you put the trade receivables TRACK RECORD into perspective, back in 2002, MaeMode's trade receivables was only 57 million. 5 years later, it's now 243.109 million. Do you know that this means that MaeMode's receivables has compounded at an annual rate of 33.64%?!

So, its earnings grew at an compounded rate of 14.45% since 2002 but its nett debt grew at annual compounded rate of 18.2%. Its trade receivables grew at an annual compounded rate of 33.64%!

How?

Gloom or Doom for Global Markets? II

What if Stocks Fall? By Marc Faber

I have mentioned in the past that the first signs of credit tightening would be visible in the performance of US brokerage stocks. Recent pronounced weakness not only of brokerage shares, but also of other financial stocks and, in particular, sub-prime lenders, would seem to confirm that the "irreparable cracks in the financial system", about which we wrote in the January issue of my Gloom, Boom and Doom Report, are now spreading. These cracks are now causing some "illiquidity", not only in the household sector but elsewhere in the system as well. This illiquidity, sooner or later, will pressure share prices.



First, it is important to understand that mortgage debt has begun to grow at a slower pace largely because home prices are no longer appreciating. The growth in the mortgage market was about equal to nominal GDP growth between 1980 and 2000. But, in the 2000 to 2006 period, a massive breakout from the trend occurred and, combined with a decline in the saving rate, drove consumption and GDP growth. But, as home prices began to decline in 2006, and as problems in the subprime lending market became evident, lending standards were tightened to their highest level in 15 years. Declining home prices and tighter lending standards brought about a slowdown, not only in mortgage debt growth, but also in overall debt growth. Mortgage debt, which grew at an annual rate of 10.2% in the second quarter of 2006, declined to an annual growth rate of 8.6% in the third quarter and to 6.4% in the fourth quarter. It is likely that mortgage deb! t growth slowed down further in the first quarter of 2007, and will decline even more in the second quarter given the problems in the sub-prime lending industry and the tight lending standards.

In the meantime, household debt growth in the United States has declined from a peak of 11.9% in the third quarter of 2005 to 6.6% annual rate in the fourth quarter of 2006. According to Merrill Lynch economist, David Rosenberg, the fourth-quarter 2006 annual credit growth was the slowest since the third quarter of 1998 and the sixth consecutive quarterly deceleration, "which hasn't happened since 1956". Now, ceteris paribus, this significant slowdown in mortgage and household debt accumulation would have already brought about a significant slowdown, or even a decline, in US consumption. However, because of the stock market rally in the fourth quarter of 2006, equity wealth increased by 4.2%, or an annual rate of 18%. This fortuitous trend has continued so far in 2007.

Moreover, as David Rosenberg notes, "just as households are beginning to curb their appetite for debt, the once-dormant corporate sector stepped up its borrowing sharply in Q4. Net debt raised by the non-financial corporate sector steamed ahead at a 10.9% annual rate in Q4, almost double the Q3 pace (of 5.9% annualized) and the strongest pickup in seven years. You have to go all the way back to the cash-burn era of 2000 Q2 to see the last time that the corporate sector outdid the household sector in terms of debt buildup." And as David Rosenberg correctly suspects, \corporate borrowings have been rising along with M&A activity.

The deterioration in household debt growth hasn't yet led to a consumer spending decline; but, very clearly, retail sales are now growing more slowly. Continuous consumption growth was therefore driven less by household debt growth in the fourth quarter of last year and the first quarter of this year, than by the continuation of an increase in household wealth and the selling of US equities by the household sector. But herein lies the problem. If declining home prices are now joined by declining equity prices that are either declining or no longer rising, it will only be a matter of time before consumer confidence declines and consumer spending slows to a crawl.

Slower consumption growth, as a result of tighter lending standards and flat or declining equity prices, should have the following consequences. The US trade and current account deficit will no longer expand at an accelerating rate. This should lead to a relative tightening of global liquidity, which would likely be unfavourable for asset prices but could temporarily strengthen the US dollar and even more so the Yen.

The full extent of the sub-prime lending problems isn't known. However, since at least 12% of the mortgage market - whose total size is over US$1.2 trillion - is comprised of sub-prime loans, the fall-out could be considerably worse than expected. This certainly seems to be indicated by the recent poor performance of banking stocks and, as indicated above, brokerage shares.

And what's bad for financial stocks is probably terrible for the overall stock market. Here's why: Earnings in the financial sector of the stock market have risen 14-fold since 1990 to an annualised US$251 billion, whereas the rest of corporate earnings experienced only a fourfold increase, to US$636 billion. I have mentioned in earlier reports that if we were to include in the financial sector's earnings their profits from speculating in all kinds of derivatives and financial products by industrial and multinational companies, the profit contribution from financial earnings to S&P 500 total earnings would be more like 45%. Also, the recent contribution to profit growth would amount to around 70%! Therefore, I suppose that if asset markets failed to appreciate further, financial earnings would begin to decline and likely pressure S&P 500 earnings. (Aside from the financial sector, the energy and material sectors ha! ve in recent years also boosted S&P earnings. Never before have energy and financials contributed so much to the S&P profit pool.)

In the past, poor performance of financial stocks has always been an unfavorable indicator for the entire stock market. In an economy that has become addicted to credit growth, this should be even more so! The other point to remember is that if corporate profits no longer expand, the ammunition used by the corporate sector to take over other companies and to buy back their own shares is likely to diminish. Last year, a record US$548 billion worth of shares were retired by corporations buying back their own shares and by acquisition-minded private equity funds. Any reduction of this activity in 2007, when simultaneously the increasingly "illiquid" household sector is likely to diminish its equity purchases further, is going to have an unfavorable impact on the stock market. I may add that, sooner or later, private equity funds will place the acquired companies back on the stock market and so increase the sup! ply of equities through high IPO activity.

If the assumption is correct that global liquidity is tightening - at least relatively - the asset markets that benefited the most from surplus liquidity should come under some pressure. I am thinking here in particular of the extended emerging stock markets, which in this scenario could be vulnerable to corrections of between 20% and 40%.Tread lightly.

http://www.howestreet.com/articles/index.php?article_id=4235

Gloom or Doom for Global Markets?

Here's a worth reading interview: http://www.resourceinvestor.com/pebble.asp?relid=34108

Classic Business Day gets investment guru Dr. Marc Faber on the line to find out what we can expect in the world markets. Faber is well know as author of “The Gloom, Boom and Doom Report” and his current bestseller is “Tomorrow’s Gold”

LINDSAY WILLIAMS: If you’d been watching Bloomberg Television a couple of weeks ago you’d have noticed a chap called Marc Faber the internationally renowned investment guru. Is he a guru? I don’t know. Anyway, he is very well known indeed. He was talking about bubbles on Bloomberg. I tracked him down on Thursday night in a hotel room in Chicago, and I asked him about bubbles - I started off by asking him what the background to what he perceives as the present bubble environment to be?

MARC FABER: I think that to go back to 2002 we had after 2001 ultra-expansion monetary policies in the U.S. that led to strong consumption growth, but at the same time to a growing trade and current account deficit. Basically the current account deficit has grown from 2% of GDP in the U.S. in 1999 to currently close to 8% of GDP that throws $800 billion into the world, and has led to asset inflation across the board. In other words since 2002 everything has gone up - stocks, commodities, real estate, art prices, and even bond prices have been rising. The question is of course that at the end of a major bubble the leadership narrows and one sector after another no longer participates. Now what we have in the world starting in 2005 is developing weakness in the U.S. housing market, and with housing stocks peaking out in 2005 that was followed by a peak in the sub-prime lending industry in the U.S., and as you know after June 2006 sub-prime lenders began to decline and then collapse at the end of 2006 and in early 2007. More recently we had weakness across the board in financial stocks - especially U.S. brokerage stocks - and I think that one bubble after the other is therefore deflating whereby at the end the one or the other bubble can become gigantic. We have a huge increase in the value of emerging economies, we still have strong increases in energy prices and that may go on for a while - but overall I think that for the global economy and especially the U.S. economy if you have a situation where credit growth drives assets prices, which in turn drives economic activity - then credit growth has to continuously accelerate to maintain the economic plane’s altitude, and the moment credit growth just expands at a static rate or credit growth decelerates then you have a problem in the economy, and I think we’ve reached that stage in the U.S.

LINDSAY WILLIAMS: So are we then seeing credit growth in the United States starting to fall out of the equation, in other words there’s not enough credit growth to fuel the asset prices and therefore not enough to fuel economic activity at the current levels?

MARC FABER: Yes, correct. I think we have a situation where the credit growth has slowed down somewhat and will lead to not all asset prices still rising - home prices in the US are no longer going up, and other assets are no longer going up in real terms. If you look at the Dow Jones and the S&P since February measured in euro or measured in gold the S&P hasn’t bettered its February high, also the S&P is up say 8% in U.S. dollar terms but since the beginning of the year in euro terms it’s only up 3% - and in gold terms it is down. So you can print money like the fake stuff and still pursue an expansionary monetary policy - but that doesn’t mean that asset prices across the board will increase in value.

LINDSAY WILLIAMS: That’s a fairly gloomy picture so far painted by Mr Faber. The U.S. housing market has been in decline for quite a while - and when I say in decline some areas are actually falling not just in real terms, but also in absolute terms. I then asked Marc Faber when the U.S. housing slump is finally going to realise its full potential as being a bubble and start to drag down other markets as well. …

MARC FABER: Well it’s become a problem to the extent that the financial stocks are no longer going up - basically year to date financial stocks are down, and in particular financial stocks that have a big exposure to the collateralised debt obligation (CDO) market, because the housing problem hurts people that didn’t have any money and didn’t make any down payments on their homes - and took out sub-prime loans. Now the CDO market is probably about 50% sub-prime, and as you know already two hedge funds blew out completely at Bear Stearns. In my opinion a lot more damage will come from that with some investment banks now having problem in raising money for leveraged buyouts (LBOs) - so I think that the problem of the CDO market with infect other sectors of the credit market. To that extent it has already had an impact - but the market is strong largely because energy stocks are still strong, and here and there one or another stock is taken out in a leveraged buyout, or you have some upside surprises like today in IBM. By and large market leadership particularly in the U.S. has narrowed considerably.

LINDSAY WILLIAMS: The Chinese economy grew 11.9% in the second quarter of 2007 its fastest pace in 12 years. I asked Marc Faber if maybe the Chinese situation could also be a potential bubble. …

MARC FABER: I think that we have probably some excesses in China in terms of capital spending, and eventually the Chinese economy will also slow down. A recession in China would be if their growth slowed down from 11% to 5% or 6% - but we have to realise that China is a very large country, and you could have a recession in one sector or in one region of the country and in other regions and in other sectors of the economy the growth would continue. If you look at recessions in the U.S. over the last 200 years frequently you had a recession - say in Texas when the oil bubble burst in 1980 but the North East did well - or in the early 1990s we had a recession in California and other regions of the U.S. were expanding. So I think that I wouldn’t think that the Chinese bubble is going to be a huge problem. Also, the stock market has gone up a lot - but if you look at cash deposits by individual households in the system then they are over 100% of GDP and the household’s financial assets are only invested to the extent of about 10% in the share market. So yes, I think we have a bubble in China. Is it going to be a devastating bubble? I don’t think so.

LINDSAY WILLIAMS: The subject of art came up as well in our chat. I noticed on a website a couple of days ago that Veuve Cliquot the French champagne house is bringing out a centenary or bi-centenary bottle of champagne - it’s three litres, it’s got a leather label, and it’s $2,000. A normal bottle of Veuve Cliquot goes at around $40 - surely this is a sign that there’s too much money around and things are getting out of hand? I asked Marc Faber if he thought that was the case. …

MARC FABER: Yes, I think you’re touching on a very important issue. If you spend money - and basically in the U.S. since the early 1980s credit growth has vastly exceeded the GDP growth, with the result that credit as a percent of GDP has expanded between 1980 and today from 130% of GDP to over 330% of GDP - if you have this kind of environment then you create a huge wealth and income disparity or inequality, where money shifts from the working class and from the middle class into the hands of what I call the “asset shufflers”. The asset shufflers are the people working on Wall Street - fund managers, hedge fund managers, accountants, lawyers and so forth. These people have done exceedingly well, and as you know in the case of hedge funds huge bonuses are paid out each year - and that has led to the contemporary art market rising by 50% over the last 12 months. Also, you have wine prices going through the roof, the price of collectables going through the roof, Park Avenue apartments, Mayfair apartments, and so forth. So you have a dual economy - the economy of the median household or the typical household in a society, where income and wealth is not increasing in real terms in other words adjusted for inflation - but the rich become unbelievably rich. In 1980 there were just six billionaires in the world - today you have over 1,000 billionaires in the world. It also shows that there is a depreciation in paper money - in other words inflation.

LINDSAY WILLIAMS: What about stock markets, though? It’s all very well talking about art - but for all of us it’s really what happens on the JSE that’s important. The JSE is still bossed a little bit by the U.S. markets - is there a bubble on the U.S. stock market?

MARC FABER: We have a bubble in U.S. stocks maybe - but we have a much bigger bubble in Spanish real estate, we have a much bigger bubble in art prices and in prestigious real estate and collectables than say in U.S. equities - which are at the new all-time high, except for the Nasdaq. If you adjust the Dow Jones and the S&P for the depreciation of the dollar then in euro terms the Dow is still down 35% from its 2000 peak, the S&P by a similar amount, and the Nasdaq in euro terms is still down 63% from peak. In gold terms all the U.S. indices are down more than 50% from their peaks. So the U.S. Federal Reserve can print money - in nominal terms they can boost things - but it means the dollar goes down, and certainly goes down against gold.

LINDSAY WILLIAMS: Bubbles can carry on inflating though that’s the problem. I asked Marc Faber when is it all going to come to fruition, and if it does what’s going to happen?

MARC FABER: I think you’re touching on a very important point. That it will happen there’s no question about it at some point. At that point what can the U.S. Fed do? They can print money - and then the dollar crashes and that creates a new set of problems. I would imagine that looking at the performance of assets over the last two years we had housing starting to come down, then we had the sub-prime mess, and recently if you look at the performance of say Merrill Lynch or Goldman Sachs all these stocks are performing very badly, and this is a very negative technical sign. I would imagine that we are right here near the top of the bubble and that we could burst any time. I have turned essentially very bearish right now.

Poker and Investing!

Here's a wonderful article posted on CNN money website. It's an interview by Jason Zweig on Bill Miller.

• Bill Miller: What's luck got to do with it?

I like this part where Bill Miller talk about Puggy Pearson.

• Bill Miller on poker and investing
  
  Question: Right. Who's Puggy Pearson, and why should anybody care?
  
  Well, the late Puggy Pearson was a professional gambler, lived in Las Vegas, had a 5th grade education, but nonetheless became legendary in poker, and really in other gambling circles, because of his undeniable skill at a game that involves a high degree of chance.
  
  And he won the World Series of Poker, I think in 1973. He also told me he actually won it one other time, but they awarded it to somebody else, because they didn't want him to win it twice. (Laughter) Back in the early years.
  
  Question: In the old days.
  
  I didn't know whether to believe him or not, but that's what he said. But in any case, he summed up the skills required for successful poker in a pithy way. And those skills, in my view, are also the skills necessary for successful investment.
  
  Somebody once asked Bill Ruane [the late manager of the legendary Sequoia Fund], and I happened to be in the audience that day, "How do you learn about investing?"
  
  And Bill said, "Well, if you read Ben Graham's Security Analysis and The Intelligent Investor you'll be well versed in it. And then if you read Warren Buffett's shareholder letters and understand them too, you'll know everything there is to know about investing. And you will become a successful investor."
  
  And I think Bill was right, but it takes a lot of time to do that. Puggy Pearson made it a little pithier when he said, his line was, "There ain't only three things to gambling. Knowing the 60/40 end of a proposition, money management, and knowing yourself."
  
  And if you translate that into investing, knowing the 60/40 end of a proposition means knowing when you have some competitive advantage over somebody else. And you don't bet, you don't gamble, you don't invest, unless you have some competitive advantage. I'll come back to what that means in a second.
  
  Second, money management means well, okay, if I've got a competitive advantage, how much do I invest? Do I invest 10 percent? 20 percent? 50 percent? Three percent? So knowing the proper money-management strategy, the proper amount of money to invest is the second thing.
  
  And then knowing yourself, that means knowing how you react to stress, how you react to adverse outcomes, how you react when things go well. Do you get giddy and overconfident when things are going well? Do you get morose and difficult when things go badly? Do you make bad decisions at both extremes? Just understanding your own psychology, what your weaknesses and strengths may be, as it comes down to evaluating decisions when the markets are at extremes.
  
  Those three things are really all that successful investing involves.
  
  Let's go back to the first one, though, and the 60/40 end of a proposition. There's three sources of competitive advantage in investing: informational, analytical and behavioral.
  
  Informational is - well, let's say you manage money for a Middle Eastern government, and you go over there and the oil minister tells you that they're going to double oil production in the next three months, you know something other people don't know.
  
  But informational advantages are very difficult to get. They're difficult for two independent reasons. Number one, the [U.S.] government tries to keep you from getting them, because they want a level playing field. There are rules against inside information and acting on it. People know when companies are going to release their earnings, and there's supposed to be equal access to that information. And then the hedge funds are the other independent reason. Many of them are trying to get an informational advantage. With so many of them out there doing this full time, it's very difficult for people to get an informational advantage - even other professionals such as ourselves.
  
  The second category is analytical advantages. This is where you know the same things that other people know, but you weight them differently, you give them different probabilities. And that can happen a lot. If you've owned the company over a long period of time, you can get a sense of how their business is evolving, how their capital allocation is going to work, that other people aren't thinking about. And you might have a different sense of their risk, the risk in assessing the investment. So the analytical advantage involves different probabilistic weights on the same information that other people have.
  
  And then the third one is behavioral. And that's the most enduring, because behavioral advantages arise out of the manifest tendencies of large numbers of people to react in predictable ways to certain kinds of situations. So we know that people are risk averse. We know that their coefficient of loss is about two to one - which means that they feel the pain of losing a dollar twice as intensely as they feel the pleasure of gaining a dollar.
  
  Question: Correct.
  
  People overweight the most recent information. They overreact to dramatic information, or dramatic circumstances. They tend to have what's called outcome bias, which is they judge things on their outcome, and not on their process. So a lot of these behavioral elements are things that you can actually identify and exploit to your advantage if you are aware of them - and aware also that no matter how much you're aware of them, you're not immune to them yourself. You really have to have a sense of discipline and patience, and understanding in that.

Do read the rest of the wonderful interview here: Bill Miller: What's luck got to do with it?

OilCorp II

Here's an update to OilCorp

Let's have a look at OilCorp's property section.

Posted on Business Times:

• D'Tiara's revenue may hit RM200m in 4 years
  By Roziana Hamsawi
  roziana@nstp.com.my
  
  July 16 2007
  
  OIL and gas support specialist Oilcorp Bhd expects its property subsidiary D'Tiara Corp Sdn Bhd's revenue to increase fivefold to RM200 million in four years.
  
  D'Tiara, which posted a revenue of some RM27 million last year, is confident that from 2011 onwards its revenue would be between RM150 million and RM200 million.
  
  Oilcorp executive director Phua Low Yiang said the confidence stems from the three projects that the company would soon undertake.
  
  They comprise a two-tower hotel suites and offices project at nearby KL Sentral, a leisure and health resort in Genting Highlands, Pahang, and a waterfront resort in Pulau Indah, Port Klang.
  
  Phua said total GDV for the three projects are currently estimated at RM1.3 billion and D'Tiara is in discussion for a listing on the Alternative Investment Market (AIM) of the London Stock Exchange to raise funds for the projects.
  
  "The intention is to list on AIM. We have nominated two advisers and are still in the midst of talks," Phua told Business Times in an interview.
  
  The 33-storey hotel and 33-storey office block project in Kuala Lumpur is expected to be launched early next month. The project's GDV is valued at RM330 million.
  
  The 14ha project in Genting Highlands, featuring bungalow lots and 20 resort villas, is still awaiting approval from the Securities Commission. Its GDV is estimated at about RM60 million.
  
  Both the projects are expected to be completed in 2010.
  
  The waterfront project in Pulau Indah meanwhile is a bigger version of the Tiara Beach Resort, which will incorporate an upmarket villa resort, canal bungalows for sale to the public and a commercial seafood centre.
  
  "Estimated GDV (of the Pulau Indah project) is RM890 million for the first 40ha of it while the remaining land will be developed only after the completion of the first phase," said Phua.
  
  He is confident that the project will change the public's perception of Pulau Indah and will be a centre of attraction.
  
  "The water there is still, calm and green. It is perfect for water sports," he said.
  
  All of the three projects will be sold to interested buyers who will then lease them back to D'Tiara.
  
  "This kind of model has worked well for us and for the investors too as they get good returns from this kind of arrangement," said Phua.
  
  Today, the bulk of D'Tiara's revenue comes from the two-year-old 980-room Tiara Beach Resort in Port Dickson, Negeri Sembilan.

Posted on the Edge.

• 16-07-2007: Oilcorp may list unit on AIM
  by Fintan Ng
  
  Oilcorp Bhd is contemplating listing its property arm, D'Tiara Corp Sdn Bhd, on the London Stock Exchange's Alternative Investment Market (AIM) in the third quarter (3Q) of next year.
  
  Oilcorp executive director Pua Yow Liang told The Edge Financial Daily the company was in the process of engaging an adviser for the proposed listing. He said a firm decision on the proposed listing would be made by September next year.
  
  "We have reached a stage where we can expand overseas and we would rather go to AIM," Pua said, adding that the Securities Commission was at present not too keen on the listing of property development entities.
  
  "We're launching three projects this year and next and that will require a lot of capital. These will give us a turnover in the next four to five years of up to RM1.2 billion, that's why we're planning to spin off the property arm and list it on AIM," he said.
  
  Currently, there are an estimated 98 pure property development companies listed on Bursa Malaysia.
  
  Pua said the amount to be raised and the percentage of shares Oilcorp would be retaining in the AIM-listed entity had not been determined. Other than property development and investment, Oilcorp's core businesses are in oil and gas, and fisheries.
  
  If successful, its property arm will follow in the footsteps of other Malaysian companies that have listed on AIM, namely Steppe Cement Ltd, Infoscreen Networks, Peninsular Gold, Velosi Ltd, GMO Ltd, Biofutures International, Mobility One Ltd and Plant Offshore Group Ltd.
  
  "We're injecting D'Tiara Beach Resort and three projects into the AIM-listed entity, which is valued at up to RM300 million, and an Oilcorp subsidiary will be set up to manage the company," Pua said.
  
  The three projects it will be launching are the 300-acre leasehold D'Tiara Waterfront Resort in Pulau Indah, Selangor with a gross development value of RM820 million for the first phase, the 2.19-acre freehold D'Tiara Hotel Suites in Brickfields with a GDV of RM320 million, and the 3.5-acre freehold Genting D'Tiara Leisure and Health Resort with a GDV of RM80 million.
  
  It also manages D'Tiara Beach Resort in Port Dickson, Negeri Sembilan on a sale-and-leaseback model.
  
  "We're positioning the property arm not only as a developer but also as a resort operator," Pua said.
  
  The residential property components of the Pulau Indah and Brickfields projects will be run on a sale-and-leaseback model with a guaranteed 7% net yield on five-plus-five-year leases.
  
  For the financial year (FY) ended Dec 31, 2006, the property arm contributed 15% of Oilcorp's revenue of RM153.23 million. Oilcorp posted a net profit of RM13.11 million in the same period.

Sounds extremely interesting eh?

Here are some links to OilCorp's recent earnings.

26th Feb 2007. Quarterly rpt on consolidated results for the financial period ended 31/12/2006

Click on the notes pdf file attached. See page 4.

Have a look at the screenshot below and check out OilCorp's property division.



Here's the link to their earnings in May 2007. Quarterly rpt on consolidated results for the financial period ended 31/3/2007. Again, have a look at the pdf file attached. Here's a screenshot of what I am looking at.

How?

• Oilcorp Bhd is contemplating listing its property arm, D'Tiara Corp Sdn Bhd, on the London Stock Exchange's Alternative Investment Market (AIM) in the third quarter (3Q) of next year.

Will OilCorp property arm be able to list on AIM next year? I have no idea but that's OilCorp's aim and yes it's always great to have a goal in each company but as it is, this property arm of theirs simply does not have a good track record, yes?

And yes OilCorp share has been rising.

All I can say is do not confuse a lousy share with a bull market!

In a hot market any share does stand a possibility of rising.

However, to use fundamental reasoning as a reason to buy this share is simply a pure insult to all investors!

MaeMode Part II

My Dearest Ethan,

You have commented on the previous blog posting on MaeMode.

• Actually Maemode debt is mostly for the ongoing project, and it have secure the all those recurring biz that stablize their income. They also setting up new facilities in vietnam, china and indonesia and the upcoming quarter report should be in flying color again. Maybe we can have some discussion on it?

Quote: MaeMode debt is mostly for the ongoing prject.

That perhaps would have been an acceptable explanation.

However, when one examines MaeMode historical record of its cash/debt, its so clear that there's evidence of tremendous debt built up.



Have a look again.

In 2002, MaeMode was in a nett debt position of 65.9 million.
Currently, MaeMode is now in a nett debt position of 157.7 million.

So in this span of some 4 3/4 years, MaeMode's net debt has increased by a whopping 91.8 million.

Now ask the simple justification. Is the end result in net profits justify such debt built up?

Back in 2002, MaeMode earned some 8.259 million.
Currently, MaeMode earned some 18.286 million for its most recent 12 months.

So for this same span of time, net earnings increased some 10 million.

So perhaps you should consider such increase in earnings (10 million) warranties such a debt builtup (91 million) ?

• They also setting up new facilities in vietnam, china and indonesia and the upcoming quarter report should be in flying color again.

Here's the link to MaeMode's last quarterly reported on April 2007. Quarterly rpt on consolidated results for the financial period ended 28/2/2007. In that link, there's an attached excel file. Do have look at their notes worksheet.

Here's my screenshot. Look at their outside Malaysia performance.



A net earnings of only 658 thousand for MaeMode's business outside Malaysia as per report made recently on April 2007! How? I could be wrong but for me, such earnings is rather not too inspiring!

rgds

OilCorp

It's truly amazing.

OilCorp was listed in place of Abrar Corporation back in 2003.

Flashback July 26th 2003. Published on Star Bussiness.

• OilCorp hopeful for more jobs
  
  BY TEE LIN SAY
  
  “IN our sector, how successful you are depends on how much you can cover under the oil and gas industry,” says OilCorp Bhd managing director Sunny Ng.
  
  Indeed, OilCorp's repertoire of services is not limited only to the petroleum industry. In recent years, OilCorp has managed to secure engineering, procurement construction and commissioning (EPCC) jobs relating to the power and sewerage industries.
  
  Of the total RM360 million of new jobs that OilCorp is currently bidding for, some RM221 million of it relates to the power industry.
  
  OilCorp, slated for a listing on the main board of the Kuala Lumpur Stock Exchange (KLSE), is targeting Aug 5, 2003 through a reverse takeover of financially troubled Abrar Corp Bhd.
  
  Construction based Abrar had in July 2002 signed an agreement to transfer its listing status on the KLSE main board to engineering, procurement and construction specialist OilCorp.
  
  As at March 31, 2000, Abrar had total liabilities of RM181.5 million and its shareholders' fund was in a deficit of RM164.8 million. It was not able to meet its financial obligations.
  
  Oilcorp has issued 1.6 million new OilCorp shares to the existing shareholders of Abrar on the basis of one new Oilcorp share for every twenty existing Abrar shares held.
  
  Abrar would then settle its debts to creditors by issuing 35 million new shares of OilCorp. Subsequently, OilCorp would acquire the entire equity interests in Oil-Line Engineering & Associates Sdn Bhd and Ascentland Sdn Bhd before assuming Abrar’s listing status.
  
  Therefore, what would the outlook be like for OilCorp once it takes over Abrar's listing status?
  
  Says an analyst from AmSecurities: “As the oil and gas industry in Malaysia is still growing, there is no shortage of fabrication jobs. We estimate that there is a total of some RM1.2 billion worth of jobs for fabrication of jackets and topsides in 2004 with another RM1.7 billion of onshore oil and gas projects,”
  
  What is interesting to note is that OilCorp gets many repeat orders from some of its big clients such as Petronas group of companies and Fluor Daniels International (M) Sdn Bhd.
  
  Going forward, with estimated engineering and procurement (E&P) of RM5.21 billion spent by Petronas Carigali Sdn Bhd in 2003, OilCorp does see itself as a beneficiary. After all, Petronas has recently reaffirmed its commitment to nurture local oil and gas service providers.
  
  Between 1998 and to date, the group has completed approximately 30 oil and gas and semiconductor projects on or ahead of schedule with recognition from clients.
  
  Its biggest project to date is a wafer fabrication project for Silterra Malaysia Sdn Bhd worth RM60 million. Its other notable clients include Malaysia Shipyard and Engineering Sdn Bhd and ESSO Production Malaysia Inc.
  
  “Currently, we have a market share of approximately 20 per cent in the on shore division, I believe we can increase this portion once we venture into the regional and international market,” says Ng.
  
  AmSecurities likes OilCorp because it is one of the few domestic players in the highly specialised field of provision of engineering, procurement, construction and commissioning (EPCC) services related to the oil and gas industry.
  
  OilCorp currently has jobs in hand worth RM100.3 million. Over the last five years, OilCorp has completed various jobs totalling RM243 million.
  
  Also, due to the specialised nature of many of the jobs handled by OilCorp, the company enjoys relatively lucrative margins. The analyst from AmSecurities has a group pre-tax margin forecast of 18.7 per cent for financial year (FY) 2003 and 12.7 per cent for FY04.
  
  Currently, OilCorp’s subsidiary, Oil-Line Engineering and Associates Sdn Bhd (Oil-Line), is exploring projects in Brunei. It is also bidding for jobs in Indonesia, Singapore and Vietnam.
  
  “OilCorp is planning to step up marketing efforts for the international and regional market to increase the business network in various countries of interest,” says Ng.
  
  Ng feels that his company's edge lies in its pool of skilled engineers available onshore and offshore. These are specialists who can be sourced both locally and regionally.
  
  “We have an added advantage in our 22-hectare one-stop integrated fabrication yard in Pulau Indah, Selangor. That will enable us to participate on more oil and gas projects,” says Ng.
  
  Upon the completion of this RM40 million project, it would be able to actively become one of the local players as fabricators of offshore structure and modules as well as opportunities to extend its business into shipbuilding and repairs, and also building power barges in the long term. This will help redistribute the business focus from onshore to both onshore and offshore.
  
  At the moment, Ng says that there are already many competitors in the onshore division. He feels that the Pulau Indah fabrication yard will act as a catalyst to kick off the company's offshore activities.
  
  The analyst, however, is slightly concerned with the poor visibility and high volatility of OilCorp's earnings. Currently, the nature of many of the jobs secured or tendered by OilCorp are very short term in duration. This puts the company in risk as the company may be exposed to fluctuations in its revenue stream if it does not secure new or similar jobs.
  
  In terms of revenue contribution, oil and gas contributes 80 to 90 per cent while property contributes the remaining 10-20 per cent.
  
  Its property development and resort operation division is represented by Ascentland, whose main business activity is the development of a first-of-its-kind in the country concept of a 9.2 hectare water paradise known as PD Tiara Bay Resort in Port Dickson. It is a freehold mixed development of residential, commercial and water theme park.
  
  Upon completion in early 2005, the project will comprise a man-made beach paradise with six Olympic-sized swimming pools, a water theme park with interactive water play systems and five-star resort facilities. The residential development will consist of more than 900 apartments.
  
  OilCorp group posted a proforma turnover of RM38.9 million for 2001. Last year, the proforma turnover amounted to RM79.5 million and Oilcorp is forecasting a proforma increase to RM120 million in December 2003. Consolidated profit after tax is forecasted at RM7.49 million. Net gearing for the group is around 0.4 times.
  
  At an offer price of RM1.10 per share, OilCorp would be one of the cheapest oil and gas companies in terms of price earnings ratio. The analyst from AmSecurities has a fair value of RM1.47 for the stock.

Back in 2004, the company tried to do a 1 for 2 stock split. However, it was rejected. See here

• We refer to the announcement dated 28 July 2004 where it was stated that Bursa Malaysia Securities Berhad ("Bursa Securities"), vide its letter dated 27 July 2004, did not approve the Proposed Share Split and the application for waiver for non-compliance with the Listing Requirements.

Sep 9th 2004.

• Thursday September 9, 2004
  Oilcorp bids for RM1b projects
  
  OILCORP Bhd is bidding for projects worth RM1bil, of which 70% to 80% are within the country, said managing director Sunny Ng.
  
  “We are going all out for oil and gas, petrochemicals and power plant projects so that we can generate recurring income. Oilcorp is aggressive in terms of securing tenders and projects,” he said after the company’s EGM in Shah Alam yesterday.
  
  The group provides engineering, procurement, construction and commissioning (EPCC) services to the oil and gas, petrochemicals, power generation and semiconductor industries.

Bidding for 1 Billion projects! And here's a clip of the Business Times version.

• Oilcorp targets RM1b projects
  By ZAIDI ISHAM ISMAIL
  
  OILCORP Bhd is going all out to secure RM1 billion worth of oil and gas, petrochemical, power plant and shipbuilding projects to ensure a continuous income stream.
  
  Managing director Sunny Ng Huat Tian said that up to 80 per cent of the projects will be locally-based, while the rest will be from overseas.
  
  “Oilcorp is aggressive in terms of securing tenders and projects,” Ng told reporters in Shah Alam, Selangor, yesterday. He declined to give details.

So how was OilCorp doing as a company?

25th Feb 2005. Quarterly rpt on consolidated results for the financial period ended 31/12/2004

It's fiscal year 2004 showed a net profit of some 15 million according to that quarterly earnings.

Not too bad, yes?

However, a month later 29th March 2005, came the bombshell. PRESS RELEASE ISSUED BY SECURITIES COMMISSION

And this was what the press reported.

• Tuesday March 29, 2005
  SC orders Oilcorp to re-state 2003 financial results
  
  THE Securities Commission (SC) has directed Oilcorp Bhd to re-issue its financial statements for the year ended Dec 31, 2003, including the 2002 comparative figures.
  
  The SC said in a statement yesterday the company had failed to comply with Regulation 4 of the Securities Industry Regulations 1999 on its treatment of non-elimination of profits arising from intra-group transactions.
  
  “This treatment is in breach of Financial Reporting Standard (FRS) 127 and has the effect of over-stating the consolidated revenue and profits of Oilcorp,” the commission added.
  
  In addition, Oilcorp had presented certain expenses as “extraordinary” in its income statement in breach of FRS 108.
  
  Consequently, the SC said, the company's presentation of its basic earnings per share before extraordinary items “is inappropriate.”
  
  Oilcorp had reported revenues of RM170.9mil and a net profit of RM15.3mil for 2003. The SC did not say by how much the company should re-state its revenue and earnings.

And reporter Errol Oh from Star Business made an in depth report on it.

• Saturday April 2, 2005
  Oilcorp has a lot to explain
  
  BY ERROL OH
  
  WHEN the Securities Commission (SC) announced last Monday that it had directed Oilcorp Bhd to reissue its 2003 accounts, the stock market's reaction was swift and predictable. The share price dived from that day's closing of 88 sen to 68 sen on Thursday, almost a 23% plunge.
  
  The SC said the move was because Oilcorp's consolidated financial statements had not been prepared in accordance with certain approved accounting standards.
  
  This sort of stern action by the authorities is not an everyday affair, and it spooked the Oilcorp shareholders. No longer sure about what they know about the company, they dumped the stock. Says a corporate sector observer, “How can something like this happen? Compliance with accounting standards is such a fundamental thing.”
  
  It is fundamental, yes, but it is hardly a simple matter. Financial reporting standards and disclosure requirements are increasingly more complex and exacting, and the investing community's scrutiny of the listed companies' accounts is getting more intense.
  
  In such an environment, slip-ups and misjudgements are more likely to occur. As recent events have shown, this is already happening in corporate Malaysia.
  
  On March 7, Goh Ban Huat Bhd said it had to amend its unaudited fourth-quarter results – thus reporting a net loss instead of a net profit originally – because the management misunderstood the accounting principles relating to the treatment of intra-group sale and purchase of assets.
  
  Days later, Supercomal Technologies Bhd amended its December quarterly results (first released on Feb 28) because of a few mistakes.
  
  In comparison, the Oilcorp case is far more sensational and has a deeper impact. The 2003 accounts had been audited and were tabled in an annual general meeting (AGM) last June. Now, the management must face the shareholders again, this time with the restated accounts and there may well be some hostility.
  
  Says SC deputy chief executive Datuk Zarinah Anwar, “They have to convene a general meeting specially to pass the new accounts, which means that the shareholders will know that the original accounts were false. This is where we expect shareholders to come out and take action.”
  
  There will indeed be a lot of explaining to do. OilCorp group managing director Sunny Ng did not return BizWeek's call. The company is expected to make an announcement through Bursa Malaysia this week, detailing the changes to its financial statements, and the reasons and effects.
  
  According to the SC statement, Oilcorp's 2003 accounts have two problems – one regarding profits from transactions between companies in the same group, and the other regarding an extraordinary items.
  
  The regulatory body says the company did not eliminate profits arising from intra-group transactions, which is a breach of Financial Reporting Standard (FRS) 127.
  
  The principle here is that when the accounts of a group of companies are consolidated, profits arising from dealings between companies within the group should be taken out because this is essentially money going from the left pocket to the right pocket.
  
  The SC points out that the non-elimination of the profits has the effect of overstating Oilcorp's consolidated revenue and profits. Insiders say the amount involved is a few million ringgit.
  
  What is interesting about this breach is that it is usually impossible to detect just from reading the published accounts. This indicates that the SC has been studying the Oilcorp case for some time and had been talking to the management.
  
  Here is an example of the work of the SC's market surveillance unit. Says commission chairman Datuk Md Nor Yusof, “It's more of a quiet, in-depth and behind-the-scenes study.”
  
  The probe may have been low-profile, but SC's follow-up on the outcome is meant to make people sit up and take notice. The press release and the directive to Oilcorp are clearly designed to strike fear and to serve as a warning to the management of listed companies.
  
  However, this tough approach does not address the problem that accounting standards are sometimes subject to interpretation.
  
  According to those familiar with the Oilcorp case, the bigger issue, by far, with the 2003 accounts is the treatment of the extraordinary items. And company insiders insist that this is not a clear-cut issue.
  
  Says the SC in its statement, “Oilcorp had also classified and presented certain expenses as Extraordinary in the income statement in breach of FRS 108. Consequently, the presentation of the company's Basic earnings per share before Extraordinary Items is inappropriate pursuant to FRS 133.”
  
  In the annual report, the income statement includes extraordinary items amounting to almost RM38mil. These refer to the write-off of “one-off corporate costs pursuant to corporate and restructuring scheme for transfer of listing status”.
  
  As the white knight for PN4 company Abrar Corp Bhd, Oilcorp was listed in place of Abrar in August 2003. According to insiders, of the RM38mil, RM35mil represented the listing premium of Abrar , that is, the price for Abrar's listing status.
  
  If the extraordinary items were reclassified, Oilcorp's operating profit of RM20.9mil for 2003 would become an operating loss. However, the restatement is not expected to alter the bottom line which is a net loss of RM25.6mil.
  
  Oilcorp's stand is that the expense has been correctly treated as an extraordinary item. Obviously, the SC has a different take on this. In this difference of opinions, the accounting standards may not be of much help.
  
  FRS 108 (titled “Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies”) prescribes the classification, disclosure and accounting treatment of certain items in the income statement.
  
  It defines extraordinary items as “income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly”.
  
  At the same time, FRS 108 says only on rare occasions does an event or transaction give rise to an extraordinary item. “It is possible to view such items as being external to managerial control and exhibiting a high degree of abnormality,” it adds.
  
  Says an official of an accounting body, “I tend to believe that there is no such thing as an extraordinary item. However, infrequent or unusual the item, it affects the company anyway.”
  
  This reflects the thinking in the global accounting fraternity. Beginning this year, the International Accounting Standards Board bars the separate classification of extraordinary items in the income statement.
  
  Nevertheless, at the time when Oilcorp prepared its 2003 accounts, the accounting standards still allowed extraordinary items. That may not matter anymore. The management has said it would comply with the SC's directive, which presumably means that it is no longer contesting the commission's interpretation of the standards.
  
  What is left now is for Oilcorp to convince the stock market that the reissue of the accounts is the result of honest mistakes. To some observers, the SC has struck a blow for market integrity and investor protection. The wisest way for Oilcorp to respond is to be transparent and to learn from the experience.

A less than transparent company. Don't you wonder about the earlier press statements about the billion dollar oil and gas projects it was bidding for?

So OilCorp restated its earnings.

• Tuesday April 26, 2005
  Oilcorp re-states 2003 financial results
  
  OILCORP Bhd has re-stated its financial results for the year ended Dec 31, 2003 to show a loss after tax of RM28.6mil instead of a profit after tax of RM14.7mil as reported previously.
  
  It told Bursa Malaysia yesterday that the Securities Commission (SC) reviewed its financial statements and noted the following reporting issues:
  
  . Non-elimination of certain intra group transactions;
  
  . Presentation of extraordinary items; and
  
  . Presentation of loss per share.
  
  The company said it has been in liaison with the SC and external auditors to resolve the issues.
  Other figures that Oilcorp have now re-stated include net loss, which should be RM29.6mil instead of a loss of RM25.6mil and loss per share of 31 sen instead of 26 sen.

Makes one wonder about OilCorp, yes?

But then incredibly, a change of 'fortune'.

10/10/2005. Offer to Lead the Formation of the Konsortium Perikanan Nasional Berhad (''KPNB'') by the Ministry of Agriculture and Agro-Based Industry (''MOA'')

And of course the share soared.

• Tuesday October 11, 2005
  
  Oilcorp to lead national fisheries project
  
  BY C.S. TAN
  
  SHARES in Oilcorp Bhd, which provides engineering services for the oil and gas industry, were actively traded as they rose 11 sen or 12% to RM1 yesterday. Some 12.6 million shares changed hands.
  
  This followed a rise of 29 sen in its share price last week.
  
  The company, in reply to a query from Bursa Malaysia on the unusual market activity, said it was not aware of any activity that may have contributed to that, other than a letter of offer from the government to lead the national fisheries project.
  
  Oilcorp said the letter from the Agriculture and Agro-based Industry Ministry was received last Saturday.
  
  The ministry offered Oilcorp to become a lead consortium member to spearhead the national fisheries project through Konsortium Perikanan Nasional Bhd or National Fisheries Consortium Bhd.

And what about the BILLION DOLLAR oil and gas projects? No more oil? Only fish? Fishy?

On 16th Feb 2007, OilCorp proposes yet again another share split! See the announcement here

An truly incredible nonsensical 1 for 10 share split!

What does the stock split do? Nothing? It does not change the value of the company and it definately does not improve the fundamentals of the company. It's simply a pathetic corporate strategy to attract investor!

And the most incredible thing was OilCorp was trading at 1.33!

Split the stock so that it can trade at 13 sen????

Truly nonsensical!

Yesterday, there was an news report on OilCorp's property development! Yes OilCorp has ventures into the property business too! (Where's the Oil dude?).

• D'Tiara's revenue may hit RM200m in 4 years
  By Roziana Hamsawi
  roziana@nstp.com.my
  
  July 16 2007
  
  OIL and gas support specialist Oilcorp Bhd expects its property subsidiary D'Tiara Corp Sdn Bhd's revenue to increase fivefold to RM200 million in four years.
  
  D'Tiara, which posted a revenue of some RM27 million last year, is confident that from 2011 onwards its revenue would be between RM150 million and RM200 million.
  
  D'Tiara is in discussion for a listing on the Alternative Investment Market (AIM) of the London Stock Exchange to raise funds for the projects.

LOL!!!

Same style. Optimistic projects and now even listing for AIM!

Wah! So good eh?

So how's OilCorp doing as a company?

25/5/2007 Quarterly rpt on consolidated results for the financial period ended 31/3/2007

Only a net profit of 5 million! Whatever happened to the billion dollar oil and gas projects and the fishery projects?

And if you read the balance sheet attached in the above quarterly earnings, OilCorp has only 7.5 million in its piggy bank, with a total loans of 247.248 million!

Does it look like a sound fundamental company to invest in???

Disclaimer:

Oh yeah.. in a hot share market, any share can go up! :P

Buffett Time!

One of the best compilation ever made on Warren Buffett: The Warren Buffett Page

• Miscellaneuos Information
• Buffett on various topics
• Biography of Buffett
• Audio & Video Files
• Articles from other sources
• Articles on Buffett (Fortune)
• News related to Buffett
• Quotes
• Interviews & Lectures
• Other Letters & Emails
• Articles by Warren Buffett
• Shareholder Meeting Notes
• BRK - Other Information
• Letters to Shareholders
• Letters to Partners

Silver Bird Again

Saw the following set of comments made by CIMB on Silve rBird.

• No greenlight from the SC. The Securities Commission (SC) has rejected Silver Bird Group’s (SBG) proposal for a two-call rights issue with warrants. The SC's decision was based on the second call at RM0.15/share which the company proposed to capitalise from the share premium reserve of RM18m, resulting in an issue of securities that are not backed by assets. The SC rejected the proposal as SBG’s share premium reserve of RM23.4m is exhausted by the group’s accumulated losses of RM46m as at 30 Apr 07. SBG is relooking at the proposal with a view to making changes.
  
  • More potential earnings dilution. This proposal which would raise RM27m-43m proceeds came less than eight months after completion of another fundraising exercise. In Oct 06, SBG completed the sale-and-leaseback of its Shah Alam premises, which include a factory and an office building, for RM92m. Previous fundraising exercises included: 1) issuance of ICULS and RCULS to finance the RM47m acquisition of Stanson in FY10/04, 2) placement of 19m new shares at RM0.96/share in FY05, and 3) issuance of 105.3m warrants in FY05. These exercises have expanded SBC’s fully enlarged share base to 323.7m vs. a basic share base of 210.6m. The proposal rights issue with warrants would expand the fully diluted share base further to 493.7m (Figure 2).
  
  • SELL reiterated. We maintain our forecasts and target price of RM0.17, pegged to an unchanged forward P/E of 8x and based on the current fully diluted share base of 323.7m. SBG remains a SELL. For exposure to F&B, we recommend Dutch Lady (DLM MK, Buy), which is both a growth and dividend play.

Past postings on Silver Bird:

• Silver Bird
• Silver Bird: Part II
• Silver Bird: Part III
• Silver Bird: Part IV
• Silver Bird: Part V
• Silver Bird: Part VI
• Silver Bird: Part VII
• That Silver Birdie..
• Silver Bird: Part VIII
• Shocking Silver Bird?
• Regarding Silver Bird Yet Again
• Silver Bird?
• That 'Roti' Man
• Silver Bird says confident of turning around
  

Regarding Ingress Corporation Again

Here's an update to the posting made on Ingress Corporation this morning.

Saw this Dow Jones newsclip.

• 0152 GMT [Dow Jones] Ingress Corp (7112.KU) +8.7% at MYR1.13 in heavy trade, may extend gains to as high as MYR1.25 in coming days; company has secured more than MYR400 million in orders from now till 2012 from automotive players in Thailand and Indonesia. Ingress also hopeful of announcing similar contracts before year-end, according to BT. "Buying momentum will be sustained if Ingress manages to secure any one of the of the jobs it's currently bidding for in power, engineering and rail electrification projects," dealer adds. (VGB)

Gaining 8.7% on news that it has secured myr400 million in orders?

LOL! My, what about the company's ability to turn the orders into profits?

Let me share something about its PER (power, engineering and rail projects).

1. fy 2007. Quarterly rpt on consolidated results for the financial period ended 31/1/2007

pg 16.
Power Engineering (PER) registered a loss before tax of RM7.58 million while rail electrification associate contributed RM6.76 million to result in an overall PER loss before tax of RM0.82 million.

2. fy 2006. Quarterly rpt on consolidated results for the financial period ended 31/1/2006

There was a 50% increase in revenue for PER. Both PER and rail electrification associate benefited from the satisfactory progress of the projects undertaken. (Ingress PER had a profit of 1.3 million)

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

PER recorded improved revenue of 27% from preceding quarter but did not achieve favourable result due to losses in the existing substation and transmission works as mentioned above. (Ingress PER recorded losses of 3.567 million)

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

PER and associate company, Balfour Beatty Rail Sdn. Bhd., experienced slowdown in progress. Despite the favorable increase in revenue from preceding quarter, PER had to contend with the extra costs associated with the additional time to complete the projects and the unfavorable foreign exchange on the Euro. (Ingress PER made a profit 69k for the fiscal year)

5. fy 2003. Quarterly rpt on consolidated results for the financial period ended 31/1/2003

Despite the high turnover, PER had to content with costs related to delays for which possible compensation has not been considered. (Ingress PER made 417k for the fiscal year)

So Ingress's PER (power, engineering and rail projects) business, it's rather not too exciting eh? And if you total the last 5 year's performance, its PER division simply lost money!

NextNation III

Posted previously: NextNation II

And of course their receivables concern again should not be discounted as mentioned earlier. Frankly I do not see what the receivables should be so high!

Flashback to what was written earlier ( NextNation )

• The biggest concern for me is that NextNation has an issue with its receivables and because of this, one do not really see wealth being generated in the company's cash flows despite its very impressive earnings.

On today's Star Business, there was a huge write on NextNation and its receivables: Nextnation receivables surge to RM67m

• Chief executive officer Tey Por Yee, however, says the amount is not alarming.
  
  “The large receivables are mainly due to long collection period, which is about 200 days.
  
  “We are trying to reduce it to below 200 days,” Tey told StarBiz.
  
  He said the growing receivables were not really a concern, given the company’s cash flow was not straggled by the slow payment.
  
  “It is actually a norm in the telco-related industry, which has a long collection period.
  
  “The industry average in the region is about nine months,” said Tey, who is also managing director

Here's my thinking.

How could the receivables not be a problem? The trade receivables is at 67 million. A year ago it was a mere 39.6 million.

Note the following sentence.

• Yesterday, the company announced to Bursa Malaysia its wholly-owned subsidiary, Nextnation Network Sdn Bhd, had accepted a credit facility of up to RM10mil granted by Malaysia Debt Ventures Bhd for overseas expansion.

And if the receivables is not a problem, why accept a credit facility of 10 million??

And if it's a norm that the teclo-related industry has such a terribly long collection period, then this looks like a rather rotten industry to be invested in!

Just my ramblings!

Ingress Corporation

Published on the Business Times: Ingress gets RM400m overseas auto parts orders

My very first impression was that this company was doing fantastic. Huge orders, great potential. Perhaps a potential investment?

• AUTO parts producer Ingress Corp Bhd has secured more than RM400 million of orders from now till 2012 from automotive players in Thailand and Indonesia, and could expect more major contracts by the year-end.
  
  Ingress also hopes to be big in power engineering and rail electrification operations, having submitted a bid for electrification jobs of the Ipoh-Padang Besar double-tracking project awarded by the Government to the Gamuda-MMC consortium.
  
  The company also plans to vie for the same sub-works under the double-tracking project linking Seremban to Gemas that is given to Ircon of India and the KL-Singapore high-speed train proposed by the YTL group, senior company executives said.

The news article then continues:

• Executive vice-chairman Datuk Rameli Musa said Ingress had received "lots of requests" for quotations of various auto parts from some global players.
  
  "The (quotations) value is huge. We expect some (orders) to materialise in the next few months. We have received visits to our plants in Thailand and Malaysia from Toyota, BMW and General Motors," Rameli told reporters after Ingress' annual general meeting in Subang Jaya yesterday.
  
  Ingress expects strong revenue growth for the year ending January 2008 on continued sterling showing by its Thai operations in particular.
  
  "We have done well in terms of revenue growth last year and are confident that this will be sustained in the next few years, despite the global downward trend especially in Southeast Asia.
  
  "There's a drop in the Thai domestic market but this is compensated by its exports," Rameli said.

Getting interesting, eh?

• Ingress expects strong revenue growth for the year ending January 2008 on continued sterling showing by its Thai operations in particular.
  
  "We have done well in terms of revenue growth last year and are confident that this will be sustained in the next few years, despite the global downward trend especially in Southeast Asia.
  
  "There's a drop in the Thai domestic market but this is compensated by its exports," Rameli said.
  
  Ingress' revenue soared to RM358.77 million in the year ended January 2007 from RM289.71 million revenue previously. Net profit stood at RM2.3 million in the last financial year.
  
  Ingress gets slightly over 80 per cent of revenue from automotive parts manufacturing, while the balance comes from the PER division. The Malaysian operations contributed 46.5 per cent to Ingress' ACM turnover last year, Thailand's accounted for 51.3 per cent, while Indonesia made up the balance of 2.2 per cent.
  
  This year, company executives still expect a large part of the revenue pie to come from the Thailand operations, given the consistently strong orders from the likes of Honda, Mazda, Ford and Mitsubishi.

Hmm.. this part got me thinking: "Ingress' revenue soared to RM358.77 million in the year ended January 2007 from RM289.71 million revenue previously. Net profit stood at RM2.3 million in the last financial year."

If revenue has been soaring, why is the net profit only 2.3 million?

It's like despite all the optimistism mentioned in the news article, a net profit of only 2.3 million sounds rather dismal.

So I decided to do some checking. Time to check out Ingress earnings report on Bursa website.

Let's look for year ended Jan 2007.

Quarterly rpt on consolidated results for the financial period ended 31/1/2007

Ok. revenue was at 358 million BUT did you note the whopping loss of 11 million for the financial quarter?

And if you open up the pdf file attached to the earnings, page 16, the company said the following:

• The Group recorded a 32% decrease in revenue in comparison to the immediate preceding quarter. Loss before tax for the quarter amounted to RM11.34 million in comparison to the profit before tax of RM8.59 million in the immediate preceding quarter.
  
  Overall ACM recorded a flat growth in revenue. ACM Malaysia ecorded a 3% decrease in revenue where most models recorded decreases in volume except for Perodua Myvi model.
  
  ACM Thailand registered a 6% increase in revenue where new models recorded increases in volume.
  
  For PER, revenue decreased by 80% due to a major project which was completed in the immediate preceding quarter.
  
  For units under Others, revenue decreased by 89%.

Err... how come? Why the earnings notes defers so much than what's published in the media?

And here is the latest quarterly earnings reported last month: Quarterly rpt on consolidated results for the financial period ended 30/4/2007. Ingress reported a loss of 436k. (Note the decreasing revenue!)

How?

Don't you agree that it's rather misleading what's published on our financial news?

Some Oil reminders

I would like to highlight the crude oil issue as reminded by FSO Market Commentator, Tony Allison, in his market wrap, The Fundamental Things Apply...as time goes by

• An Insatiable Thirst
  
  On any day of the week, those of us in Southern California can drive to the Port of Long Beach and see oil tankers lined up to the horizon and beyond, bringing in oil and refined products from all over the world. We as a nation will not and cannot stop using oil, and $70 per barrel is not slowing down demand. The US used to export oil to the rest of the world, but now we must import over 60% of our energy needs. That number will go higher with increasing energy demand, and with domestic supply steadily decreasing since the peak in 1970.
  
  Even if Wall Street insists on stripping out energy and food costs from the “core” CPI data, higher energy costs are seeping into every aspect of the economy. Our insatiable thirst for oil and our increasing energy dependence will add to our inflationary burdens. Inflation takes a long time to become embedded into the system. Once inflation awareness and expectations set in among the public, it will take a long time to get rid of it.
  
  In the years and decades to come, oil will be in ever-greater demand around the world. Supply will continue to be found, but the cost of getting the oil to market will get higher as companies and countries look to deep sea drilling, tar sands and oil shale production. All these methods are extremely expensive in terms of labor, materials and energy expended. Oil will always be available, but the cost of producing a barrel of oil, transporting it, and refining it will likely continue to rise. In addition, the supply of light, sweet crude is declining rapidly. Heavy sour crude will be the substitute, but it’s harder to extract and more expensive to refine. Many refineries are not equipped to refine heavy crude at any price. New technology will help, but labor and material costs are rising in the race to bring oil to market as quickly as possible. The demand for oil will continue unabated, given rapid Chinese and Indian industrialization, but future supply will likely arrive with a higher price tag. From an investment perspective, capital will continue to flow to this critical sector. The best companies, with good reserves in stable locations, will be enormously profitable in the years ahead.
  
  In 2002 oil was $20 per barrel. In 2004, $50 per barrel. Now it is $72+ per barrel and demand is still increasing at 2% per year (which exceeds growth in supply). The world is adjusting to a higher cost of energy, but it is functioning like a global tax, which is beginning to bite into US consumers.
  
  In the future, oil will be even more critical to global prosperity, as it will be more and more coveted by every nation on earth, both sellers and buyers. The arrival of Peak Oil will likely be the most critical and defining event of the 21st century. Energy and other tangible assets will form the mirror opposite of the global currency glut, as the particularly debased currencies become less and less coveted, as time goes by.

And in yesterday markets, Mr. Allison notes:

• Crude-oil futures fell Monday, but closed above $72 a barrel, as traders locked in profit from recent gains and shrugged off a bullish report from the International Energy Agency. Crude for August delivery closed down 62 cents at $72.19 a barrel on the New York Mercantile Exchange.
  
  "No less than the International Energy Agency has given market bulls its endorsement with its latest report, which states that world oil demand will rise faster than expected to 2012 with expected production lags, leading to a supply crunch," said Michael Fitzpatrick, analyst at Man Financial, in a research report. (emphasis added)
  
  There are those fundamentals again. Keep them in mind.