Monday, August 30, 2010

Amount Owed By AirAsia Subsidiaries!

I had mentioned before the fact that AirAsia's subsidiaries owes AirAsia a lot of small change!

In the posting on 19th Aug 2010: Review Of AirAsia Earnings

  • I would like to see AirAsia collect all the money due from its associates! It's no small change.

1 June 2010: How Good Is AirAsia's Latest Earnings?

  • Look at all the amount due from 'jointly controlled entity' and amount due from associates.

    The sum owed is not small, yes?

    I cannot understand it. AirAsia itself owes it banks so much money, and here it is, allowing its associates and jointly controlled entity to owe so much money in return.

From AirAsia most recent earnings report.

As you can see these amounts are certainly no small change.

On today's Business Times...
  • AirAsia associates' debt may be turned into equity

    By Jeeva Arulamapalamb Published: 2010/08/30

    The collective debt from both Thai AirAsia and Indonesia AirAsia is about RM800 million, says Datuk Seri Dr Tony Fernandes

    Low-cost carrier AirAsia Bhd (5099) may convert debt owed by its associates into equity when they seek listing, its chief said.

    Group chief executive officer Datuk Seri Dr Tony Fernandes said that AirAsia's current shareholding of 49 per cent each in Thai AirAsia and Indonesia AirAsia would be diluted once they are listed on their respective exchanges.

    "If our shareholding is reduced to say 30 per cent with new shares issued in a listing exercise, we could opt to buy new shares to increase our shareholding," he told Business Times in a telephone interview.

    Fernandes said the collective debt from both associates was about RM800 million. This option was another consideration to an outright cash settlement from both associates.

    While both associates have turned profitable, Kenanga Research said a cash settlement from the associates was still premature to conclude.

    In the second quarter ended June 30 2010, AirAsia Thailand posted a net profit of 49 million baht (RM4.9 million), compared to a loss of 80 million baht (RM7.9 million) a year ago.

    In the same quarter, AirAsia Indonesia made a net profit of 111 billion rupiah (RM39 million), against a loss of 64 billion rupiah (RM22 million) in the previous corresponding period.

    "Based on our scenario analysis using IPO (initial public offering) and five times PE (price-to-earnings) as the assumptions coupled with RM773 million amount due from both associates, we conclude that the immediate cash settlement could be from Indonesia AirAsia with AirAsia maintaining a 49 per cent stake," Kenanga said in its report dated August 19.

    The airline's outlook for the year remains strong, driven by the year-end festivities and public holidays which generally boost air travel.

    AirAsia recorded 26 per cent growth in revenue to RM940.66 million in its second quarter.
    One of the contributors was a steep rise in ancillary income, which jumped 59 per cent to RM43 per passenger. Ancillary income growth was driven by AirAsia's baggage supersize, cargo and "hot seat" selection.

    Fernandes said the aim was to increase ancillary income to RM60 per passenger within three years.

    As for load factor, Fernandes said it would continue to climb as the airline's routes begin to mature. It was 77 per cent in the second quarter.

    "Only half of our routes are matured so there is another half that is maturing. When our routes are really matured, load factor can increase to about 85 per cent. Generally, it will take another three to four years before the other routes start maturing," he said.

Turning debt owed into equity? ( Err... why is the debt owed so much in the first place? Is it even allowed that a subsidiary 'borrow' so much money from its holding company? )



How about using the debt owed to pay off it's own debts?

Oh, that stock called QL

Dedicated to BB.

  • bullbear said...
    Financial Datas on QL: here
    QL is yet another company with good revenues (8% annually) and earnings growth (>20% annually). Its ROA was around 9% to 10% and with judicious leverage through debt and borrowings, its ROE was around 21% to 22%.

    At its present price, its PE is at its higher end of its historical range. The company has been selling its treasury shares recently. Of course, QL hogs the limelight with its recent purchase of Lay Hong.

Yes, QL is one of the stocks which had an incredible growth and the stock markets, they tend to really love them growth stocks to the death and yes, there are some who believe that growth is one of them market holy grails. Yeah, what's your holy grail? Mine? My flawed view of course is not being stupid and silly and needless to say, knowing when I am the silly jackass should be sufficient enough to make great money.

The charts - charts are not bad a tool for the kiasu leh. You know a stock market kiasu player is one who does not want to be in a stock when the stock is at its peak. Yeah, buying high and selling higher does not exist in their world. :P.

And this is how QL - the stock has performed since 2002. (Chart is provided by and it's price adjusted to account for all the bonus and splits. Hey if it's inaccurate - don't shoot me on this issue! :P )

The financial track record.

The earnings growth is clearly there to be seen.

Some 'purist' - they love to be precise and they like to use stuff like CAGR to check out the growth.

Let's have some fun. :P

Using ttm earnings of 111.673 as the end number.

1. Since 2002 or a time span of 9 years, QL's earnings had a CAGR of 22.33%!
2. But since 2006 or a time span of 5 years, QL's earnings had a CAGR of only 18.01%

Yeah.. as mentioned once before in the blog, the starting point of reference is always crucial and sometimes when one 'handpicks' the starting the point, the CAGR numbers could look seriously impressive. :D

But then... the purist would insist that that simple result is rather significant because it does indicated the growth rate is slowing the most recent 5 years compared to the last 9 years. And there's probably some sort of logic here because growth rate does not last forever and ever and especially for a company's earnings, growth could simply 'peak'.

And yeah.. for the stock market, there's so many approaches and there's so many different techniques and no, I do not think it's a sin if one misses out on a so-called opportunity because they feel that they are uncomfortable with the strategy.

And of course, there are some, who have noted the rather 'thin' margins for QL Resources.

Would this be an issue? For some yes. For some no. As long as the growth remains strong, the 'thinner' margins are acceptable.

And for some, those numbers alone are not sufficient.

Well if the above passes one's test, one would probably want to know what's the driving factor. Yes, if one does 'more' research, QL is a diversified company and it would make sense to have a look at the company's segmentals.

As indicated, marine-based manufacturing and integrated livestock farming are the driving factor behind QL's current success and if one is really interested in this company, it would be sensible to understand more, yes? Yes, do spend some time researching.

Wah.. some smart ass would say 'Walaueh! so much work to do meh? Much easier if the just follow a stock tip and punt on it!

Very true. :D

Of course, it's much easier.

I don't deny it but I for one, like to 'invest' in a stock from a business perspective. That is, I only invest or be a business partner in the stock ONLY when I fully understand what's happening.

Seriously. Say Auntie Susan comes to you and ask if you are interested in joing her in a business ventrue to open a toe massage center. Would you just say yes, because it's Auntie Susan (:P) or would you take the time and do some careful research? Well if the answer is the latter, then why is investing in a stock any different?

Now assume one has done the research ( LOL! I am lazy to do the research! :P) and one is satisfied, then perhaps one should look at the company's balance sheet.

Yes, sometimes to read that a company's making money, is simply not enough.

Remember Megan Media issue? Company at one time kept saying there's profit, lot's of profits but its debts and receivables kept on growing at insane rate. Well not insinuating anything but just saying that it's much better to know a bit more than not knowing anything at all. :P

The Balance Sheet.


Clearly the balance sheet is NOT as nice as the company's earnings.

The clear debt build up is very clear.
But some would argue that cash recently has 'grown'...

Now this is QL's Q4 earnings reported on May 2010: Quarterly rpt on consolidated results for the financial period ended 31/3/2010. Open the Excel file attached and look for the Cash Flow statement. Do you like what you see?

I am sorry but I don't.

As mentioned in a discussion back in 2007, "there is no breakdown of how and where the money went... see how everything is just lumped as investing activities? So what's the investing activities? " And what's the financing activities?

Yes, I do feel QL ranks poorly in the issue of being transparent in its disclosure of it's cash flow!

The cash flow is so important to the investing public. The investing public needs to know where the money is coming from and it needs to know where the money is flowing out!

To not explain is not respecting the investing public at all!

hehe... these comments are as it is. It's my flawed thinking and if you think I am wrong, then I am wrong. My opinions are a dime a dozen. :D ( LOL! Some say 'Talk is cheap because supply more than demand! :P )

So how?

The most recent fiscal year, cash balances 'improved' to 106.112 million. Surely this is impressive, yes?

But... but.... butttt.....

The cynical would also be quick to point out that DEBTS as 'improved' to a whopping to 412.330 million!


Perhaps the cash balances 'improved' because of a drawdown in the company's borrowings.

Not possible?

Yeah... how unfortunate that QL does NOT want to disclose properly what's happening in their cash flow statement. :(

And the numbers 'purist' would be quick to draw out their financial calculators and compute the CAGR of QL's debts!!!!

In 2002, QL's debts was 156.240. 9 years later, the debt is now 401.424 (and as the earnings CAGR, the ttm numbers is used as the 9th year). And the debt CAGR is some 11.05%.

Now for some, this is acceptable because the earnings growth rate was some 22.33% ( see earlier part of this posting).

But for some, such debt build up is a no-no.

And for some, it's way too complicated. :P

Here's perhaps a more simplier perspective.

Now if one sums up the earnings since fy 2002, one can see that since 2002, QL has earned some 601.407 million.


But at fy 2002, using the simplistic net cash approach (net cash = total cash - total debts) , one saw that QL was in a net debt of 136.727 million.

Now remember, since fy 2002, QL resources had earned some 601.407 million.

Now as a businessman or business lady, what do you want to see?

Don't you want to see the company is able to generate some sort of wealth from this 601.407 million?

And in terms of wealth, won't it be logical that the company's net cash position improve?

601.407 million woh!

And how did QL's most recent quarter earnings showed? Total cash stands at 70.720 million. Total debts is at 401.424 million! Or a net debt of 330.704 million!

As stated in a discussion back in 2007, "So the issue is simple. As an investor, one probably should be weary that the company is not able to retain some sort of wealth from all the earnings it had earned."

Ah... but some would insist that such a perspective is flawed. :D


ps: If u ask me, I would suggest you asking BB. He's the expert. Not me. :D

ps: LOL! The Star Biz have an article on QL: Is QL Resources in for more M&As?

1. I am a nobody.
2. I am not responsible for anyone's investments.
3. I am not a sotong. :D
4. I am certainly not an independent investment advisor.
5. Since I am not an in dependant investment advisor, I cannot guarantee that you should lose money.
6. Most important, I find no motivation to talk about stock price movements. Yeah, I do not indulge in guessing what a stock price will or will not do. So please spare me all the chats that you think this stock will go down by so much or this stock will soar by so much.

Friday, August 27, 2010

Regarding JCY International

JCY was listed on 25 Feb 2010. It's performance since listing (ipo price was 1.60) have been rather dire.

Now UBS AG and CIMB were the joint managing underwriters and bookrunners for the IPO.

And since this is a very 'new' stock, I would refer to CIMB Research IPO notes on JCY.

But there wasn't an IPO research notes on JCY from CIMB Research!

They only began coverage on the stock on 19th April 2010. JCY then was 1.74 and CIMB gave it a very optimistic target price of 2.68.

And mind you... the report.... was 52 pages long!


Page 26 of the report..

Hmm.. some might not like that arrowed statement.

  • JCY generated RM19m of negative free cash flow in 1QFY10 due largely to the repayment of RM80m owed to its shareholder.

Yes, JCY is in net debt and the very cynical would be fast hand, fast leg and point out that one of the very first thing JCY did as a listed entity was to pay off the debts owed to one of the shareholder. Yo.. it's 80 million bucks hor!

CIMB's valuation of JCY... and the key is 12x fy11 PE.

12x CY11 PE

To give a simple illustration on how to play the funky music.

Say a company's current eps is indicating an annual eps of 13 sen.

Ok, the cynics would say, to make the stock sexy and seductive, the eps is projected to GROW to 22.3 sen by a whopping 71.5%! ( LOL! say only lah... assume. :P )

  1. Using 12x PE on 13 sen, the stock would be valued at 12x0.13 = 1.56.
  2. Using 12x PE on 22.3 sen, the stock would value at 12x0.223 = 2.68.

See how the stock is all dressed to look super seductive?

Come on honey... you want me or not?


Yes, I do not doubt future earnings is very important because a company is only worth what it could earn in the future but sometimes they are those insinuating reports that really suggest that a cow could be orbited to the moon so that it could do its nightly moon walking! ( LOL! A moon walker cow! :P ).

Seriously, there are many a times when one is bewildered by the earnings estimates made on a company.

So where is CIMB's key financial tables for JCY?

I found my answer at Page 47.


Here's my flawed interpretations.

JCY earned some 207 million for its fy 2009. CIMB says times are good in 2010, so JCY should earn some 359 million! And 2011, JCY earnings will be even more super. JCY should earn some 441 million by then!

How? Am I reading it wrongly?

So the whole key to CIMB's valuation of JCY is based on an optimistic earnings of 441 million or an eps of around 22.3 sen.

So how has JCY fared so far?

Ok.. I am aware that there are only 3 quarters of earnings posted by JCY and it's seriously too few to pass judgement but for the sake of comparing what JCY earned versus CIMB's estimates...

Ahm... total 3 quarters so far is only 198.944 million.

And to make matters worse, the earnings are declining each quarter.

Would JCY even post a net earnings of 250 million for its fy 2010? I dunno.

And what's CIMB's estimates again? 359 million for 2010 and 441 million for 2011!


Ah... but I have to give CIMB a little credit. :P

Why? Because they have continuously re-adjusted their estimates. ( Cynics would say ... what for? Damages already done!)

7 May 2010.

21 May 2010 - Target price lowered!

CIMB research said:
  • ... we cut our FY10-12 EPS by 13-17% for lower sales and margins after factoring in our new forex forecast of RM3.15:US$1 for FY11 vs. RM3.40 previously.

( Ah... strong RM ( or issit lembik USD) hurting JCY. )

fy 2010 earnings is now lowered to 297.3 million and fy 2011 earnings is now lowered to 370.8 million.

17 Aug 2010 - CIMB acknowledges the possible weakness but it refrains from jumping the gun and held onto their earning estimates and since JCY has fallen to 1.20, CIMB used the classical 'it had already priced in the possible weakness' as their reasoning.

And on this Monday, 23 Aug 2010, CIMB writes again on JCY.

JCY has fallen to just 1.17. (Will it be a penny stock soon? :P )

Earnings estimates are cut once more and the target price is lowered!

But the valuation method remains the same - it's based on 12x CY11 P/E.
  • Accordingly, our target price, which is based on 12x CY11 P/E, falls from RM2.28 to RM1.88.

The financial table on JCY from CIMB

JCY is now projected by CIMB to earn some 263 million for its fy 2010.

And ....... for fy 2011, JCY is now projected to earn only 304.7 million or an eps of 14.9 sen.

Hmm... 12x CY11 PE... my calculator for 12 x 0.149 = 1.788.... I wonder how CIMB got 1.88. :P

And there you go.... the story of how JCY's earnings projection went from 441 million to just 304.7 million.

(ps: some are fussy and they would demand that I be more precise. :P

Ok.. the 441 million was projected on 19th April 2010. On 23 August 2010, that projection has been revised down to just 304.7 million. Precise enough? :P )

For which fiscal year did P&O earned more than 30 million?

In the posting And So P&O Earnings Are Said To Be Inline With Expectations, I asked a very simple question.

  • For which fiscal year did P&O earned more than 30 million?

Why was this question asked?

Let's roll back.

On 31st July 2010, I wrote Regarding P&O: The Stock That Flew Into Orbit and I highlighted P&O amazing buy call from Kenanga Research.

Remember, KN's buy call was based on FY11 earnings.

  • 92% upside to base case valuation of RM 1.15. This values the group at an undemanding FY11 PER of 6x.

Yes we need to ask ourselves how muchie is that said earnings estimate. Answer: 43.47 million.


Because if the said earnings is too optimistic, then........ ? :P

So back to my question:

  • For which fiscal year did P&O earned more than 30 million?

Here's my complied table (from Bursa website - pls feel free to verify data cos I could always make a mistake. :D )

Now I could have used data from 2000. That would have been a sufficient guide. And my answer for that question would have been P&O have never earned more than 30 million this decade. Yes, since 2000, P&O have never earned more than 30 million!

Yes.. past data does not guarantee that the future would be the same but.... some serious consideration have to be taken into account, which is P&O has not earned more than 30 million since 2000. And here is K&N, telling the investing public that P&O is cheap because it can earn some 43.47 million.




And yes, to be fair, P&O did earn some 68.325 for its fy 1999. That was the only time P&O earned more than 30 million, as per the earnings report on Bursa website. That's one year in a span of 12 years that P&O earned more than 30 mil!


And yes, I am aware that ..... sometimes... there are days when earnings and fundamentals just doesn't matter. :D

And yeah, some would quickly correct my flawed ways by saying... P&O rally won't be based on earnings.

It's all about the potential M&A.

Ah... yes... potential M&A's makes stocks very interesting.

Stocks won't be valued in the shambolic ketam way using low PE earnings valuations like when the owners turn priate and privatised their listed stocks. In fact most of the time, they used the 'premium over current traded price' as the valuation method.

No sir!

M&A are so very the special.

They are priced to whatever best possible valuation they could think off.

Hey... willing buyer, willing seller. :D

Hey look at the other ketam stock. They went into collaboration talks only. And the share price doubled! LOL! Love the market yo!

Past postings:

  1. 31 July 2010: Regarding P&O: The Stock That Flew Into Orbit
  2. 2 Aug 2010: P&O: And The Flying Stock Soars Even Higher!
  3. 21 Aug 2010: And So P&O Reported Its Earnings
  4. 25 Aug 2010: And So P&O Earnings Are Said To Be Inline With Expectations

Thursday, August 26, 2010

Regarding London Biscuits Borrowings

Given the fact that I had already made two blog postings on London Biscuits, I felt no motivation to make another posting until I saw the following coverage on the Edge Financial Daily: Did London Biscuits sell the wrong ‘egg’?

Yes, until I saw the following statement in that article.

  • The company currently sits on a cash pile of RM15.61 million. Its borrowings, which consists of term loans, bank overdraft, and banker’s acceptances and revolving credit, stand at RM176.35 million
Borrowings only at 176.35 million?

Now because I had clearly stated otherwise, I felt it was only right that I make this posting.

Here's my SOURCE of data.

London Biscuits' May 2010 earnings: Quarterly rpt on consolidated results for the financial period ended 31/3/2010. The attached pdf file.

How much was the total borrowings as stated in London Biscuit own quarterly earnings notes?

Why is the Edge Financial Daily stating otherwise?

And regarding that whole eggs issue.

I find it amusing that the most sensible issue was not asked.

Why is London Biscuits making such 'investments' in the first place? Can it afford it? Yes, does London Biscuits have the cash to make such investments?

(let's forget that most of the stuff that was mentioned on the Edge Financial Daily article could be found in my blog posting: Review Of London Biscuit )

When did London Biscuit 'invested' in Lay Hong?

According to the Edge Financial Daily:
  • The layer cake producer had originally invested RM12.08 million in Lay Hong since 2006.
As stated in my blog posting, London Biscuits announced its initial investment in Lay Hong on 16th November 2006. ( see announcement on Bursa website here )

Now to answer my question on whether London Biscuits can afford this investment, it's best we refer to the most recent fiscal year earnings report, yes?

On 1st Sep 2006: Quarterly rpt on consolidated results for the financial period ended 30/6/2006. The document attached in that earnings report provides the clear answer.

How much cash did London Biscuit had? 17.266 million. Total Loans 108.557 million.

With that balance sheet, did London Biscuit have the money to 'invest' in Lay Hong in 2006??? Could it sensibly afford that 'investment'?

The next fiscal year: Aug 2007: Quarterly rpt on consolidated results for the financial period ended 30/6/2007. Yes, a year later, London Biscuits loans soared to 140 million. Cash declined to 16.422 million.

How? Won't you say that London Biscuit essentially 'borrowed' to make such an investment? Was it sensible to make such an 'investment' when London Biscuit wasn't even financially strong?

Now London Biscuit disposed at a loss. It said it needed to boost its cash balances.

Think about this hor.

And what about the other investment like Khee San?

Isn't that 'investment' more incredible?

And like Lay Hong's case, was London Biscuits sitting on a huge pile of cash that the management deemed it as wise and prudent to invest in Khee San?

The Edge Financial Daily did report this poor investment.
  • In Sept 2007, London Biscuits acquired 18.420 million shares, or a 30.7% stake in Khee San Bhd for RM27.630 million, or RM1.50 per share. Unlike Lay Hong and TPC Plus, which represented upstream diversification, the purchase of Khee San, a manufacturer of sweets, was meant to widen London Biscuits’ product range.

    However, the Khee San purchase has not turned out well financially. Khee San’s shares last traded at 56.5 sen, or 62.3% below London Biscuits’ cost three years ago.

    Khee San’s earnings have also not been particularly exciting. The company earned net profit of RM1.39 million, or 2.32 sen per share, on revenue of RM51.93 million for the nine months to March 31, 2010.

    For the financial years ended June 2008 and 2009, Khee San’s net profit was in the range of just RM1.6-1.7 million. In FY2007, it posted a net loss of RM0.88 million.
That purchase was reflected in its earnings notes on Aug 2008: Quarterly rpt on consolidated results for the financial period ended 30/6/2008. And the most important fact from that earnings report is that London Biscuits loans increased to 190 million.

Let me repeat my questions again..

  • How? Won't you say that London Biscuit essentially 'borrowed' to make such an investment? Was it sensible to make such an 'investment' when London Biscuit wasn't even financially strong?
And this Khee San investment is now '62.3% below London Biscuits’ cost three years ago.'!!!

Americans Pulled USD 53.279 Billion Out Of The Equity Markets

Posted recently:

  1. Main Street Telling Wall Street That The Equity Markets Stinks!
  2. Stocks Rally And US Equity Investors Rallied To Get Out Of the Equity Markets

This issue was actually highlighted on the NY Times on 21st Aug 2010. ( :P )

In Striking Shift, Small Investors Flee Stock Market

A short passage from that article.

  • ..... Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday.

    One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking.

    So is the timing. After past recessions, ordinary investors have typically regained their enthusiasm for stocks, hoping to profit as the economy recovered. This time, even as corporate earnings have improved, Americans have become more guarded with their investments.

    “At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.”

    The notion that stocks tend to be safe and profitable investments over time seems to have been dented in much the same way that a decline in home values and in job stability the last few years has altered Americans’ sense of financial security.

    It may take many years before it is clear whether this becomes a long-term shift in psychology. After technology and dot-com shares crashed in the early 2000s, for example, investors were quick to re-enter the stock market. Yet bigger economic calamities like the Great Depression affected people’s attitudes toward money for decades.

    For now, though, mixed economic data is presenting a picture of an economy that is recovering feebly from recession.

    “For a lot of ordinary people, the economic recovery does not feel real,” said Loren Fox, a senior analyst at Strategic Insight, a New York research and data firm. “People are not going to rush toward the stock market on a sustained basis until they feel more confident of employment growth and the sustainability of the economic recovery.”

LOL! The economic recovery does not feel real. What an under statement. :P

ps: saw this on MSNBC: Regardless of numbers, it feels like a recession

Anyway here's the weekly update and as expected, more money is taken out of the equity markets!

And the money taken out since 28th April 2010 is really, really staggering!

Yes, some USD53.279 BILLION has been taken out from long term equity mutual funds!

USD 53.279 Billion yo!

That's 16th consecutive weeks of outflows!

Heck, the Americans do not care if their equity market is raising or sinking, they just want out! (Yeah.. stock chart not required! :P )

Yes, Main Street is telling Wall Street that their equity markets sucks!

They want out!

And Wall Street better start worrying. As stated before investment bankers are seeing layoffs! ( see Barclays Layoffs: The First of Many Axes to Fall?, then Credit Suisse Follows Barclays in Layoffs. )

This is not a shocker. If their customers continues to withdraw at this place, for whom does the investment banker work for?

And here's one interesting posting: If Wall Street Starts Layoffs, Everyone Should Worry

Review Of Fajarbaru's Earnings

Fajarbaru reported its earnings last night. This posting is an update to the following two postings.

  1. A Quick Look At Fajarbaru Builder
  2. Fajarbaru Venturing More Into Property Development

Here's the updated table.

At first glance the earnings looked to good. :P

From the company's earning notes.

  • The Group registered a profit before tax of RM13.735 million for the current quarter as compared to the preceding quarter profit before tax of RM7.687 million. The profit recorded in the current quarter was contributed from construction activities and recovery of bad debts of RM 2.7 million.

Since such earnings is a one off, it's best that one takes note of this development.

For the fiscal year, the company has announced that it will distribute one treasury share for every twenty existing shares.

Regarding the huge cash balances of 124 million. In the posting Fajarbaru Venturing More Into Property Development, one have to note that purchases have not been completed yet. As stated in Fajarbaru's earnings notes.

  • On 31 May 2010, FBGB announced that the Company had on 27 May 2010 entered into a Sale Shares Agreement ("the Agreement") with Ahmad Bin Patong, Abdulla Hamid Bin Manap and Rahadian Mahmud Bin Mohammad Khalil (“the Vendors) to acquire 100,000 ordinary shares of RM1.00 each representing 100% the issued and paid-up capital of Temasek Perkasa Sdn. Bhd. for a total consideration of RM15,000,000.00. The acquisition is expected to be completed within 6 months from the date of agreement
  • The Company had on 12 July 2010 entered into a Share Sale Agreement ("the Agreement") with the following parties Dato’ Chua Tiong Moon, Mary Tan @ Tan Hui Ngoh, Koh Koo Kee @ Koh Ah Fook (“the Vendors) to acquire 348,255 ordinary shares of RM1.00 each representing 49.75% the issued and paid-up capital of Potential Region Sdn. Bhd. (Company No. 229098-H) (“PRSB”) for a total consideration of RM16,000,000.00. The acquisition is expected to be completed within four months from the date of purchase

Wednesday, August 25, 2010

A Look At K-Star Sports

K-Star was just listed recently and yes it has the same story that's needed to be told all over again.. sigh.

Here's OSK IPO coverage of K-Star.

The right stuff was mentioned!

The so-called growth story and for K-Star, it's the double digit growth.

The low PE valuations.

And how do they play the LOW PE VALUATIONS again?


As can be seen in the earnings estimate above, OSK estimated a net profit of 52 million for K-star.

Remember... the whole pricing... the whole fair valued is based on the assumption that K-Star earnings should be around 52 million, give or take a couple of million here and there.

Now K-Star reported its earnings on the 20th August 2010.

It was K-Star 2nd quarter earnings and K-Star only managed to make 5.94 million, giving it a half year earnings of only 16.467 million. ( see K-Star posts lower 2Q net profit at RM5.94m )

At this rate, K-Star earnings should only be about some 30 million, give or take a couple of million here or there.

And OSK's fair value was based on the assumption K-Star should earn 52 million.

*roll eyes*

According to that OSK report, K-Star raised some 32.9 million for its IPO and K-Star was listed on the 4th June (postponed from 31 May 2010).

It's now 24 Aug 2010 and on today's Star Biz, there was an article on K-Star: K-Star looks to raise funds

  • It is looking at options such as rights issue, share placement and even a dual listing in Taiwan

K-Star wants to raise funds???????????????????????

Errr.... is the Malaysian investing public an atm machine?


Shame On The 60.39% Who Voted For Genting Malaysia's UK Casino Purchase

On Star Biz: Genting M’sia gets nod for UK casino purchase

  • Wednesday August 25, 2010
    Genting M’sia gets nod for UK casino purchase

    Shareholders approve the deal after initial misgivings

    KUALA LUMPUR: Shareholders of Genting Malaysia Bhd voted yesterday in favour of resolutions to acquire the British casino operations collectively known as Genting UK from Genting Singapore plc despite initial misgivings over the related party transaction nature of the deal.

    It is understood that shareholders mainly asked questions on the rationale for the acquisition and on profitability, as Britain is not seen as a growth market due to prevailing economic conditions and tougher operating conditions.

    “Shareholders wanted more clarification on the acquisition and whether it’ll be profitable,” a shareholder said, adding that HSBC Nominees and Cartaban Nominees called for a poll before the voting.

    The vote was 60.39% or 1.17 billion shares, for the acquisition, which was worth RM1.67bil. Genting Malaysia, the owner and operator of Resorts World Genting, is 47.33% owned by Genting Bhd, which also owns a 52% stake in Genting Singapore.

    The over-lapping shareholding among certain institutional shareholders in Genting Malaysia and Genting Singapore could have been a major catalyst in the way the voting turned out as it did. Blackrock Fund Advisors and Vanguard Group Inc were among those with stakes in both companies.

    Genting and its chairman cum chief executive officer Tan Sri Lim Kok Thay did not take part in the voting.

    An analyst with a foreign investment bank told StarBiz that the voting pattern showed that these shareholders preferred to see the British casino operations, which faced quite a few obstacles including higher taxes and a tougher operating environment, under Genting Malaysia.

    Analysts in recent reports said the British casino operations were a better fit for Genting Malaysia rather than for Genting Singapore.

    As for Genting Singapore, the analyst said this would look good for the company, which would be able to concentrate on the integrated resort business.

    Moreover, the gaming industry in Singapore was recently re-rated with Genting Singapore showing sterling results.

    A market observer noted that in a situation where there were overlapping institutional investors and better prospects in Singapore, it was “normal to make Genting Malaysia a sacrificial lamb to help Genting Singapore”.

    He added that based on the number of shares, it appeared that these institutional shareholders were quite active in voting.

    Meanwhile, Genting Malaysia deputy chairman Tun Mohd Haniff Omar said all proposals to expand the business were looked at based on merits by the company’s board, including those involving related party transactions.

    “We’ve this opportunity in Europe (with Genting UK), we hit the ground running with a going concern that is already cash flow positive following the remedial measures taken by Genting Singapore,” he said.

A terribly sad day for corporate Malaysia.

Quote: "Shareholders approve the deal after initial misgivings"

Well, lets be more accurate and state it boldly that 60.39% voted for the deal.

Which means some 39.6% voted against!!!!

Which means some 39.6% understands the utter nonsense in this RELATED PARTY TRANSACTION!

Yeah... Genting Malaysia's UN Fortunate Entry Into UK Casino Business

And this 2nd July 2010 news flash said it all...

  • DJ MARKET TALK: Genting Singapore +1.7%; Fortunate UK Exit -Citi
    Dow Jones Newswires 02 Jul 2010 9:50am

    0150 GMT [Dow Jones] Genting Singapore (G13.SG) +1.7% at S$1.20 as proposed GBP340 million (S$688.8 million) sale of money-losing U.K. operations to sister company Genting Malaysia (4715.KU) fuels hopes for stronger earnings profile. While Genting Singapore will book FX translation loss of S$338 million this year, bottom-line excluding exceptional item expected to improve. "Considering that the U.K. gaming operating business remains very tough, we view this exit as an escape for Genting Singapore and we view it as fortunate in that there was a buyer in the market," says Citigroup; "it means Genting U.K. will no longer drag on the performance of Resorts World Sentosa." Still, keeps Sell call, S$0.65 target on valuation grounds. Orderbook quotes suggest minimal upside beyond S$1.23.

Fortunate that the buyer was related to Genting Singapore!

Fortunate that Genting Malaysia is buying a business which operates in a very tough business environment!

Good to be related, eh?

Good that the deal is voted through, eh?

ps: For the BRAVE 39.6%, you can still VOTE with your feet!

Featured Report: K&N On Sino Hua-An Part II

It's about an year ago, 18 Aug 2009, I wrote the following posting: Featured Report: Kenanga On Sino Hua-An

Let me highlight what I wrote then..... >>>>>>>>>>>>>>>>>>>>>>

Last night Hua-An's lost some 13.279 million and year-to-date losses were 36.911 million.

And Hua-An stock price is also 0.545. :p2

Despite losing money, Kenanga insist that the prospect is bright! (losing less money is good eh?)


Kenanga still have a buy on Sino Hua-An but with a lower target price.

Yeah.. losing less money is good. :D

So who wants Hua-An?


Today... Sino Sua-An price is at 35 sen and Sino Hua An is finally making money!

Yes, Sino Hua An announced profits in its quarterly earnings notes last night. It made a profit of 4.844 million for the quarter and year-to-date, Sino Hua-An made some 2.362 million!

Guess what is K&N's recommendation today?


Yes you heard me correct. It's a SELL with a target price of 0.26 sen!


In short... :P

Aug 2009: Sino Hua An made less losses! (yes less losses) and Hua An was at 0.545. K&N called it a BUY with a target price of 0.63.

Aug 2010: Sino Hua An finally made money and Hua An is at 0.35. K&N now calls it a SELL with a target price of 0.26!

Now correct me if I am wrong here but isn't K&N suggesting that Sino Hua An is only worth a BUY when it's losing money? ( :p2 )



I just LOVE this game!


And So P&O Earnings Are Said To Be Inline With Expectations

And so I said the following in the blog posting And So P&O Reported Its Earnings

  • P&O announced its earnings last night. It said it made some 11.072 million. Earlier in the posting on P&O: Regarding P&O: The Stock That Flew Into Orbit, I noted that P&O had a half year losses of 1.417 million, which means P&O's total 3 quarters earnings for current fiscal year is 9.66 million.

    K&N estimates for current fiscal year is 32.87 million!


    Which means P&O have to double their earnings for the last quarter of this fiscal year to 23.2 million 'JUST' to be in-line with K&N's estimates!

    WakaWaka! Huhu!

And since K&N had been the champion for the stock, I guess it's only fair I highlight what they are saying.

  • P&O’s 3QFY10 results were inline with our expectations. Overall sales were relatively strong and claims were modest.

Inline within their expectations? Their fy 2010 expectations was 32.87 million. P&O only did 11.072 million for 3 quarters.

Like this also they BOLDLY claim that P&O earnings were inline with their expectations??


Good or what! :P

I then held my breath and continued.

K&N then claimed that P&O earnings were actually lower... because ... of the absence of the write back of allowance for diminution in value of earnings. LOL!

  • 3QFY10 revenue of RM109.7m was up by +22% YoY vs. 3QFY09 of RM89.6m. YTD, the group has achieved total sales of RM360.1m or 25.6% YoY. We believe both increases were mainly attributable to higher gross premium recorded and continued capture market share in motorcycle segment. Lower net profit of RM11.1m (-56.9% Yoy) was mainly attributable to the absence of write back of allowance for diminution in value of investments in the current quarter.

And then K&N recognise that they are way behind its earning estimates for P&O.

  • Despite 9M’s profit of RM9.7m at only 29.4% of our forecast, we understand that the annual net profit would only be known by final quarter after the actuary testing on IBNR reserve in 4Q. Based on our estimates and guidance, it is highly likely that the group will be able to exceed our FY10 net profit forecast of RM32.9m.

I do hope you and I read it correctly. :D

Despite 9m profit of 9.7m at only 29.4% of their forecast, K&N remains positive and they feel it is highly likely P&O will able to exceed their FY 2010 net profit forecast of 32.9 million.

And K&N's earnings valuation of P&O. (ah.. this is important... cos if the Prudential talks does not turn out... this is what you are left with.)

  • We maintain our base case valuation of RM1.15. This values the group at an undemanding FY11 PER of 6x, which is at the low end of the 6-15x 2010/11 PER of Malaysian general insurers.


See this is where and how the 'beat the expectation' games is played.

As can be seen, K&N admits that P&O's CURRENT earnings is way behind its expectations. It's only 29.4% of its expectation.


And its expectation is already 32.9 million.

Which is rather high, yes?

But... but.... but.... K&N is NOT using this set of numbers!


K&N is not even using 32.9 million!

K&N's valuation is based on fy 2011 numbers!

And as pointed out in the posting Regarding P&O: The Stock That Flew Into Orbit, K&N's earnings estimate for P&O fy 2011 is ................................................ 43.47 million!!!!!!




Yup, as it is... P&O is only 29.4% of K&N's earnings estimate of 32.9 million.

And the fair value of P&O is 1.15. This is based on earnings valuations on the assumption that P&O can earning a whopping 43.47 million!!!

yes, my dearest, this is how the beat the earnings estimate game is played!

ps: Here's a question: For which fiscal year did P&O earned more than 30 million?

Past postings:

As A Listed Stock, Oversea Enterprise Announces Losses In Its 2nd Quarterly Earnings Report

Restaurant operator Oversea Enterprise was listed on 1st April 2010.

It was underwritten by OSK Investment Banking.

Here's a good article on 23 Feb 2010: OSK IB: More IPOs in the pipeline.

  • ... OSK Investment Bank is the adviser, sponsor, sole underwriter and placement agent for Oversea’s IPO exercise.

    The group currently operates five Restoran Oversea in the Klang Valley and two in Ipoh.

    It also runs a contemporary dining cafe, Tsim Tung, in Cheras which caters to young people.

    Oversea, en route for a listing on the ACE Market of Bursa Malaysia tentatively on March 30, is looking to raise some RM13.1mil via its IPO.

    The IPO entails a public issue of 56.9 million new ordinary shares and an offer for sale of 9.5 million vendor shares with a par value of 20 sen at an offer price of 23 sen each.

    Of the public issue, 35.4 million shares are for private placement, 12 million for the Malaysian public and 9.5 million for eligible directors, employees and business associates of the group.

    According to Yu, Oversea also plans to refurbish its existing outlets to increase seating capacity.

    For the financial year ended Dec 31, 2008, Oversea registered a net profit of RM6mil on revenue of RM62.8mil. The company registered a compounded annual growth rate of 27% over the last three financial years.

    Its FY09 results are expected to be announced this week.

    OSK Investment Bank head of equity capital markets Gan Kim Khoon said Oversea would be the first company to be listed on the ACE Market since new rulings were announced last year.
Here's a nice cover story on Oversea on Star Biz: Oversea ready to take the next step

Now OSK did not rate Oversea in its IPO write but it did somehow produce a 9 page report on Oversea Enterprise.

  • Valuation. We compare Oversea against its closest peers, namely KFC Holdings, QSR
    and Food Junction from Singapore which are currently trading at a forward PER in the
    range of 9 to 11x. With its offer price of RM0.23 which is at 7.8x (based on an enlarged share based of 245m) against FY10 EPS, we think that the IPO price is fair given that the company earnings is relatively smaller than the mentioned players.

Now I may be wrong but I do believe that the OSK is valuing it the correct 'way' by suggesting that a PER of 7.8x is fair when compared to others in the similar business sector. However, the key issue would be the E in the PE.

As mentioned before many times, the P and E, they are never constant and to compounds the matters worst, the E represent ESTIMATE earnings and an estimate is an estimate is an estimate.

Now OSK is basing the whole valuation exercise based on the an estimate that Oversea could earn some 7.2 million for its fy 2010. Yes, rather smallish.

May 2010, Oversea announced its first earnings as a listed ACE Market stock: Quarterly rpt on consolidated results for the financial period ended 31/3/2010. It made some 1.545 million from a sales revenue of 18.648 million.

Here is its PBT breakdown.

Last night Oversea announced its earnings.

It made losses!

It reported some 1.175 million losses from a sales revenue of 12.194 million. (Yeah, sales revenue went down a lot! What's up yo? No one eating at Oversea? )


The lower sales revenue simply isn't cutting it and clearly Oversea needs to generate sales of around 18 million to be 'averagely' profitable.

From the company's earnings notes.
  • The Group registered a revenue of RM12.19 million for the current quarter under review representing a decrease of RM6.45 million or 34.6% from the RM18.65 million in the preceding quarter. The Group’s loss before tax was RM1.18 million for the current quarter under review as compared to profit before tax of RM2.13 million in the preceding quarter.

    The loss before tax recorded for the current quarter under review was mainly due to the low season in banquet sale. Revenue from the restaurant segment decreased from RM18.67 million in the preceding quarter to RM11.10 million. On the other hand, revenue from the manufacturing segment increased by RM1.1 million due to the commencement of mooncake production. Also included in the loss before tax are expenses incurred pursuant to the Listing amounting to approximately RM228,000, which was recognized this quarter in accordance with FRSIC Consensus 13.

I guess I can't be too critical 'yet' because the 'low season in banquet sale' does appear to be a justifiable reasoning. Yeah, them wedding/birthday/anniversary/annual dinners banquet sale should boost Oversea earning come end of the year and since this is the only 2nd quarter of earnings report from Oversea, surely it is way too early to pass judgement.

But... for the kiasu investors... a bit of scepticism is probably understandable.

This is the performance of Oversea since listing.

Tuesday, August 24, 2010

London Biscuits Disposal Of Its Stake In Lay Hong

Since I had blogged on London Biscuit the other day in the posting Review Of London Biscuit and London Biscuit is currently suspended because of its disposal of its stake in Lay Hong.

The disposal.

  • Further to the announcement made on 23 August 2010 pertaining to the above mentioned matter, the Board of Directors are pleased to inform that :-

    i) The total consideration is RM11,851,759.89; and
    ii) The highest percentage ratio is 15.78%.

The following statements is most interesting.
  1. This disposal will allow the Company to realize its investment in LHB and the proceeds will increase the Company’s cash and bank balance position.
  2. LBB has invested in LHB since 2006 and the original investment cost of RM12,088,798.
Original investment cost is 12.088 million. Sold yesterday (err.. Bursa Malaysia is now over 1400 points eh? Si Lembu lari ah? :P ) at a disposal price of 11.851 million!!!!!
See this is why I do not like to see our local listed companies dabble in the stock market!
And let us not forget the point no 1.
  • This disposal will allow the Company to realize its investment in LHB and the proceeds will increase the Company’s cash and bank balance position
Let me reproduce the balance sheet table I made in the posting Review Of London Biscuit again.

Look at the 10 Q3 cash. It says 15.608 million.
Look at the size of London Biscuit's debts. 218.004 million!

Clearly London Biscuit is lacking cash right now, yes?
Isn't it so clear that London Biscuit needs to 'sell'????

And yes, why did London Biscuit's debts soared in the first place?

As mentioned and shown clearly in the posting Review Of London Biscuit, London Biscuit used cash generated from bank borrowings to make such 'investments'.

And the return from one such investment?

Original investment cost is 12.088 million.
Disposal price of investment is 11.851 million.


Lost money in the investment and not forgetting the cost of borrowings needed to make such an investment!

Yes.... it's absolutely shambolical!

And yeah.. let us not forget about the other shambolical investment in Khee San!
  • The Board of Directors ("BOD") of LONBISC are pleased to announce that the Company had on 17 September 2007 signed a Sale & Purchase Agreement dated 17 September 2007 between KHEE SAN REALTY & HOLDINGS SDN BHD (“KSRH”) for the Proposed Acquisition of 18,420,300 ordinary shares of RM1.00 each in KHEESAN representing approximately 30.7% of the enlarged issued and paid-up share capital of KHEESAN (‘the said Sale Shares”) for a total cash consideration of RM27,630,450.00
18,420,300 million shares of Khee San bought at a CASH consideration of 27,630,450.
Glee! That's a cost per share 1.50.
What's the price of Khee San today?

Review Of Fima Corp's Earnings

Back in 2006, I was asked a very simple question, I was asked if an investor could know 'something is wrong before it drops'. Yes, how does the investor knows if they are holding long term for a stock that could end be the next Megan or the next Transmile.

Now as mentioned in the blog posting, ROI on Fima Corporation, I mentioned that investor could ALWAYS take some precautionary steps. I still stick by this stance. For me, good companies could always turn bad. A change of management could easily disrupt the whole financial structure of a company and could easily turn a well managed company to a company without focus. A change in the business economics could also easily bring a company to its knees and yes, sometimes, we could also be wrong in our own reasoning and we could end up being a long term shareholder in a company which is littered with every possible financial shenanigans! Yes, instead of following all those investment thesis to the very dot, I strongly feel that one should be flexible and accept the very fact that we could easily err with our stock selection or our stock selection, through no fault of ours, could turn lemon.

And back then, one perhaps could use the following arguments to 'invest in Fima Corp'.

  • Take for example Fima Corp.

    Fima Corporation, is the manufacturing arm of Kumpulan Fima. Fima Corp's core business is printing and trading security and confidential documents such as travel documents, permits and licences.

    Ok.. little bit background on Fima Corp.

    Now, Fima Corp has an interesting track record and if one looks at the historical track record, one would note that this company is enjoying a tremendous turnaround in its fortunes since fy2003. (err.. some might define it as growth too!)

    Secondly, since the turnaround of fy 2003, look at the start of 2004 Q1 quarter. It's piggy bank then was 12.106 million. A year later at the start of 2005 Q1, it's piggy bank has now grown to 32.494 million. And come end of fy 2005 q4, its piggy bank now stood at 56.775 million. This is what I think is desired in OUR business isn't it? We want to see our business piggy bank grow! (tiok boh?)

    Thirdly, business profit margins is real decent, plus its dividend is on the drastic rise too!

    These are some of the criteria that an investor wants, isn't it?

    So we have a decent company making big bucks... dividends is on the rise.... and perhaps one could have considered Fima Corp as an investment, rite?

Now the 'tricky' part of the investment came when Fima Corp started to 'diversify'.

As argued in that blog posting:

  • So since we had reasoned that this could be a good investment, we went and purchase this stock as an investment, hoping that this investment could grow forever and ever, right? But as mentioned before, the Review of Investment is an important integral of one's investment. We need to review our investment to make sure that the stocks we are holding is still a good stock. We need to review if the very reasons to invest in the stock remains valid. We need to check if that there is any tell-tale signs that something bad might happen.

    In big corporations, when things get too rosy, sometimes it is possible that the company's management could get too big headed for its own good and starts embarking on questionable funky corporate exercises in an attempt to grow the company. Company get rich, starts to lose focus...

    So besides looking at the financials, we also need to gauge them corporate exercises too. If it simply gets too funky, should we be dancing and playing that funky music with them ..... ?!! :p

Fima Corp then said...

  1. ... June 2005, Fima Corp announced that its subsidiary, Percetakan Keselamatan Nasional (PKN) is buying a property for some 15 million.
  2. ... Aug 2005 ... Security printing-based company, Fima Corporation Bhd, through its associated company, Giesecke & Devrient Malaysia Sdn Bhd, plans to invest about RM150 million to set up a new plant in Shah Alam, Selangor, next year. For the security printing segment, Roslan said Fima planned to spend RM20 million to replace the current machinery in order to increase its efficiency and production capacity
  3. ... 2006. ... Fima Corp Bhd is jumping on the plantation bandwagon by purchasing a slice of a small Indonesian palm oil outfit. In a statement on Jan 27, Fima said it will pay RM13 million for a 32.5% stake in PT Nunukan Jaya Lestari in East Kalimantan. This is part of a plan to diversify its earnings base.

From the core business of printing governmental securities, Fima Corp embarked on property, made 170 investment in new plant.. and also diversified into plam oil!

Surely that was too much, yes? And the clear question to be begs to be answered in 2006 was Fima Corp losing its business focus?

Do we want to be a long term investor in a company that could potentially turn into a lemon? Yes, this was the ROI question that was needed to be addressed back then.

That blog posting was brought back to life in 2008. :D

Should The Investor Take The Safer Approach?

And as clearly shown in the example, if one had taken the safer approach, it would appear that one would have missed out because Fima Corp, the stock had done fairly well since the posting in 2008.

But... on the other hand.... if one had diligently followed the developments, one easily have the option to be an investor again, yes? Surely this is an option, yes? We do need the sensible and flexible approach, yes?

November 2009: A New Look At Fima Corporation and LOL that posting was followed by one of my shortest posting Fima Corporation Again!.

It's now August 2010.

Fima Corp announced its earnings last night.

Yes there was a clear blip in earnings in fy 2007 and fy 2008. ( Did it or did it not pay off for an investor to take a safer approach then?)

But since then, Fima Corp's earnings have been rather impressive, yes?

The balance sheet...

Couple of notes...

1. The dwindling cash. ( remember back then when I wrote in Delphi, Fima Corp had no debts)
2. The receivables ... ah... it has grown substantially, yes? Is it acceptable, given the size of the turnover?
3. LOL! It's back! It has returned. Yeah... the cash is now back to a very healthy 125.063 million.
How? Could we put on our negative and pessimistic hat on and suggest that Fima Corp management could get cocky and start spending silly again? Can we? :P

Ah... this is where it's important for a couple of reasons.

Remember, the issue was on how Fima Corp diversified into properties and the palm oil business?

So it's very important to have a look at Fima Corp's segmental. Take a good look. See what's the driving factor, the catalyst that is causing Fima Corp's earnings to improve so drastically. Now if one is lazy and refuse to understand what's happening, then how would one know if the earnings from Fima Corp are sustainable or not?

Make sense ah? Or am I totally wrong?

Fima Corp's Business Segmental.


1. Its printing business shown great improvement last fiscal year. Current first quarter earnings, the printing of security documents business is showing great potential with earnings of 19.804 million.
2. Others - this should be flushed into the toilet!
3, Property. How? Remember in June 2005, Fima Corp announced that its subsidiary, Percetakan Keselamatan Nasional (PKN) is buying a property for some 15 million. Now I am not aware if Fima Corp did pump in more money into this division but since fy 2005, Fima Corp's property division did not do too bad because it has generated some 3.895 million ( I got this total from adding the sum in that column) in profits.
4. Palm Oil. Now this is clearly the big earnings booster for Fima Corp and it does appear that Fima Corp had made a wise decision to venture into the palm oil business.

ps: I DON"T INDULGE IN STOCK PRICE MOVEMENTS. So please spare me those comments saying how high or how low a stock could go.

ps: And I am not a Sotong, so I am not liable for your winnings and losings. LOL!

Monday, August 23, 2010

Ogawa World: Investing In Turnaround?

Got the following set of comments:

  • newbie said...
    Can you please give your five pounds worth of what you think about OGAWA?Saw in it's latest quarterly report that it had made a very good improvement in it's profit after tax and has more than forty cents in net cash per share.It also proposed a dividend of 3 sen.Is it time for the company to make a turnaround ala DXN?

First, the briefest look at the recent stock charts of the stock chart, always does help. ( One does not need to be a pro chart reader. )

Ogawa's recent 3 month's stock performance.

How Ogawa has performed since listing.

Needless to say, Ogawa World the stock, had done really poor since listing. It's a shocker!

So what's investing in turnarounds all about?

I made an additional posting just. See Investing In Turnarounds. Do give it a good read. ( I did not want to include in this posting because it will make end up making this posting ultra long. :P )

Ogawa World was listed on April 2007. It made a whopping 40 sen or 40% premium! IPO price was 1.00 and the listing helped Ogawa World raised some 31.9 million.

Here's a good pre-IPO article for reading reference: Ogawa World aims for double-digit growth and this one is how Ogawa fared on listing: Ogawa makes strong debut on Bursa.

It's pre-listing forecast..

  • 28-03-2007: Ogawa forecasts net profit of RM16m
    By Ashwin Raman

    Main Board-bound Ogawa World Bhd expects to post a net profit of RM16 million for the financial year ending June 30, 2007, an increase of 37% from the previous year.

    Its executive director Louis Chong said revenue was expected to grow 19% to RM162 million that would enable the health and wellness equipment maker to maintain its market share of over 45%...................

So how did Ogawa fared as a company since then? (yaya.. this is a stupid question because needless to say, Ogawa's performance should be poor since it's now 'branded' as a turnaround possibility! :P )

It's not only poor but it's a shocker! :P

Remember Ogawa World was listed on April 2007. Its 2007 Q4 earnings was reported on Aug 2007. Ok, it's a very small deal that Ogawa failed to live up to its IPO promised numbers. It's no biggie, really. Ogawa did 14.447 mil. It promised 16 mil. Small miss. Nothing like the horrendous miss by big companies like Titan Chemicals or AirAsia.

However... on 28th November 2007, it reported it's first loss!!! ( see Quarterly rpt on consolidated results for the financial period ended 30/9/2007 ).

Ok the loss was small but it was a warning sign!

And many would be disgusted because Ogawa World was just listed in April 2007. Go figure! Listed April 2007, November 2007 started reporting losses! Where on earth is the quality control of the IPO listing? Why so poor?

And the disgusted got more disgusted! Six later, in May 2008, Ogawa reported a loss of 2 million!!!! ( Quarterly rpt on consolidated results for the financial period ended 31/3/2008 )

And I guess one can understand why Ogawa the stock, fared so poorly!

LOL! I know.. I know.. I know... many reckons I love to tell stories! LOL!


Well, the reasoning is not that difficult and unreasonable because if I do not understand how the company fared so poorly, how could I ever understand if the company has a potential to be a turnaround success? Will it be as successful as say YTL Cement turnaround story back in early 2002?

Here's Ogawa's 'excuse' for its lousy fy 2008.

  • Revenue for the Group has increased from RM30.17 million in the immediate preceding quarter to RM38.36 million in this quarter. The Group registered a loss before taxation of RM7.82 million as compared to loss before tax of RM2.16 million in the immediate preceding quarter as a result of lower margin, higher operating expenses, making of allowance for doubtful debts and goodwill written off.

And here's Ogawa's said in its fy 2009 earnings.

  • The Group registered a profit before tax of RM3.72 million for the current quarter under review as compared to loss before tax of RM7.82 million for the corresponding period of the preceding financial year due to higher sales and margins, cost controls and partial reversal of provisions for doubtful debts that has since been recovered.

Ah... fy 2009 Q4, Ogawa reported a profit of rm 3.72 million. We need to see Q2 notes for reference because for that quarter Ogawa reported 10 million in losses!

  • The Group registered a loss before tax of RM10.75 million for the current quarter under review as compared to profit before tax of RM1.14 million for the corresponding period of the preceding financial year due to lower demand for Ogawa’s products as a result of global economic slowdown, higher operating expenses and provisions made for doubtful debts and stocks.

So how?

What was the driving factor of the losses?

For fy 2008, Ogawa cited lower margin, higher operating expenses, making of allowance for doubtful debts and goodwill written off.

For first half of fy 2009, Ogawa cited lower demand for Ogawa’s products as a result of global economic slowdown, higher operating expenses and provisions made for doubtful debts and stocks.

And the second half of fy 2009, Ogawa said higher sales and margins, cost controls and partial reversal of provisions for doubtful debts that has since been recovered was driving the turnaround! (yea.. turnaround started way then)

And this is the table which highlights the porfits and losses...

Yes, Ogawa has stopped making losses for 5 consecutive quarters already. ( some critics would say that this streak includes two quarters (10 Q1 and 10 Q2) of extremely smallish profits.

And here's Ogawa's balance sheet, showing the cash and debts.

Ah.. one can see the receivables and inventory been written down in its FY 2009.

Cash... it starts off with 38.348 million. Remember some 31.9 was raised from its IPO and... apparently some 15 million was allocated for land and building acquisition. This was unitised and the 15 million had been re-allocated as 'working capital'.

The company said the following in its 10 Q4 notes.
  • The Group registered a profit before tax of RM5.18 million for the current quarter under review as compared to profit before tax of RM3.72 million for the corresponding quarter of the preceding financial year. The improved performance is due mainly to higher sales achievement, higher gross profit margin and lower provisions for doubtful debts.

So Ogawa is now saying it's getting higher sales. Higher profit margins.

But sadly, Ogawa World is not stating which product is the driving factor behind the better sales in its earnings notes.

Here's Ogawa World's products:

And some recent news articles which might gives the investor some clues...


Are we able to understand more on what's driving the current turnaround?

Is the current turnaround 'sustainable'?

Or are we seeing the turnaround but we somehow do not understand the business concept and its business products?

And ultimately, would one make the comparison in investing choices because one can easily invest in the more famous massage chair, Osim. ( Here's a quick look at Osim's numbers: here )

And last but not least, during the slowdown and bad times, how do we evaluate the 'noises' or comments from the company? Yes, how do we evaluate the management conduct so far? Have they handled the company well during the bad times?

And last but not least, the ESOS issue is worth noting. It's huge and dilutive. A 15% ESOS was proposed just last month! (yeah.. the cynics would say... what la! This company starts making back profit and the company fast hand, fast leg announces huge ESOS! See OGAWA WORLD BERHAD (“OWB” or “COMPANY”) PROPOSED ESTABLISHMENT OF AN EXECUTIVES’ SHARE OPTION SCHEME (“ESOS” OR “SCHEME”) OF UP TO FIFTEEN PERCENT (15%) OF THE ISSUED AND PAID-UP SHARE CAPITAL OF OWB (“PROPOSED ESOS”) )

Yeah.. 'all the Directors of OWB are eligible to participate in the Proposed ESO' and currently, Ogawa World has 120 million shares and the ESOS 'could' create some 18 million new shares.

ps: I have no idea if you can lose money in the stock. Please do consult your neighbourhood sotong!