Review Of CME Group

Dedicated to Unker TK again.

CME Group,is listed on Bursa Malaysia Second Board.

Earnings Track Record

As you can see from the table above, CME's earnings has been utterly terrible from 2000-2007.

However, things turned around in an utmost amazing manner for CME. It's simply stunning to say the least.

And the following is the most recent 4 quarters performance from CME.

And as a penny stock, the earnings and the cash per share will simply make one go goo-ga-ga over this stock.

Earnings of 13.801 would equate to an earnings per share of 34 sen and the current net cash balance of 32.371 would equate to an amazing 80.7 sen per share.

And when I blogged about this stock previously, it was only trading at 63 sen!

Yes, the stock did not have the best ever earnings track record but the earnings are showing us that things are turning around in a wonderful manner for CME Group.

So would this be a buy of the century?

Well, if one invests based on numbers and yardsticks, surely one might jump right in, right?

However, how about one understands the business we are investing in?

Like understanding why CME was doing so terribly from 2000-2006 and why the sudden turnaround in 2007. Would the turnaround be sustainable?

The following article posted on the Edge in Dec 2006 helps: 4 Dec 2006: Corporate: CME's fire is back

• Little-known CME Group Bhd has not had much to rejoice about over the past five years. More precisely, its business has seen little activity during this period

Five years? How about 7 years of bad performance?

• The Shah Alam-based company designs and manufactures various types of fire-fighting equipment, including fire engines, aerial access ladders, cranes and fire-fighting and rescue vehicles. So naturally, its main customer is Malaysia's Fire and Rescue Department (FRD). Since 1988, it has sold about 500 fire and rescue vehicles, about 408 units of which were to the department. CME's other clients are port and airport operators, oil and gas companies and the Ministry of Defence.

So CME is a fire-fighting equipment specialist. And it's niche was to supply to Malaysia's Fire and Rescue Department (FRD).

• Hence, when the FRD did not place any orders in the last four years, CME's activities slowed significantly, with revenue falling from RM50 million in 2002 to only RM2 million in 2004. By keeping its operation costs low, CME was able to minimise its losses. For example, it only has 50 full-time staff. From 2002 to 2005, its total net loss was RM10.2 million.

Without any orders the last 4 years equated to a terrible performance the past 7 years (if you look at the tables above, CME performed terribly from 2000-2006)

• However, things have begun to look up for the company. Its chief operating officer Datuk Lim Soo Kok says the FRD placed the largest order ever with CME on Oct 17, after it was allocated some RM500 million under the Ninth Malaysia Plan to purchase fire and rescue vehicles and equipment. The RM211.20 million contract involves the delivery of 200 fire and rescue vehicles over the next 23 months. "Our business is cyclical because it depends on orders from the FRD," Lim tells The Edge.

This is very interesting.

With this new order, CME fortunes turned around drastically.

There are two things for me.

One, the remaining contract is to supply 200 fire and rescue vehicles over the next 23 months. A contract value of rm211 million. Which means the next year or so, things will still be rosy for CME. However, what's next then for CME? Surely this concern has to be addressed, right?

Secondly, what do you think of such business? Enduring 7 years is one mighty task. Most other companies would probably have folded but CME did not. Credit to them here. Yes, on one hand, this is one bumper year for CME and so might be the next. However, it's not that profitable is it? Consider these numbers. From 1999-2007, total earnings for CME in this period is only 3.134 million! And if you minus out fiscal year 1999, CME would still be losing money in this decade. CME lost 1.996 million in this period.

So, if you consider from an investing point of view, surely you would be concerned, yes?

And last but not least I noticed that the stock jumped an incredible 22 sen. Closed at 85 sen. WOW!

But, hang on a minute here. Look at it below.

Volume done was only 1 miserable lot. And volume done in this 10 trading period was also 1 miserable lot!

Yup, this is one hell of an illiquid stock. A dead stock.

And last but not least, it has the nonsensical 1 into 10 Stock Split!!

How?

Do you really want to invest in a stock like this?