Peter Lynch Lyrics: Beware the Whisper Stock

The following notes was taken from a forum posting. If not mistaken the original writings were posted at Wallstraits.com.

Lynch Lyrics

Beware the Whisper Stock

"I get calls from people who recommend solid companies for Magellan, and then, usually after they've lowered their voices as if to confide something personal, they add: 'There's this great stock I want to tell you about. It's too small for your fund, but you ought to look at it for your own account. It's a fascinating idea, and it could be a big winner'."

"These are the longshots, also known as whisper stocks, and the whiz-bang stories. They probably reach your neighborhood about the same time they reach mine: the company that sells papaya juice derivative as a cure for slipped-disc pain (Smith Labs); jungle remedies in general; high-tech stuff; monoclonal antibodies extracted from cows (Bioresponse); various miracle additives; and energy breakthroughs that violate the laws of physics. Often the whisper companies are on the brink of solving the latest national problem: the oil shortage, drug addiction, AIDS. The solution is either (a) very imaginative, or (b) impressively complicated."

"My favorite is KMS Industries, which, according to the 1980-82 annual reports, was engaged in 'amorphous silicon photovoltaics', in 1984 was emphasizing the 'video multiplexer' and 'optical pins', by 1985 had settled on 'material processing using chemically driven spherical implosions', and by 1986 was hard at work on the 'inertial confinement fusion program', 'laser-initiated shock compression', and 'visual immunodiagnostic assays'. The stock fell from $40 to $2.50 during this period. Only an eight-for-one reverse split kept it from becoming a penny stock."

"What all the longshots had in common besides the fact that you lost money on them was that the great story had no substance. That's the essence of a whisper stock. The stockpicker is relieved of the burden of checking earnings and so forth because usually there are no earnings. Understanding the p/e ratio is no problem because there is no p/e ratio. But there's no shortage of microscopes, Ph.D.'s high hopes, and cash from the stock sale."

"What I try to remind myself (and obviously I'm not always successful) is that if the prospects are so phenomenal, then this will be a fine investment next year and the year after that. Why not put off buying the stock until later, when the company has established a record? Wait for the earnings. You can get tenbaggers in companies that have already proven themselves. When in doubt, tune in later."

SEC Extending Short Selling On Financial Stocks!!

Yes! This is what they are doing!

• SEC Extends Short-Selling Rules
  
  The Securities and Exchange Commission voted to extend the temporary rules it put in place to restrict short-selling of a handful of financial stocks.
  
  The SEC commissioners didn't take additional steps opposed by Wall Street to expand the number of stocks affected by the rules or make them permanent.
  
  The temporary rules were set to expire Tuesday, and the SEC extended the order on the 19 stocks until Aug. 12. It won't be extended beyond then.
  
  .......
  
  So far, the rules have had mixed results. Shares of the 19 financial firms targeted by the SEC soared after the rules were announced, but some, such as Merrill Lynch & Co., Fannie Mae and Lehman Brothers Holdings Inc., have fallen again, approaching their previous lows. That undercuts the arguments that short-sellers drove the decline of the shares. SEC economists are studying the effects of the emergency action on those stocks.
  
  SEC chairman Christopher Cox said he looks forward to the analysis and said he believes the emergency order "helped to control illegitimate rumor-mongering and other techniques of market manipulation."

Totally incredible!

By placing restriction on short selling on these shares, isn't this a form of manipulation too?

Where is the free market?

Regarding The Plunge Of Axis!!

Posted on Mootaktrade: The Plunge Of Axis

The plunge was incredible.

This stock was trading around 2.00 on 11th July 2008.

It closed yesterday at 0.35!

And what's most worrying is the following announcement on Bursa website. AXIS INCORPORATION BERHAD (“Axis” or the “Company”) - Submission of the Audited Financial Statements for the financial year ended 31 March 2008 (hereinafter referred to as “AFS”)

• The Board of Directors of Axis (“Board”) wishes to announce that at the Board of Directors’ meeting held on 30 July 2008 at 6.40 p.m., the Board has unanimously resolved that the Company would not be able to submit its AFS by the deadline on 31 July 2008 as a result of material unresolved issues raised by our external auditors, Messrs Horwath during the Audit Committee meeting held at 3.35 p.m. on 30 July 2008. The Management of Axis requires time to resolve these issues.
  
  The Audit Committee has proposed and the Board has approved the need to appoint an independent firm of auditors to carry out a special audit immediately to address these issues.
  
  The Company will make necessary announcements upon the outcome of the special audit.
  
  This announcement is dated 30 July 2008.

Accounting problems??????

And what's even more worrying was their answer to Bursa regarding the plunge of the stock. AXIS INCORPORATION BERHAD (“the Company”) - Unusual Market Activity

• We refer to Bursa Malaysia Securities Berhad (“Bursa Securities”) letter dated 30 July 2008 in relation to the unusual market activity of the Company’s shares.
  
  Pursuant to Paragraph 9.11 of the Listing Requirements of Bursa Securities, the Board of Directors of the Company wishes to announce that to the best of their knowledge, they are not aware of any of the following that may have contributed to the unusual market activity:
  
  1) Any material corporate development relating to the Group’s business and affairs not previously announced;
  
  2) Any rumours or report concerning the business and affairs of the Group; and
  
  2) Any other reasons to account for the unusual market activity.
  
  The Company will make the necessary announcement to Bursa Securities of any material information should it falls under the Listing Requirements of Bursa Securities in particular Paragraph 9.03 on disclosure of material information.
  
  This announcement is dated 30 July 2008.

How can they be not aware????????

Here is the link to their most recent quarterly earnings report: Quarterly rpt on consolidated results for the financial period ended 31/3/2008

Check out the rather godzilla sized trade receivables!

Incredible!

Part II: The Story Of Garment Player Wanting To Be Oil And Gas Player

Blogged recently: Garment Maker Wants to Turn Into An Oil & Gas Player?

Yes, this is the story of Baneng Holdings. Baneng Holdings, the garment maker wanting to transform itself to an oil and gas player!

Now due to this incredible tale, the stock soared. The chart below on the date of the blog was posted show how everyone on the Baneng tale flew up, up and away.With a paid-up of RM500,000, Lim said, Atmos has had limited resources and needed to tap onto Baneng's access to the capital market as a public-listed company to raise funds for its projects.

The stock closed yesterday at 0.70.

Which was an incredible performance for a stock. It even outperformed the KLCI and many other stocks.

This morning, Business Times carried another article on it, Baneng moves into oil sector with Atmos buy

I was shocked to see that headlines. I had stated the terribly weak balance sheet for Baneng Holdings on my earlier blog posting. Garment Maker Wants to Turn Into An Oil & Gas Player?

• See their cash balance of only 4.914 million? And long term borrowings totals 36.486 million and short term borrowings is at a whopping 98.944 million!

So I thought they finally pulled something amazing off when I saw the headlines. Perhaps they are getting a massive loan or perhaps it's something where an oil and gas player pumps their business into Baneng, yeah a reverse listing of some sort.
So I was much eager to read it's fairy tale.

• GARMENT maker Baneng Holdings Bhd has bought an engineering and fabrication company for RM800,000 to diversify into the oil and gas sector.

Huh? Only rm800,000 for this company? I thought it was a massive purchase? So where's the justification for the stock's huge run up then?

• Executive director Albert Lim Meng Hong said Atmos Engineering Sdn Bhd, the firm that it is buying, has secured jobs worth a combined RM20 million from various oil majors, which will bolster Baneng's earnings. Atmos is also bidding for contracts that are worth up to RM200 million in total, he said.

Wahh! They bought a company for rm800,000? But the company got rm20 million of job order???? Wow? Am I reading it correctly?
Why is Atmos Engineering selling their company so cheap? Why?
The last sentence... bidding for contracts? Ahem. Bidding for contracts just means bidding for contracts, yes? There isn't much value till the contracts are won and after winning, the jobs from the contracts need to be translated to earnings!

Huh? Huh? Ok, so Atmos has limited resources but yet it can secure jobs worth rm20 million! WOW! Incredible story or what!

• He did not elaborate on Baneng's plan to raise money, but said that it is talking to bankers.

And this is so incredible. Obviously Baneng would need to raise money big time too!

• "Atmos will contribute to our earnings from next year. We are still negotiating and there will be more acquisitions to come," he told reporters after signing with Atmos in Kuala Lumpur yesterday.
  
  Baneng will still retain its core business of manufacturing, knitting and dyeing of fabrics and other apparels, he said.
  
  "We will position ourselves in garment manufacturing and oil and gas for now, but will still look for any other businesses that can bring in more income," he added.
  
  Baneng has been on the lookout for strategic purchases in the last three years, he added.
  
  Shares of Baneng have risen 59.1 per cent this year, a stark contrast to the 19.7 per cent fall in the Kuala Lumpur Composite Index over the same period.
  
  The usually thinly-traded stock has also seen some active transactions recently.
  
  Baneng closed 1.4 per cent lower at 70 sen yesterday.

LOL!
Loved the second last line. "The usually thinly-traded stock has also seen some active transactions recently. " So let me attempt to interpret that sentence. This stock used to be thinly-traded (tak-laku or pak-woo-ying?) but lately the stock is moving up and the trading is rather active lately. Hmm.. is it because of this wonderful tale? I wonder.

Update On EcoFirst

Blogged last year: EcoFirst (Kumpulan Emas) and Update on EcoFirst.

Ecofirst announced its earnings tonight. It wasn't nice at all. It lost some 24 million for the current quarter. Total fiscal year loss totals more than 35 million!

And the balance sheet was extremely weak!

Peter Lynch Lyrics: Earnings, Earnings, Earnings!

The following notes was taken from a forum posting. If not mistaken the original writings were posted at Wallstraits.com.

Lynch Lyrics

Earnings, Earnings, Earnings!

"What you're asking here is what makes a company valuable, and why it will be more valuable tomorrow than it is today. There are many theories, but to me, it always comes down to earnings and assets. Especially earnings. Sometimes it takes years for the stock price to catch up to a company's value, and the down periods last so long that investors begin to doubt that will ever happen. But value always wins out-- or at least in enough cases that it's worthwhile to believe it."

"Analyzing a company's stock on the basis of earnings and assets is no different from analyzing a local laundromat, drugstore, or apartment building that you might want to buy. Although it's easy to forget sometimes, a share of stock is not a lottery ticket. It's part ownership of a business. Here's another way of thinking about earnings and assets. If you were a stock, your earnings and assets would determine how much an investor would be willing to pay for a percentage of your action. Evaluating yourself as you might evaluate General Motors is an instructive exercise, and it helps you get the hang of this phase of the investigation."

"Like the earnings line, the p/e ratio is often a useful measure of whether any stock is overpriced, fairly priced, or underpriced relative to a company's money-making potential. The p/e ratio can be thought of as the number of years it will take the company to earn back the amount of your initial investment-- assuming, of course, that the company's earnings stay constant. If you but shares in a company selling at two times earnings (a p/e of 2), you will earn back your initial investment in two years, but in a company selling at 40 times earnings (a p/e of 40) it would take forty years to accomplish the same thing."

"Some bargain hunters believe in buying any and all stocks with low p/e's, but that strategy makes no sense to me. We shouldn't compare apples to oranges. What's a bargain p/e for Dow Chemical isn't necessarily the same as a bargain p/e for Wal-Mart. If you remember nothing else about p/e ratios, remember to avoid stocks with excessively high ones. You'll save yourself a lot of grief and a lot of money if you do. With few exceptions, an extremely high p/e ratio is a handicap to a stock, in the same way that extra weight in the saddle is a handicap to a racehorse."

"There are five basic ways a company can increase earnings: reduce costs; raise prices; expand into new markets; sell more of its product in the old markets; or revitalize, close or otherwise dispose of a losing operation. These are the factors to investigate as you develop the story. If you have an edge, this is where it's going to be most helpful."

Ranhill Privatisation Rumours: What's Up With The Owner Disposing?

Blogged the other day: Ranhill: Our Financial News Being Used To Drive The Stock Higher! and Ranhill Answers: Our Financial News Being Used To Drive The Stock Higher!

Let's recall what has happened so far.

Last week, an incredible story was published on the Business Times suggesting that Ranhill could be taken private by the owners. It was all based on unnamed sources.

I found it hard to believe. Why would the owners be interested in this deal worth some 420 million? Why would they want to take it private when Ranhill is in a nett debt of 2.569 Billion? It simply did not sound rational at all.

And worse still, the article came out with a bunch of unnamed analysts suggesting a 'sum of private parts' valuation technique. I was amazed by such creativity!

And when questioned by Bursa, I posted Ranhill's reply on the second posting, Ranhill Answers: Our Financial News Being Used To Drive The Stock Higher!. All the management could answer to the Bursa query was the following.

• we are constantly exploring opportunities in seeking for any proposals that may contribute to our objectives to enhance and boost our shareholders’ value

It was truly vague.

And less us not forget that the stock soared some 47.9% during these 2 trading days!

And yesterday there was another shocking development.

The owner announced a massive disposal of shares! ( See Changes in Director's Interest (S135) - Hamdan Mohamad )

• Disposed 23/07/2008 29,000,000

Yes, Tan Sri Hamdan Mohamad had disposed some 29 million shares on the 23rd July, a couple of days before that article was published.

So why would Tan Sri Hamdan Mohamad want to take Ranhill Bhd private when he was disposing/reducing his shares?

This wouldn't make sense yes?

And since he was disposing/reducing his shares, why didn't Ranhill Bhd management deny that privatisation rumour? Why?

Peter Lynch Lyrics: Don't invest if you don't understand the story

The following notes was from a forum posting. If not mistaken it was from Wallstraits.com.

Lynch Lyrics

Don't invest if you don't understand the story

"Getting the story on a company is a lot easier if you understand the basic business. That's why I'd rather invest in panty hose than in communications satellites, or in motel chains than in fiber optics. The simpler it is, the better I like it. When somebody says, "Any idiot could run this joint," that's a plus as far as I'm concerned, because sooner or later any idiot probably is going to be running it."

"If it's a choice between owning stock in a fine company with excellent management in a highly competitive and complex industry, or a humdrum company with mediocre management in a simpleminded industry with no competition, I'd take the latter. For one thing, it's easier to follow. During a lifetime of eating donuts or buying tires, I've developed a feel for the product line that I'll never have with laser beams or microprocessors."

"'Any idiot can run this business' is one characteristic of the perfect company, the kind of stock I dream about. You never find the perfect company, but if you can imagine it, then you'll know how to recognize favorable attributes, the most important thirteen of which are as follows:

• 1. It sounds dull--or, even better, ridiculous
• 2. It does something dull
• 3. It does something disagreeable
• 4. It's a spinoff
• 5. The institutions don't own it, and the analysts don't follow it
• 6. The rumors abound: it's involved with toxic waste and/or the Mafia
• 7. There's something depressing about it
• 8. It's a no-growth industry
• 9. It's got a niche
• 10. People have to keep buying it
• 11. It's a user of technology
• 12. The insiders are buyers
• 13. The company is buying back shares
  
  

Bina Puri: Sources Were Spot On!

Amazing!

Truly amazing.

The sources speculation on the news that Bina Puri will win a contract from MRCB were spot on! Bina Puri - The Sources Strikes Yet Again!

Bina Puri just made the following announcement.

• Bina Puri Construction Sdn. Bhd., a wholly-owned subsidiary of Bina Puri Holdings Bhd. has received a letter of award from MRCB Engineering Sdn. Bhd. to undertake the subcontract works for the proposed Eastern Dispersal Link (EDL) Johor Bahru, Johor - design, construct and complete main line bridge, Ramp A, Ramp B, Ramp C and Ramp D at a contract sum of RM293 million. The project is expected to be completed within thirty-three months. With this new award, the current book order of the Group stands at about RM2.0 billion, which will sustain the Group until 2011.
  
  Please note that no directors, substantial shareholders and/or persons connected with them have any interests, direct or indirect, in the above transaction.

Well...

Since the sources were spot on, isn't this INSIDER info?

Why and how were the insider info leaked to the press?

Surely this is not legal, is it?

Did anyone profit from this news leakage directly?

How?

Bina Puri - The Sources Strikes Yet Again!

Published on the Edge. 29-07-2008: Bina Puri close to landing RM290m EDL job

• 29-07-2008: Bina Puri close to landing RM290m EDL job
  By Jose Barrock
  
  KUALA LUMPUR: Bina Puri Holdings Bhd is said to be close to bagging a RM290 million highway construction contract from Malaysian Resources Corp Bhd (MRCB), sources say.
  
  The contract is understood to be a portion of the Eastern Dispersal Link (EDL), the RM980 million highway which will connect the tail-end of the North-South Expressway at Pandan to the Customs, Immigration and Quarantine complex in Tanjung Puteri, Johor Bharu.
  
  Last June, the federal government awarded MRCB a 34-year concession for the design, construction, operation and management, and maintenance of the EDL, which is slated to be a three-lane dual-carriageway, 8.1km road with about 4.4 km elevated.
  
  It is learnt that MRCB would be giving out the letter of award to Bina Puri in the next few days, with an announcement to be made to Bursa Malaysia shortly after.... ( click here for rest of the article )

Oh my gosh!

The sources strikes yet again!

Last year, on June 23rd, I blogged the following, Regarding Bina Puri Article on Star Bizweek (Last year article was truly appalling since the reporter made several misleading statements in that article on Star Bizweek. Total debts were mis-stated making the company appear much healthier financially! - do read that blog posting!)

It's that same reporter.

Apparently now he's writing on the Edge.

Same again to sources yet again!

Sigh!

Just look at the quality of our financial press. It's simply depressing and more so, the same so-called reporter gets away by publishing articles after articles after articles based on unnamed sources!

One day... perhaps our financial press should be named the UNNAMED SOURCES NEWS!

Sigh!

Let me say again.. if there is any credibility in the sources of this news, then why is the source afraid to be named?? Why??

My Favourite Peter Lynch Articles

My favourite article written by Peter Lynch was Use Your Edge.

• Use Your Edge
  
  By Peter Lynch
  
  What's the best way to invest $1million?
  
  Tip one: Don't buy stocks on tips alone.
  
  If your only reason for picking a stock is that an expert likes it, then what you really need is paid professional help. Mutual funds are a great idea (I ran one once) for folks who want this sort of assistance at a reasonable price. Still, I'm not convinced that having 4,000 equity funds in this country is an entirely positive development. True, most of the cash flooding into these funds comes from retirement and pension contributions, where people can't pick their own stocks. But some of it also has to be pouring in from former stock pickers who failed to invest wisely on their own account and have given up trying.
  
  One of the oldest sayings on Wall Street is "Let your winners run, and cut your losers."
  
  When people find a profitable activity -- collecting stamps or rugs, buying old houses and fixing them up -- they tend to keep doing it. Had more individuals succeeded at individual investing, my guess is they'd still be doing it. We wouldn't see so many converts to managed investment care, especially not in the greatest bull market in U.S. history. Halley's comet may return times before we get another market like this. If I'm right, then large numbers of investors must have lost money outright or badly trailed a market that's up eightfold since 1982. How did so many do so poorly? Maybe they traded a new stock every week. Maybe they bought stocks in companies they knew little about, companies with shaky prospects and bad balance sheets. Maybe they didn't follow these companies closely enough to get out when the news got worse. Maybe they stuck with their losers through thin and thinner, without checking the story. Maybe they bought stock options. Whatever the case, they failed at navigating their own course.
  
  Amateurs can beat the Streat because, well, they're amateurs.
  
  At the risk of repeating myself, I'm convinced that this type of failure is unnecessary -- that amateurs can not only succeed on their own but beat the Street by (a) taking advantage of the fact that they are amateurs and (b) taking advantage of their personal edge. Almost everyone has an edge. It's just a matter of identifying it.
  
  While a fund manager is more or less forced into owning a long list of stocks, an individual has the luxury of owning just a few. That means you can afford to be choosy and invest only in outfits that you understand and that have a superior product or franchise with clear opportunities for expansion. You can wait until the company repeats its successful formula in several places or markets (same-store sales on the rise, earnings on the rise) before you buy the first share.
  
  If you put together a portfolio of five to ten of these high achievers, there's a decent chance one of them will turn out to be a 10-, a 20-, or even a 50-bagger, where you can make 10, 20, or 50 times your investment. With your stake divided among a handful of issues, all it takes is a couple of gains of this magnitude in a lifetime to produce superior returns.
  
  One of the oldest sayings on Wall Street is "Let your winners run, and cut your losers." It's easy to make a mistake and do the opposite, pulling out the flowers and watering the weeds. Warren Buffett quoted me on this point in one of his famous annual reports (as thrilling to me as getting invited to the White House). If you're lucky enough to have one golden egg in your portfolio, it may not matter if you have a couple of rotten ones in there with it. Let's say you have a portfolio of six stocks. Two of them are average, two of them are below average, and one is a real loser. But you also have one stellar performer. Your [Image]Coca-Cola, your [Image]Gillette. A stock that reminds you why you invested in the first place. In other words, you don't have to be right all the time to do well in stocks. If you find one great growth company and own it long enough to let the profits run, the gains should more than offset mediocre results from other stocks in your portfolio.
  
  Look around you for good stocks. Down the road, you won't regret it.
  
  A lot of people mistakenly think they must search far and wide to find a company with this sort of potential. In fact, many such companies are hard to ignore. They show up down the block or inside the house. They stare us in the face.
  
  This is where it helps to have identified your personal investor's edge. What is it that you know a lot about? Maybe your edge comes from your profession or a hobby. Maybe it comes just from being a parent. An entire generation of Americans grew up on [Image]Gerber's baby food, and Gerber's stock was a 100-bagger. If you put your money where your baby's mouth was, you turned $10,000 into $1 million. Fifty-baggers like [Image]Home Depot, [Image]Wal-Mart, and Dunkin' Donuts were obvious success stories to large crowds of do-it-yourselfers, shoppers, and policemen. Mention any of these at a party, though, and you're likely to get the predictable reaction: "Chances like that don't come along anymore."
  
  Ah, but they do. Take Microsoft -- I wish I had.
  
  You didn't need a Ph.D. to figure out that Microsoft was going to be powerful.
  
  I avoided buying technology stocks if I didn't understand the technology, but I've begun to rethink that rule. You didn't need a Ph.D. in programming to recognize the way computers were becoming a bigger and bigger part of our lives, or to figure out that Microsoft owned the rights to MS-DOS, the operating system used in a vast majority of the world's PCs.
  
  It's hard to believe the almighty Microsoft has been a public company for only 11 years. If you bought it during the initial public offering, at 78 cents a share (adjusted for splits), you've made 100 times your money. But Apple was the dominant company at the time, so maybe you waited until 1988, when Microsoft had had a chance to prove itself.
  
  By then, you would have realized that [Image]IBM and all its clones were using Microsoft's operating system, MS-DOS. IBM and the clones could fight it out for market share, but Microsoft would prosper regardless of who won. This is the old combat theory of investing: When there's a war going on, don't buy the companies that are doing the fighting; buy the companies that sell the bullets. In this case, Microsoft was selling the bullets. The stock has risen 25-fold since 1988.
  
  The next time Microsoft might have got your attention was 1992, when Windows 3.1 made its debut. Three million copies were sold in six weeks. If you bought the stock on the strength of that product, you've quadrupled your money to date. Then, at the end of 1995, Windows 95 was released, with more than 7 million copies sold in three months and 40 million copies as of this writing. If you bought the stock on the Windows 95 debut, you've doubled your money.
  
  If you missed the boat on Microsoft, there are still other technology stocks you can buy into.
  
  Many parents with children in college or high school (I'm one of them) have had to step around the wiring crews as they installed the newfangled campuswide computer networks. Much of this work is being done by Cisco Systems, a company that recently wired two campuses my daughters have attended. Cisco is another opportunity a lot of people had a chance to notice. Its earnings have been growing at a rapid rate, and the stock is a 100-bagger already. No matter who ends up winning the battle of the Internet, Cisco is selling its bullets to various combatants.
  
  Computer buyers who can't tell a microchip from a potato chip still could have spotted the intel inside label on every machine being carried out of the computer stores. Not surprisingly, [Image]Intel has been a 25-bagger to date: The company makes the dominant product in the industry.
  
  Early on, it was obvious Intel had a huge lead on its competitors. The Pentium scare of 1994 gave you a chance to pick up a bargain. If you bought at the low in 1994, you've more than quintupled your investment, and if you bought at the high, you've more than quadrupled it.
  
  Physicians, nurses, candy stripers, patients with heart problems -- a huge potential audience could have noticed the brisk business done by medical-device manufacturers Medtronics, a 20-bagger, and Saint Jude Medical, a 30-bagger.
  
  There are ways you can keep yourself from gaining on the good growth companies.
  
  There are two ways investors can fake themselves out of the big returns that come from great growth companies.
  
  The first is waiting to buy the stock when it looks cheap. Throughout its 27-year rise from a split-adjusted 1.6 cents to $23, Wal-Mart never looked cheap compared with the overall market. Its price-to-earnings ratio rarely dropped below 20, but Wal-Mart's earnings were growing at 25 to 30 percent a year. A key point to remember is that a p/e of 20 is not too much to pay for a company that's growing at 25 percent. Any business that can manage to keep up a 20 to 25 percent growth rate for 20 years will reward shareholders with a massive return even if the stock market overall is lower after 20 years.
  
  The second mistake is underestimating how long a great growth company can keep up the pace. In the 1970s I got interested in [Image]McDonald's. A chorus of colleagues said golden arches were everywhere and McDonald's had seen its best days. I checked for myself and found that even in California, where McDonald's originated, there were fewer McDonald's outlets than there were branches of the Bank of America. McDonald's has been a 50-bagger since.
  
  These "nowhere to grow" stories come up quite often and should be viewed skeptically. Don't believe them until you check for yourself. Look carefully at where the company does business and at how much growing room is left. I can't predict the future of Cisco Systems, but it doesn't suffer from a lack of potential customers: Only 10 to 20 percent of the schools have been wired into networks, and don't forget about office buildings, hospitals, and government agencies nationwide. [Image]Petsmart is hardly at the end of its rope -- its 320 stores are in only 34 states.
  
  Whether or not a company has growing room may have nothing to do with its age. A good example is [Image]Consolidated Products, the parent of the Steak & Shake chain that's been flipping burgers since 1934. Steak & Shake has 210 outlets in only 12 states; 78 of the outlets are in St. Louis and Indianapolis. Obviously, the company has a lot of expansion ahead of it. With 160 continuous quarters of increased earnings over 40 years, Consolidated has been a steady grower and a terrific investment, even in a lousy market for fast food in general.
  
  Sometimes depressed industries can produce high returns.
  
  The best companies often thrive even as their competitors struggle to survive. Until recently, the airline sector has been a terrible place to put money, but if you had invested $1,000 in [Image]Southwest Airlines in 1973, you would have had $460,000 after 20 years. Big Steel has disappointed investors for years, but [Image]Nucor has generated terrific returns. [Image]Circuit City has done well as other electronics retailers have suffered. While the Baby Bells have toddled, a new competitor, [Image]WorldCom, has been a 20-bagger in seven years.
  
  Depressed industries, such as broadcasting and cable television, telecommunications, retail, and restaurants, are likely places to start a research list of potential bargains. If business improves from lousy to mediocre, investors are often rewarded, and they're rewarded again when mediocre turns to good and good turns to excellent. Oil drillers are in the middle of such a recovery, with some stocks delivering tenfold returns in the past 18 months. Yet it took a decade of lousy before they even got to mediocre. Readers of my column in Worth learned of the potential in this long-suffering sector in February 1995.
  
  Retail and restaurants haven't been performing well -- but they're two of Lynch's favorite areas.
  
  Retail and restaurants are two of the worst-performing industries in recent memory, and both are among my favorite research areas. I've taken a beating in a number of retail stocks (some of which I still like and have continued to buy), but the general decline hasn't stopped Staples, [Image]Borders, Petsmart, [Image]Finish Line, and [Image]Pier 1 Imports from rewarding shareholders. Two of my daughters and my wife, Carolyn, have continued to shop at Pier 1, reminding me of its popularity. The stock has doubled in the past 18 months.
  
  A glut in casual-dining outlets didn't hurt [Image]Outback Steakhouse, and a surplus of pizza parlors didn't bother [Image]Papa John's, whose stock was a double last year. [Image]CKE Restaurants -- whose operations include the Carl's Jr. restaurants -- has been a profitable turnaround play in California.
  
  You can even find bargain stocks in this market that have been overlooked.
  
  So far, we've been talking about growth companies on the move, but even in this so-called extravagant market, there are plenty of bargains among the laggards. Of the nearly 4,000 IPOs in the past five years, several hundred have missed the rally on Wall Street. From the class of 1995, 37 percent, or 202 companies, are selling below their IPO price. From the class of 1996, 33 percent, or 285, now trade below their offering price. So much for the average investor's never having a chance to profit from an offering. In more than half the cases, you can wait a few months and buy these stocks cheaper than the institutions that were cut in on the original deals.
  
  As the Dow has hit new records week after week, many small companies have been ignored. In 1995 and 1996, the Standard & Poor's 500 Stock Index was up 69 percent, but the Russell 2000 index of smaller issues was up only 44 percent. And while the Nasdaq market rose 25 percent in 1996, a lot of this gain can be attributed to just three stocks: Intel, Microsoft, and Oracle. Half the stocks on the Nasdaq were up less than 6.9 percent during 1996.
  
  That's not to say owning these laggards will protect you if the bottom drops out of the market. If that happens, the stocks that didn't go up will go down just as hard and fast as the stocks that did. I learned that lesson in the 1971Ð73 bear market. Before the selling was over, companies that looked cheap by any measure got much cheaper. McDonald's dropped from $15 a share to $4. I thought Kaiser Industries was a steal at $13, but it also fell to $4. At that point, this asset-rich conglomerate, with holdings in aluminum, steel, real estate, cement, fiberglass, and broadcasting, was trading at a market value equal to the price of four airplanes.
  
  Wondering when you should exit the market? Use Lynch's rule of thumb.
  
  Should we all exit the market to avoid the correction? Some people did that when the Dow hit 3000, 4000, 5000, and 6000. A confirmed stock picker sticks with stocks until he or she can't find a single issue worth buying. The only time I took a big position in bonds was in 1982, when inflation was running at double digits and long-term U.S. Treasurys were yielding 13 to 14 percent. I didn't buy bonds for defensive purposes. I bought them because 13 to 14 percent was a better return than the 10 to 11 percent stocks have returned historically. I have since followed this rule: When yields on long-term government bonds exceed the dividend yield on the S&P 500 by 6 percent or more, sell stocks and buy bonds. As I write this, the yield on the S&P is about 2 percent and long-term government bonds pay 6.8 percent, so we're only 1.2 percent away from the danger zone. Stay tuned.
  
  So, what advice would I give to someone with $1 million to invest? The same I'd give to any investor: Find your edge and put it to work by adhering to the following rules:
  
  With every stock you own, keep track of its story in a logbook. Note any new developments and pay close attention to earnings. Is this a growth play, a cyclical play, or a value play? Stocks do well for a reason and do poorly for a reason. Make sure you know the reasons.
  
  Stocks do well for a reason, and poorly for a reason.
  
  *Pay attention to facts, not forecasts.
  
  *Ask yourself: What will I make if I'm right, and what could I lose if I'm wrong? Look for a risk-reward ratio of three to one or better.
  
  *Before you invest, check the balance sheet to see if the company is financially sound.
  
  *Don't buy options, and don't invest on margin. With options, time works against you, and if you're on margin, a drop in the market can wipe you out.
  
  *When several insiders are buying the company's stock at the same time, it's a positive.
  
  *Average investors should be able to monitor five to ten companies at a time, but nobody is forcing you to own any of them. If you like seven, buy seven. If you like three, buy three. If you like zero, buy zero.
  
  *Be patient. The stocks that have been most rewarding to me have made their greatest gains in the third or fourth year I owned them. A few took ten years.
  
  *Enter early -- but not too early. I often think of investing in growth companies in terms of baseball. Try to join the game in the third inning, because a company has proved itself by then. If you buy before the lineup is announced, you're taking an unnecessary risk. There's plenty of time (10 to 15 years in some cases) between the third and the seventh innings, which is where the 10- to 50-baggers are made. If you buy in the late innings, you may be too late.
  
  *Don't buy "cheap" stocks just because they're cheap. Buy them because the fundamentals are improving.
  
  *Buy small companies after they've had a chance to prove they can make a profit.
  
  *Long shots usually backfire or become "no shots."
  
  *If you buy a stock for the dividend, make sure the company can comfortably afford to pay the dividend out of its earnings, even in an economic slump.
  
  *Investigate ten companies and you're likely to find one with bright prospects that aren't reflected in the price. Investigate 50 and you're likely to find 5.

• Article can be found here: ( http://pages.stern.nyu.edu/~adamodar/New_Home_Page/articles/Lynchgrowthstocks.htm )

And my favourite interview on Peter Lynch was the one posted on pbs website: http://www.pbs.org/wgbh/pages/frontline/shows/betting/pros/lynch.html

It's a rather long interview which I fully recommend!

Flashback: Integrax: My Earnings Has Shrunk!

The following posting was initially posted way back on May 2006. I am reproducing it here again.

I was told that this stock was recommended by a fund when it was trading around 1.38 back in Aug 2003.

Did they NOT know about the MASSIVE dilution impact from the conversion of the ICPs? They should have known, yes?

As of today, this stock still carries a HOLD recommendation.

It's now July 2008.

Stock trades at around 0.79.

Buy and Hold Forever?

Well? You tell me.

--------------------------


The following post is dedicated to Anon who asked about the dilutions effects caused by placement shares, esos etc.

One of the best example I could really think of is a past discussion I had on this one stock called Integrax.

On 28th feb 2003, Integrax announced its fy2002 Q4 quarterly earnings.

It made a total net earnings of 16.159 million from a sales revenue of 25.244 million for its fiscal year.

I got a message in July 2003 asking about this stock:

==>

I have made some studies on this counter and noted some good points:

1. stable assure income from TNB power plant (future earning will double)
2. closely link to state goverment
3. potential aluminiam plant project (will add on the coal transportbusiness)
4. low PE (really fantastically low)
5. proposed to transfer to main board.

here was my reply then.

<<==>>

my comment on integrax ...

1. those listed port stocks, their fundamentals are ok, meaning they are companies that operates on a very high profit margins. in which you have also choices like Bintulu Port. So far, from its only earnings (Integrax was a newly listed stock, which was listed via a reverse takeover of a stock called Ganz) , in its 02 Q4 earnings report, Integrax had figures like this...



2. now as you would see the numbers were fantastic. (the eps is based upon 115.656 million shares, which was stated in that quarterly earnings report). And if you annualised such performance for fy 2003, then the potential is there.. cos one is looking at a potential eps of 38-40 sen for fy 2003. And yes, I did note that folks like Ah Goh (GK Goh) was projecting 03 earnings to be lower, at around 30 million, or an eps of 26 sen based on 115.656 million shares.

( Back then Integrax trading around 1.15-1.30 and based on the projected 03 earnings, Integrax at 1.15 was trading at a super duper low PE of 4.4x based on Ah Goh's estimates.. and at such a low PE multiple, surely this would have been an ideal hidden gem right? In fact, Surf 88 back then, had a super positive research calling it a Lumut Gem!)

3. But after researching more, i found out that there were lots of ICP shares being converted into ordinary shares. This was part of the agreement under Integrax's takeover of Ganz. Now I do NOT know know the exact restriction (if any) on how these ICPs were converted but judging from KLSE announcements, they were converted on quite a regular basis. So what's important is, if you wanna invest in this stock, you need to figure out how many total ICP's were issued. (here is where the DILUTION of shares has such an impact on the share price.)

Now these ICPs, they have this dilution effect. As I had checked out the other day (back in July 2003), the number of shares in Integrax stands at 196,762 million shares!!

Now based on the projected earnings of 30 million, Integrax projected DILUTED eps is now 15 sen. Which now means, at 1.15 Integrax is trading at a forward PE of 7.6! (compared to a pe between 4.4).

See how greatly the eps has been diluted by these ICP's?

So... if you are not carefull.... you might have actually invested in Integrax had a much higher PE multiple than you have imagined...

4. Is Integrax an average company or an excellent company? I dunno.

Too early for me to determine, plus there is really too limited info i can dig up on Integrax itself.... so i cannot comment on it.

<<==>>

That was in July 2003. Now Integrax was in a nice rally mood.

And soon in Oct 2003, it was trading around 1.90++ (which turned out to be its peak today)

And here is another extremely interesting point.

Integrax Loan Stocks and its Irredeemable Convertible Preference (ICP) shares were still constantly being converted into ordinary shares. (here is one announcement indicating the conversion of ICP shares )

Which meant that the earnings per share were constantly being diluted at a very rapid pace.

But the share price was rocketing.

How?

Would an investor cash out back in Oct 2003? (remember, they had an opportunity to buy just in July 2003 at around 1.15)

A year later, on 27th Feb 2004, Integrax announced its fy 2003 quarterly earnings.

It made a total net earnings of 28.819 million from a sales revenue of 93.434 million for its fiscal year.

Integrax's results is pretty impressive really. And in fact it does look like a decent and very profitable company... but i guess the main question is why the share price is performing so poorly was explained clearly by the company.

• PATMI changes are reflective of the above while EPS changes reflect the impact of a larger share capital base this quarter.

Ahh... the EPS shrunk!!

Diluted!

The dilution effects from the conversion of Integrax's ICP shares and loan stocks. And the more conversion are made, the large the share base becomes, hence Integrax share base is growing each quarter, which meant that unless Integrax earnings grow at a much faster than how its share base expands, the eps would become smaller each quarter and when the E in PE becomes smaller, the price 'usually' goes down to reflect the lower E.

To fully illustrate how diluted the earnings become:

Integrax number of shares now is 263.882 million shares!! (back in Feb 2004)

Which meant Integrax eps is only 10.9 sen for its fy 2003! (a huge cry from Ah Goh's estimate of 26 sen eps!.. and most important see how the net profit increased a lot BUT yet the EPS 'dropped drastically?)

Which meant that the traded shares of Integrax is now much more expensive despite a pretty impressive fiscal year earnings? (In Feb 2004, at 1.50, Integrax was trading at a PE of 13.7x!!)

Perhaps it is better to take note of all those ICP shares, right?

Example (done on 28th Feb 2004)

Integra has 263.882 million shares
Integra LA has 31.890 million shares
Integra PA has 10.570 million shares.
Full dilution = 263.882 + 31.890 + 10.570 = 306.342 million shares.
Fully diluted eps = 28.819 / 306.342 = 9.4 sen.

So do remember.. this bugger just got soooooo many shares out there.... that you dun really know what is going.... plus since this is a RTO listed company.... so you never know the true cost of those ICP shares, etc, etc..... and do take one step back ... dig deeper back into history.... look at Ganz last reported earnings report. Ganz had only got 19.8 million shares. Compare it to now. 263.882 million shares. A lot of new shares has been issued.

<<==>>

So in July 2003.. Integrax was trading around 1.15-1.30.

It peaked in Oct 2003 around 1.90++

On Feb 2004 it traded in the 1.50 region.

now on May 2006? Less than 0.70!

The below pix says it all... (long term buy and hold? if your initial reasoning is wrong.. holding it longer is holding in hope!)



So if one purchases a share in a company and discounts the effect of the dilution of earnings, see the drastic end result?

Of course not all companies are like that. And as mentioned in the case of IOI, the conversion of warrants did not have a negative impact on the share price. Why? IOI Corps earnings grew at a much faster pace.

It's pretty simple actually.. take the blog posting ROI on Uchi: Part III - the ESOS issue

<<==>>

Now if you add both figures up, you will get 82,820,992 new shares, assuming full exercise of ESOS.

Currently Uchi has 372,392,800 shares. Which means there is a possible dilution in earnings per share of 22% assuming full exercise of all these ESOS.

Now let's be realistic and ask ourselves this... is 22% dilution in earnings per share a lot or not?

Simple way to look at this dilution.

Say U** has a current eps of 100 sen.
Say U** has a possibility to trade at a price earnings multiple of 18x.

Which means U** could be worth some 18.00 in market price.

Now a 22% dilution means... the eps would be 78 sen.
And using the same pe multiple assumption of 18x, U** should be trading at a market price of 14.00.

See how disadvantage it is to the minority shareholder?

<<==>>

Flonic Expects To Return To The Positive!

On the Business Times today, the article on Flonic Hi-Tec caught my attention, Flonic expects to be back in the black

Flonic was another of them Messdaq stocks that caught my attention much earlier. It was listed back in 2005. And on its first full year after listing, it made a mere 1.3 million in earnings. However, the next year, it reported losses of more than 6 million. And yet again for me, it made me wonder truly about the quality and the relevancy of the Messdaq stock exchange.

Anyway, it was the company's annual meeting, and of course as expected, the company made promises that it would do better.

From Business Times article:

• Flonic expects to be back in the black
  
  By Zaidi Isham Ismail Published: 2008/07/29
  
  FLONIC Hi-Tec Bhd, which specialises in precision cleaning for electrical and electronics (E&E) components, expects to return to the black in the current financial year ending January 2009, after registering losses in the previous financial year.
  
  The Shah Alam-based company made a net loss of RM6.6 million in the financial year ended January this year compared with a net profit of RM1.3 million before.
  
  It also registered a lower revenue of RM8.5 million this year compared with RM18.5 million a year before, due to a decrease in orders from major customers, labour and overhead costs arising from factory expansion activities.
  
  Flonic executive chairman and chief executive officer Yen Yoon Fah said last year was the worst for the company, because the world's E&E sector slowed due to the global economic slump and the US subprime crisis.
  
  "This year, we expect to return to the positive because as of now we already have an order book of up to RM9 million, which is half of what we secured for the whole of last year.
  
  "Demand has picked up with more frequent enquiries from existing and new customers, and orders, which were deferred in the previous year, are coming in now," Yen told reporters after the company's 4th shareholders meeting in Selangor yesterday.
  
  Flonic cleans sensitive E&E components such as computers, hard disk drives, keyboards, laptops, semiconductor, mobile phone parts, digital cameras and others.
  
  He said while older models of computers and electronic devices are being phased out, upgraded and newer innovative models are being launched, which require precision cleaning at the production stage.
  
  Yen said, the company, which exports 70 per cent of its products and expertise, is also affected by the weakening US dollar, which trims its export earnings, but the pressure was offset by its exports to Europe due to the strengthening euro.
  
  Yen said the company prefers to consolidate and grow slowly rather than grow all out and then later exhaust itself.
  
  He said the management has also taken steps to control rising cost by intensifying marketing activities, improve the design department, outsource and find the best machines.

The following statements caught my attention.

• last year was the worst for the company, because the world's E&E sector slowed due to the global economic slump and the US subprime crisis.

I felt that wasn't too accurate.

Flonic started reporting losses for the period ending 31/1/2007 - see Quarterly rpt on consolidated results for the financial period ended 31/1/2007 and if you add in the quarterly report made recently on June 2008, Flonic would have had reported 6 consecutive quarters of losses!

Here is the link to its most recent earnings: Quarterly rpt on consolidated results for the financial period ended 30/4/2008.

Sales revenue of only 1.59 million and losses were 1.605 million! Balance sheet is in a terrible state.

Cash balances of 665k versus total loans of 7.239 million!

And with such a weak balance sheet, it carries a massive trade receivables of over 5 million!

I, for one, cannot simply understand how the company is managed in such a fashion. Company is clearly in dire need of cash and yet it allows such a huge receivables account! Why isn't the company attempting to collect what is due to them? Why?

So now the company states that it has a order book of 9 million and expects to return to the black.

Well, I do hope so, for the sake of its minority shareholders and I would keep track of the company's progress!

Flonic last traded at 0.045!! (Flonic once traded above 61 sen!)

Ranhill Answers: Our Financial News Being Used To Drive The Stock Higher!

Blogged on Saturday, Ranhill: Our Financial News Being Used To Drive The Stock Higher!

The stock closed up 15 sen or 11% at 1.42.

On Thursday, the stock was worth a mere 96 sen!

So thanks to that report where unnamed sources suggested that Ranhill could be taken private, the stock gained 46 sen in two trading days or 47.9%!!!!!!!!!!

Ranhill today gave an absolute incredible reply in my opinion!

• We refer to Bursa Malaysia Securities Berhad (“Bursa”)’s letter dated 25 July 2008, querying on the article that appeared in The New Straits Times, Biz News section at page 40 on Friday, 25 July 2008, particularly the caption below –
  
  “Ranhill Bhd is close to being taken private by controlling shareholder Tan Sri Hamdan Mohamad in a deal that can be worth about RM420 million,…”
  
  “…is working out the details to take it private within the next three to four months.”
  
  As we have advised in our response to Bursa’s query on similar nature of newspaper article sometime in January 2008, we are constantly exploring opportunities in seeking for any proposals that may contribute to our objectives to enhance and boost our shareholders’ value. The requisite announcement to Bursa will be made in accordance with Bursa’s Listing Requirements once a decision has been reached on the appropriate proposal and strategy.

The reply to the query was simply vague and inadequate.

Said by Ranhill management..

• we are constantly exploring opportunities in seeking for any proposals that may contribute to our objectives to enhance and boost our shareholders’ value.

Constantly exploring opportunities?

Huh?

What exactly does it mean?

Why can't the management acknowledge or deny the rumours?

Why?

Is that so hard to answer?

Goldman Downgrades Bulk Shippers!

My last posting on the Baltic Dry Sector was on June 17th 2008: The Collapse of the Baltic Dry Index

On the Financial Edge, it reports that Goldman Sachs is downgrading Asia Bulkers:
28-07-2008: Goldman downgrades MBC and other Asia bulkers

• HONG KONG: Goldman Sachs downgraded shares in China Cosco, the country's largest shipping firm, to a sell rating from neutral on Monday, citing an oversupply of freight capacity in coming years and weaker expectations for 2009 and 2010.
  
  Shares in China Cosco lost 1.7% after the report, underperforming a 0.6% gain on the index for Chinese shares listed in Hong Kong.
  
  The US investment bank, which also downgraded STX Pan Ocean, Malaysian Bulk Carriers (MBC) and U-Ming Marine on Monday to sell from neutral, said freight rates will decline with the global Capesize fleet set to double by 2011.
  
  "We advise investors to sell bulker stocks now, well ahead of the correction in the freight market and decline in earnings that we anticipate from 2009 onwards," the bank said in a research report on Monday.
  
  Goldman cut Pacific Basin to neutral from buy and sent the stock down 2.8%.
  
  Strong demand for energy and raw materials mainly from China have sent freight rates to record highs in the past two years and fuelled strong orders for new ships.
  
  The sector's order book stands at a record and the Capesize fleet, large bulk cargo ships that mostly carry iron ore and coal, is set to double by 2011, which implies very significant downside risk to the freight market, Goldman said.
  
  "We expect the BDI (Baltic Dry Index) to decline 40% year on year in 2009 and a further 47% in 2010," it added.
  
  But there are bright spots among listed Asian bulkers.
  
  Goldman upgraded China Shipping Development's yuan denominated A shares to buy from neutral as it is more defensive with 60% of its revenue from domestic shipping.
  
  It also upgraded Precious Shipping to buy from neutral because of its more attractive valuation relative to peers and on expectation of greater forward fleet coverage.
  
  China Shipping edged up 0.83% in Hong Kong at 0316 GMT and Precious Shipping also rose 1.6%. -- Reuters

Here is the Reuters report: Goldman downgrades COSCO, Asia bulkers

• HONG KONG, July 28 (Reuters) - Goldman Sachs downgraded shares in China COSCO (1919.HK: Quote, Profile, Research), the country's largest shipping firm, to a sell rating from neutral on Monday, citing an oversupply of freight capacity in coming years and weaker expectations for 2009 and 2010.
  
  Shares in China COSCO lost 1.7 percent after the report, underperforming a 0.6 percent gain on the index for Chinese shares listed in Hong Kong .HSCE.
  
  The U.S. investment bank, which also downgraded STX Pan Ocean (028670.KS: Quote, Profile, Research) Malysian Bulk Carriers (MBCB.KL: Quote, Profile, Research) and U-Ming Marine (2606.TW: Quote, Profile, Research) on Monday to sell from neutral, said freight rates will decline with the global Capesize fleet set to double by 2011.
  
  "We advise investors to sell bulker stocks now, well ahead of the correction in the freight market and decline in earnings that we anticipate from 2009 onwards," the bank said in a research report on Monday.
  
  Goldman cut Pacific Basin (2343.HK: Quote, Profile, Research) to neutral from buy and sent the stock down 2.8 percent.
  
  Strong demand for energy and raw materials mainly from China have sent freight rates to record highs in the past two years and fuelled strong orders for new ships.
  
  The sector's order book stands at a record and the Capesize fleet, large bulk cargo ships that mostly carry iron ore and coal, is set to double by 2011, which implies very significant downside risk to the freight market, Goldman said.
  
  "We expect the BDI (Baltic Dry Index) to decline 40 percent year on year in 2009 and a further 47 percent in 2010," it added.
  
  But there are bright spots among listed Asian bulkers.
  
  Goldman upgraded China Shipping Development's (600026.SS: Quote, Profile, Research) (1138.HK: Quote, Profile, Research) yuan denominated A shares to buy from neutral as it is more defensive with 60 percent of its revenue from domestic shipping.
  
  It also upgraded Precious Shipping PSL.BK to buy from neutral because of its more attractive valuation relative to peers and on expectation of greater forward fleet coverage.
  
  China Shipping edged up 0.83 percent in Hong Kong at 0316 GMT and Precious Shipping also rose 1.6 percent. (Reporting by Parvathy Ullatil and Alison Leung; editing by Jonathan Hopfner)
  
  
  

FDIC Takes Over 1st National Bank of Nevada and First Heritage Bank

Posted on MSNBC news:

• FDIC takes over two more failed banks
  
  CARSON CITY, Nev. - The 28 branches of 1st National Bank of Nevada and First Heritage Bank, operating in Nevada, Arizona and California, were closed Friday by federal regulators.
  
  The banks, owned by Scottsdale, Ariz.-based First National Bank Holding Co., were scheduled to reopen on Monday as Mutual of Omaha Bank branches, the Federal Deposit Insurance Corp. said.
  
  The FDIC said the takeover of the failed banks was the least costly resolution and all depositors — including those with funds in excess of FDIC insurance limits — will switch to Mutual of Omaha with “the full amount of their deposits.” ( click here for full article: http://www.msnbc.msn.com/id/25857049/ )

Over On Washington Post.

• Regulators Close Two More National
  
  "All depositors, including those with deposits in excess of the FDIC's insurance limits, will automatically become depositors of Mutual of Omaha Bank for the full amount of their deposits," the FDIC said.
  
  The banks, owned by First National Bank Holding Co. of Scottsdale, Ariz., are the sixth and seventh to fail this year as the financial-services industry grapples with failed loans stemming from the worst housing slump since the Depression. ( click here for rest of article: http://www.washingtonpost.com/wp-dyn/content/article/2008/07/25/AR2008072503815.html )

On Wall Street Journal: Two More Banks Fail

• First National Bank of Nevada had $3.4 billion in assets and $3.0 billion of deposits, making it a relatively large failure by historical standards -- but much smaller than the $32 billion of assets that IndyMac Bank of Pasadena, Calif., had when it failed earlier this month. First National Bank of Nevada had 25 branches, some of which came from its June 30 merger with the First National Bank of Arizona.
  
  The OCC said First National Bank of Nevada "was undercapitalized and had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices."
  
  According to regulatory filings, the Arizona-based bank that was folded into First National Bank of Nevada had a net loss of $131.3 million in the first quarter. The bank socked away $95.9 million in loan-loss provisions, a sign that it was being overwhelmed by problem loans. First National Bank of Nevada had a first-quarter net loss of $7.3 million, hurt by a loan-loss provision of $18 million.
  
  First Heritage had a first-quarter net loss of $1.9 million, according to a regulatory filing.
  
  During the housing boom, First National Bank of Arizona made mortgage loans throughout much of the U.S. Even as the housing market was weakening, the bank revved up its riskier mortgage lending, an analysis of lending data by The Wall Street Journal showed last year.
  
  A bank executive said at the time that much of the jump reflected borrowers who got second mortgages. The bank subsequently scaled back that business.
  
  First National Bank of Nevada had spent months trying to dig out of trouble. James Claffee, who recently joined the company as president and chief executive officer, told the Arizona Republic less than two weeks ago that he was hopeful the bank would be able to raise capital.
  
  "We're working diligently to correct our capital situation, focusing on our customers and continuing to provide the same quality of good service they've had in the past," he told the newspaper.
  
  On Friday night, the home page of the bank's Web site included a link to real-estate listings for more than 100 residential properties owned by the bank, likely as a result of foreclosures.
  
  The second failed bank, First Heritage, was much smaller, with three branches, $254 million, of assets and $233 million of deposits. The OCC said it closed First Heritage Bank because it was undercapitalized.
  
  "The OCC also found that the bank had incurred and is likely to incur losses that will deplete all or substantially all of its capital, and there is no reasonable prospect that the bank will become adequately capitalized without federal assistance," the OCC said.
  
  A deal that would have essentially spun off First Heritage to a private-equity firm fell apart last December.
  
  Seven banks have failed so far this year, including three having more than $1 billion of assets.
  
  The number of failed banks this year has already surpassed the total from 2004 through 2007, but it is nowhere near the pace set during the savings and loan crisis in the 1980s and early 1990s, when several thousand banks failed.
  
  Regulators have been preparing for more bank failures by adding staff, bringing on contractors, and intensifying training. The FDIC, which was created in 1933, has made a concerted push in recent months to educate bank customers about the deposit insurance rules. The FDIC insures accounts up to $100,000 per depositor, or $250,000 for some qualified retirement accounts.
  
  The FDIC said Friday night's failures would likely cost the FDIC's deposit insurance fund roughly $862 million.
  
  Mutual of Omaha Bank has more than $750 million in assets and operates 14 retail branches in Nebraska and Colorado, as well as commercial lending offices in Dallas and Des Moines, Iowa. The bank, a unit of insurer Mutual of Omaha, has said it plans to build a network of community banks in fast-growing U.S. markets where its parent has an existing base of insurance customers.
  
  "We would first like to reassure all customers of First National Bank of Nevada and First Heritage Bank that all their deposits are safe and accessible," Jeffrey R. Schmid, Mutual of Omaha Bank's chairman and chief executive, said in a statement. "Their deposits will automatically transition to Mutual of Omaha Bank and we will be open for business on Monday morning. (Source: here )

Ranhill: Our Financial News Being Used To Drive The Stock Higher!

The best performing stock yesterday was Ranhill who surged a whopping 30.5 sen or 31% to close at 1.27.

All thanks to yet another rumour being spun by our country's top financial news, Business Times, Ranhill said close to being taken private

• By Sharen Kaur Published: 2008/07/24
  
  RANHILL Bhd is close to being taken private by controlling shareholder Tan Sri Hamdan Mohamad in a deal that can be worth about RM420 million, says a source.
  
  The source told Business Times that Hamdan, who controls the engineering firm and is also the group's president and chief executive officer, is working out the details to take it private within the next three to four months.
  
  Hamdan and Ranhill executive director Datuk Chandrasekar Suppiah could not be reached for comment.
  
  Analysts said the controlling shareholders of Ranhill had toyed with the idea to take it private as the stock has relatively underperformed.

Now if the source and the analysts mentioned by the reported is credible then why is the source being afraid to be named?

Is it wrong to question who the source is?

Or does the source represents funds whose sole objective is to drive the stock higher?

Care to prove me wrong?

Now let's put some simple commonsense thinking also.

If Ranhill Bhd is really worth so much more and if the owners really want to take it private, why would they leak the news to the public? And when such news is leaked, surely the stock would be driven much higher, thus eliminating whatever privatisation value there might be! Would such reasoning be flawed?

So surely it wasn't the owners who leaked such news out.

But if it wasn't the owners, who then?

And why?

• Ranhill shares have dipped by some 70 per cent this year trading as low as 79 sen in the last few weeks from a RM2.65 high in January.

Why has Ranhill dipped so much?

Perhaps one should ask why did Ranhill traded so high in the first place?

That the stock used to trade so high simply is not a justification that the market valuation was fair!

How about the incredible incident last year when the local press blatantly suggested Ranhill had struck oil? A move which saw the stock gaining a whopping 29% in one session of trading?

Yeah, do refer to the following postings, According to Sources: Ranhill Strikes Oil!!!!!!!! , According to Bloomberg: Ranhill Denies! and Do you think that Bursa should take action against misleading reporting?

Ok and how about Ranhill's performance as a company?

Here is the link to its latest earnings report, Quarterly rpt on consolidated results for the financial period ended 31/3/2008.

It lost some 31.7 million for the quarter. Annualised earnings indicates earnings of around 38 million, giving a rough earnings per share of 6.4 sen only. So that Ranhill Bhd was trading at around 79 sen and given the fact that Ranhill cash balances were rather weak and extended, the low stock price had some just reasoning yes?

The article then continues..

• "Even if we assume there is no value attached to its construction and EPCC business and only assigned value to its 100 per cent stakes in Ranhill Utilities Bhd (RUB) and Ranhill Power Bhd (RPB) based on their respective privatisation valuations of RM1.1 billion and RM258 million respectively, coupled with debts of about RM100 million at holding company level, Ranhill's theoretical sum or parts fair value works out to about RM1.98 apiece," the analysts said.
  
  "This is very close to its net tangible asset of RM1.91 a share as at March 31 2008," they added.
  
  For the 12-month period to June 2007, Ranhill posted a profit of RM117 million and revenue of RM1.47 billion

OMG! A new valuation method - sum of private parts? LOL! Wonder where they learned this new one from?

And that very last line..

• For the 12-month period to June 2007, Ranhill posted a profit of RM117 million and revenue of RM1.47 billion.

That said 12-month period to June 2007 was last reported on Aug 2007. Here is the link to that earnings report. Quarterly rpt on consolidated results for the financial period ended 30/6/2007

It's now July 2008.

Why was the current earnings performance being left out?

Why was such an outdated earnings being used as reference in the news?

If it was outdated, surely it's not 'news' anymore, yes?

And consider the following. Latest earnings from Ranhill showed a huge loss of 31.7 million! Ytd earnings for its 3 quarters of this current fiscal year only totals 28.8 million. Quarterly rpt on consolidated results for the financial period ended 31/3/2008

It pales in comparison to a company earning 117 million!

So won't you ask if this was the reasoning why the information was blatantly left out?

And by whom?

Was it the reporter or the said same analysts?

Would you consider this as utterly horrific and appalling reporting of information where actual current facts are blatantly left out?

And when the stock soars more than 30%, don't you think it's simply more sickening?

Are our local press ruling the stock market?

Now let's consider the privatisation story again.

Let's look at Ranhill as it is. Look at some of its key balance sheet items. ( Let's refer to this Quarterly rpt on consolidated results for the financial period ended 31/3/2008 earnings report)

Deposits, bank and cash balances... 960,154
Short-term borrowings..................... 297,174
Long-term borrowings................... 3,232,196

Let's look from an ownership perspective. The moment the boss buys everything, the boss would be in full control over the cash and debts. Yes, Ranill has a nice 960 million in its piggy bank but its total loans totals a whopping 3.529 billion! Yes, Ranill Bhd is in a whopping net debt of 2.569 billion! Which means by buying this company as it is, the boss would be effectively 2.569 billion in debts!

So how much do you reckon the boss would fork out to buy this company which is in a net debt of 2.569 billion?

I wonder.

And you know, some folks views public listed debts in a different perspective. As a public listed company, the debts owned by the plc is public. And when it's a private company, the debts become theirs!

And then, another very interesting thing for me. I was looking at some recent shareholder buying/selling activities.

Changes in Sub. S-hldr's Int. (29B) - Hamdan Mohamad

Changes in Sub. S-hldr's Int. (29B) - Hamdan Mohamad

Changes in Sub. S-hldr's Int. (29B) - Hamdan Mohamad

Look at those recent disposals of shares by Ranhill Corporation Sdn Bhd. which dilutes the boss Tan Sri Hamdan Mohamad's stake in Ranhill Bhd.

I am confused.

Macam mana ni?

If there is intent by Tan Sri Hamdan Mohamad to take Ranhill Bhd private, surely all these disposals would not have taken place, yes?

How lah?

What do you think of this privatisation story on Ranhill?

You think got any substance, ah?

Or do you think it will turn out to be yet another 'According to Sources: Ranhill Strikes Oil!!!!!!!! , According to Bloomberg: Ranhill Denies!' fiasco?

Sigh!