Oh KNM, Can You Please Buyout The Company At 90 Sen?

I looked at KNM's earnings reported last night.

Less anyone forget I wrote Why I Also Like KNM A Whole Lot and Why I Like KNM Even So Much More Today! and I Just Like KNM So So So Much just last month.

So what was I going to expect I asked myself. Here we have a company who is run and managed by a person, who is also the Managing Director and Chairman of the company, who had been busy attempting to buyout the rest of the company. Yeah, what can we expect, he has been rather busy. How nice. What a caring owner we have here. The minority shareholders should be so pleased.

Before I look into it's earnings, there was one interesting side note. On Feb 2010, KNM reported its 2009 Q4 earnings. Quarterly rpt on consolidated results for the financial period ended 31/12/2009. It was said KNM lost some 31 million.

But end April this figure was adjusted due to tax incentive. Deviation Between Announced Unaudited Financial Statements And Audited Financial Statements For the Year Ended 31 December 2009. KNM's profits were adjusted higher by 94.6 million, thanks to the "recognition of tax incentive granted for Borsig acquisition".

Earlier this month, KNM had a feature article on Business Times. ( Sometimes, it's good to read these comments and then compare it to the company's earnings. Hey we need to know if the article is trying to scare the investors away, yes? :D )

• KNM Group expects to perform better this year
  
  Published: 2010/05/04
  
  PROCESS equipment manufacturer KNM Group Bhd (7164) expects to perform better this year on lower tax rates and higher exploration and production activities.

Moolah: Ok... KNM is given a huge helping hand from taxes.

• "We recently spoke to the management of KNM following the breakdown of its proposed takeover offer. We believe that investors have overlooked the business aspect in the last few months after the takeover news first broke off back in February 2010," wrote HWANGDBS Vickers Research Sdn Bhd (HDBSVR) analyst Lee Wee Keat in a note to clients yesterday.

Moolah: Excuse me, Mr. Lee Wee Keat. What can the investors do? Should we watch the business aspect? Should we? We are not even sure if the management is busy watching the business aspect themselves since they are so busy trying to buyout the minority shareholders. Some naughty and bad investors are saying 'why bother'. Mr. Lee, you should drill some sense into them.

• KNM's substantial shareholder and group managing director Lee Swee Eng had recently aborted his proposed offer via Bluefire Capital Group to buy KNM's entire business at RM0.90 per share.

Moolah: KNM now so cheap. Its only 48 sen. Here's a tip to KNM management. In my flawed opinion, if you do a proper takeover at RM0.90 per share, I believe many minority shareholders and funds would be soooooooooooo happy to sell to you now. How?

• Last year was a bad year for KNM as oil majors held back spending in view of low and volatile oil prices.

Moolah: OOoooo... oil prices now even lower. How?

• "We understand that KNM managed to secure only RM1.5 billion worth of jobs last year, and capacity utilisation was only 65 per cent compared with 80 per cent in 2008.

Moolah: Mr. Lee, as an analyst, do not understand la. Why don't you get proper confirmation before you make such statement? If not, if the management denies such statement, then how? Yaloh, what if KNM says they got more contracts, then how?

• "(Profit) margins for the jobs secured were also slimmer as intense competition over the modest number of jobs available led competitors to cut prices," he said.
  
  Lee expects margins for the next few quarters to remain sluggish as the company completes jobs secured last year. He estimated that the average completion ranges from 15 to 18 months per project.
  
  "We gather that margins have improved since, but have yet to recover to previous levels."
  
  Lee also said concerns over KNM's orderbook replenishment persists.
  
  "KNM has a RM2.4 billion orderbook, with RM400 million of new contracts secured thus far. This is slow, but we foresee a rise in exploration and production activities in the second half of this year to trigger contract flows."
  The group currently has a RM11 billion tender book comprising jobs mostly in the Middle East and Europe.
  
  However, Lee has cut his new wins assumption for KNM to RM1.7 billion from RM1.8 billion previously for the financial year ended December 31 2010 (FY10), based on current tender book and historical hit rate of 15 per cent.
  
  KNM's FY09 audited net profit stood at RM260.6 million after adjusting for the tax incentive, which was granted by the Finance Ministry on April 7 2010 to its subsidiary KNM Process Systems Sdn Bhd for the acquisition of Borsig.
  
  Totalling RM1.4 billion, the tax incentive will apply for a period of four years from 2009.
  
  "We expect a lower tax rate going forward as local operations will be spared from paying taxes. Also, there was no impairment charge for Borsig. Borsig contributed about 45 per cent of total FY09 earnings," said Lee.
  
  The research firms has upgraded KNM to "hold" from "fully valued", but lowered its target price to RM0.60 from RM0.65.
  
  "We expect some overhang in the share price given the EPF's recent heavy selling, but at the current price level, we believe that most of the negatives have been priced in. KNM has also started to buy back its shares.
  
  "We believe KNM's strong RM571.7 million cash balance should support more buyback on share price weakness," said Lee.

Strange. This was basically an article based on HWANGDBS Vickers Research Sdn Bhd (HDBSVR) analyst Lee Wee Keat notes. Why the article titled 'KNM Group expects to perform better this year'? Why ah?

So how?

Time to take a guess.

KNM has got huge tax benefit. 1.4 billion woh. No play-play, yes? With so much incentive, I am going to guess that its net earnings should easily be more than 100 million.

That was my guess.

And I was wrong.

LOL! Yeah, wrong again.

Last night, KNM's earnings before tax fell to just a mere 245 thousand but its final net profit came in at 40.334 million many thanks to deferred taxes.

How? Is this very happening set of earnings or what?

On the Edge Financial : KNM's 1Q net profit falls 60%

• KUALA LUMPUR: KNM GROUP BHD []'s net profits for the first quarter (1Q) ended March 31, 2010 fell by 59% to RM40.33 million from RM98.45 million a year earlier as revenue declined nearly 30% to RM373.3 million on the back of lower utilisation of capacity.
  
  Meanwhile, profit before tax fell to RM249,000 in 1QFY10 from RM124.9 million a year ago. It recorded basic earnings per share of 1.02 sen from 2.51 a year ago.
  
  Compared to the preceding quarter, revenue is lower by 10.38% compared to 4QFY09's revenue of RM416.52 million. However, its profit before tax and minority interest at RM249,000 is better than the 4Q loss before taxation and minority interest of RM80.9 million.
  
  In a filing to Bursa Malaysia, KNM said the difference in the profitability was due to one off foreseeable losses provided in the previous quarter.
  
  KNM's board maintained that it is confident that the group will “continue to be profitable” for FY2010.
  
  At its close on Tuesday, May 25, the stock fell two sen to 48 sen and was the second most actively traded counter on the local bourse.

RM 249 thousand profit before tax is better.... better???

Nice that KNM Group decided to make a comparison when their profit before tax is only rm 249 thousand.

Anyway, I was looking at company's balance sheet.

KNM cash is at 496 million. Lots of money eh? ( Oops... Mr. Lee from HWANGDBS Vickers Research Sdn Bhd noted in early May that KNM had some 571 million!) Of course some would argue that despite the drop, KNM is very rich. Cash rich.

But what about debts?

Oh KNM only has some total debts of 1.157 Billion.

How?

Oh KNM, can you please, please, please, please buyout the company at 90 sen????

Pretty please?