Smartag: I Am Wrong Because The Stock Moved Higher?

From the posting Is Smartag Worth A Bet?:

• ST said..
  
  SMARTAG shoots up yesterday. Stop being jealous and stop writing nonsense on SMARTAG!

Ok. Smartag moved higher yesterday. So I am wrong because the stock moved higher.

But the jealousy part? The nonsense part?

Err... sorry if I am stupid but I just don't get it.

When I wrote the posting, Is Smartag Worth A Bet?, Smartag was looking like this.

Hmm.... if you take the effort to look at it, at the time of the posting - yesterday morning (started writing at 9.04am) , Smartag was trading at its lowest ever since listing, at 28 sen. So what's there to be jealous about?

Could I be jealous that Smartag is trading at its lowest ever?

If that's a good reason to be jealous, heck I am guilty .... forever. Lock me up dude/dudess!

And so I am writing nonsense. Ok, I will not use the meaning of blog reasoning and neither will I use the fact that I have stated out clearly that I am nobody's friendly investment advisor (heck, maybe I am just plain jealous and unfriendly!) but let's be a bit mature about it.

I have stated out many times that I do welcome all criticism. Yes, if I have the guts to write it out, then I should be more prepared to take all sarcasm and criticism openly.

Meaning to say, if you think what I wrote was all nonsense in the posting Is Smartag Worth A Bet?, I openly invite you to give me the exact reasoning why and what that I wrote was non agreeable - hence a nonsense to you. Seriously? That's an open invitation and I do hope you take what I am writing here with good faith.

So the stock moved up. I am wrong because of that?

Now in the posting ACE Market: Same Old, Same Old Issue, I highlighted the charts of the six newly listed ACE stocks.

Now I am not sure if you are aware but the main culprits, the stocks that were giving the ACE IPO stocks a bad name moved up strongly. Yes, have you considered the fact that perhaps there's a chance that Smartag moved up and rebounded strongly because of this issue?

The badest of these newly listed ACE stocks was of course XOX.

And how did XOX do yesterday? It surged 8.5 sen or 24.29% yesterday.

And its side kick IJacobs soared 12% or up 3 sen too!

Smartag was up a nice 2 sen or 7.14%.

And that Mclean was up 1 sen or 4%.

I am leaving out MPay ( up 1 sen or 6% ) and BoilerM (unchanged) .

But how? Look at those 4 charts of XOX, IJacobs, Smartag and Mclean. These were all newly listed ACE stocks and they all traded below their IPO prices and with a very similar looking charts, they all moved up yesterday.

How?

Is there not a chance that these stocks moved in tandem via association (newly listed ACE stocks trading below IPO pricing) ?

Ah... that's my interpretation.

And I openly say now that I could be wrong about it.

But that's my flawed opinion and I stick to it.

So let's talk about the writing nonsense part. ( Aiyoh - I leave out the jealous part lah. Pointless lah. But if you think I am jealous, so be it. That's your right of opinion lah )

I hope you would indulge in me for a couple of moments longer. Thanks.

Now here is Smartag public info.

Smartag have some 227,000,000 shares.

Ok. let's look at some facts.

On 13th April 2011, Smartag reported 2 set of quarterly earnings.

1. Q1 -  Quarterly rpt on consolidated results for the financial period ended 31/12/2010
2. Q2 - Quarterly rpt on consolidated results for the financial period ended 31/3/2011

Q1 - a loss of 386 thousand

Q2 - made 653 thousand.
Current ytd earnings - 267 thousand!
Now the current half year earnings from Smartag is only 267 thousand, my friend.

Smartag have 227 million shares, which means the current half year eps is only 0.16 sen. 0.16 sen only.

Want to calculate the possible PER?

KN 'forecasted' Smartag could be earning some 10.4 million for this current fiscal year and KN is basing it's target price on this year's earnings.

The table again.

Now this is all facts. Not nonsense. I am not twisting anything but merely highlighting this fact.

If you disagree so far, let me know.

Ok.. past earnings does not represent the stock price. Stock price are all based on its future potential. Do you agree? Or is this nonsense too?

And everyone who follows the stock market, knows Smartag potential is in their RFID solution. And Smartag was indeed mentioned to be part of the ETP project.

Yes. That's a fact.

But it's also a fact, that currently, this is still a MOU only and that according to Smartag own announcement, this MOU is terminatable by both parties.

And currently "Smartag, together with the Royal Malaysian Customs Department, will undertake a trial run of the RFID system at the latter's checkpoints from June 1."

This is the trial run. Smartag as per their own announcement will bear all costs for the trial runs.

Any twisting of facts so far?

And according to the Chairman, let me requote that BTimes report "KUALA LUMPUR: Smartag Solutions Bhd stands to make a minimum RM70 million a year once its Radio Frequency Identification (RFID) solution to track container movements is made compulsory. "

So what do we have?

Once the RFID solution is made compulsory, Smartag stands to make a minimum of 70 million.

And so that's the potential, yes?

Agree?

Oh dearie me, I hope I am not writing any nonsense so far.

So the potential of Smartag all hinges on one statement from Smartag's chairman, which is Smartag stands to make 70 million a year if the RFID solution is passed and made compulsory.

Now let's do some simple maths.

Let's do some very basic understanding of what kind of potential we are talking about here.

Let's see.. Smartag have 227 million shares. An earnings of 70 million per year would equates to an eps of 30.8 sen!

And eps of 30.8 sen!

Which means Smartag based on a 9x PE ( 9x PE too low? Maybe. But right or wrong, I use 9x to follow KN's valuation method) , Smartag should be worth at least 2.77.

Do you agree so far that potentially Smartag could be worth some 2.77 if the Smartag's Chairman estimate holds true?

Mind you, that Chairman stressed clearly 'a minimum of 70 million'.

Now if this holds true, then the logical and sensible focus should be on Smartag's disposal of shares recently!

Yes?

Or am I writing nonsense because I am highlighting this fact?

Think about it. "On the 19th April, Smartag was announced that it will be getting a slice of the ETP projects. On the 9th May, the CEO shows his confidence in his own company by selling 6,800,000 shares? Average price of disposal was 35.2sen."

And on 20 June 2011, The wife's company also sold shares. Some 4,250,000 were disposed at a price of 32 sen.

How?

Isn't there the disconnect?

Chairman says a potential minimum of 70 million per year. This equals to an eps of 30.8 sen. So why did the CEO himself dumped some 6,800,000 shares at 35.2 sen. Wife's company dumped it for 32 sen.

Now is this not a serious issue to consider?


I could be wrong but I reckon this issue should be carefully examined.

Why? Because we are not talking about small change, yes? Potentially, based on a simple 9x PE and based on Chairman's 70 million estimate, Smartag should be easily worth some 2.77. Why did the CEO and his wife think otherwise?

Think about it..... that's all I would say.

And yeah.... Smartag is up again. It currently last traded at 0.305.

Oooopsy daisy me... I must be wrong again...and I am also jealous...... since I am writing ... err... nonsense again.

ST, no matter what, good luck lah. But again.. if you could afford your precious time, do share with me, why you consider what I wrote on Smartag as nonsense.

ps: ST, if you really believe that Smartag RFID solution could bring a potential earnings of 70 million per year, seriously, just buy all of Smartag. Yes, buy it all the way. Sapu everything! 50 sen, 60 sen, 70 sen, 80 sen, 90 sen.... just buy! Why? At 70 million per year, Smartag should be worth easily above 2.70 lah. Ok ma?

Is Smartag Worth A Bet?

Posted on Tuesday: ACE Market: Same Old, Same Old Issue. In that posting, I highlighted six of the new ACEs in the ACE Market.

We all know and read about McLean and THAT

Let's look at Smartag. This one is rather very interesting because it was mentioned as a company getting a slice of the ETP projects.

The retail IPO price for Smartag was 31 sen. Stock closed yesterday at 28 sen - down close to 10% from its IPO price.

With the stock getting a slice of the ETP, what gives? Look at the chart above. One does not have to be a rocket scientist but that's clearly a chart of a stock in a strong downtrend at this moment of time.

** Ah... at this moment of time... is crucial. Stock charts changes all the time. And mind you, stock fundamentals changes too! Some very slow but some stock fundamentals could really change overnight! Anyway... at this moment of time.. that's a stock with a serious downtrend but needless to say the downtrend might not be permanent and it could change for the better - yes let's be mature about it and acknowledge this fact first. **

So why the stock like this one?

Is the investing public missing out on something?

Or is there a reason why the stock is trading so badly?

Yes, could this be a hidden gem, the ACE in the ACE market or could this just be a potential bad apple?

Now of the things that is useful is the IPO coverage of the stock.

And for the case of Smartag, KN covered this stock.

Here's the copy.

Quote:

• Smartag is a provider of total Radio Frequency Identification (RFID) based solutions for potential clients that seek to optimise their business process and data flow using RFID technology. We like the company’s impressive net margin of more than 40% and expect such level to be maintained for the next 3 years. We expect earnings to grow marginally for the next 2 years and the impact of its Land Checkpoint Project shall arrive in FY13. We value Smartag at RM0.42 and recommend investors to subscribe the IPO.

And their basis of that 0.42 sen price tag.

This is important. Do we just want to take the target price based on face value (ie if KN says 42 sen then 42 it is?) or do we want to know the basis on how they got to such valuation?

• Valuation. The IPO price of RM0.31 is undemanding at 6.8x PER based on FY10 earnings compared to its peer CBS Tech’s average PE Band of 9x. We value Smartag at RM0.42 based on 9x PER over CY11 core EPS of 4.7 sen.

Ok 9x PER based on CY11 eps of 4.7 sen.

Let's look at the earnings table from KN.

Look at the core net profit numbers highlighted by the arrows.
It earned 8.4 million for fy 2008.
The next year, fy 2009 earnings fell to 6.4 million.
 But the following year, the year before Smartag is listed earnings soared to 10.3 million.

Ok. There's two thoughts from me on this.

1. 2009 is generally a bad and messed up year for many companies worldwide. Perhaps it's understandable that we do see such a drastic dip in earnings.
2. The pessimistic side. Well, rightly or wrongly, I had been taught to be aware of companies that has a sudden surge in earnings the year before its IPO listing. Why? The reasoning is that it's a smelly and rotten world out there and there's a chance that the earnings were dressed up for the IPO. Is this the case for Smartag? I do now know for sure but if one is a pessimistic perhaps one could err by being cautious. ( ** note : this one ... very tacky point. Yes.. there is certain implications with this point. Very sensitive. DO note I am not saying that the earnings dressing happened but it's just a thought and I am certainly not implying anything and it's best you the reader make your own conclusion.)

 Anyway, for fy 2011, KN has estimated Smartag would earn some 10.4 million or an eps of 4.7 sen.

The earnings estimate seemed a bit flat, no indication of growth and most important, the earnings estimate is not far fetched. (not like in the case of AsiaEP mentioned in the posting And Who Is Helping The Stock Market Become A Casino? )

So the key figure now is an eps of 4.7 sen. 

If the eps is achievable, then at 28 sen, Smartag is trading at a rather low PE multiple of 5.9x based on KN's estimate of Smartag earnings in 2011.

I then checked my quick data. Sometimes, I use the quick financial tracker provided by the local trading houses.

Here's the snapshot of Smartag's current quarterly earnings.

Smartag reported a loss for it's Q1?

Time to check Bursa website.

On 13th April Smartag made 2 earnings announcements!

• Q1 - Quarterly rpt on consolidated results for the financial period ended 31/12/2010
• Q2 - Quarterly rpt on consolidated results for the financial period ended 31/3/2011

Q1 - a loss of 386 thousand
Q2 - made 653 thousand.
Current ytd earnings - 267 thousand!

Errr... two things.

1. Smartag was listed only on 18th April 2011. So these 2 quarterly earnings was before Smartag was listed and yes, I have said it many times before,  pre-IPO earnings are not too reliable and sometimes we need a financial track record of at least 2 years to make a more intelligent reasoning.

2. However... on the other hand... some reckons that the early morning cow gets to eat all the fresh grass. Yes, some feels that in order to make it big and score a multiple bagger, you need foresight, you need to spot potential and you need to take risk. You need to take a chance! No risk no gain babe. No money, no honey babe.

Well, as I have said many times before, it's pointless for me to argue which is the best stock market strategy. Honestly, if you think your way is ok, just carry on and do it your way. No joke. That's all I can say.

Now if this is the case, then all these pre-ipo earnings and projections becomes more important a yardstick.

So what we have? Smartag half year earning is only 267 THOUSAND. Yes, that's very little little but what's more important, based on this limited data,  it suggests that KN earnings forecast of 10.4 million or an eps of 4.7 sen is highly unlikely.

Think about it. Company made only 267 thousand for the first half of fy 2011. And KN expected earnings for fy 2011 is 10.4 million??????

How?

What do you think now of Smartag's fair value price of 42 sen given by KN? Is it achievable?

And when one puts this factor into perspective, then perhaps it explains why Smartag's current traded price is on a clear downtrend.

But what about the ETP?

Comeon.. a stock should be valued based on its future potential, yes?

I agree.

Let's look at the ETP project awarded to Smartag.

On 19th April 2011: OTHERS: Smartag Solutions Berhad (“Smartag” or the “Company”)Smartag named as part of The Security and Trade Facilitation System using Radio Frequency Identification (RFID) (“Project”) for the Royal Malaysian Customs Checkpoint throughout Malaysia

• Pursuant to the speech given by the Prime Minister of Malaysia, YAB Dato’ Sri Mohd Najib bin Tun Abdul Razak at the Economic Transformation Programme (“ETP”) Progress Update Conference on 19 April 2011, the Board of Directors of Smartag wishes to inform that Smartag was named to be a part of the Project to provide security and trade facilitation system for the Royal Malaysian Customs at its checkpoints throughout Malaysia.
  
  The ETP is a comprehensive effort under the Performance Management & Delivery Unit (“PEMANDU”) to spearhead growth areas in various industries with the objective of raising Malaysia’s overall gross national income. The PEMANDU’s main role and objective is to oversee the implementation, assess the progress, facilitate as well as support the delivery and drive the progress of the ETP.
  
  At this juncture, no memorandum of understanding or agreement has been signed in respect to the Project. Further announcements on the progress of the Project will be released in due course once the Company receives further details on the Project.

Two days later, the Edge carried the following article: Smartag to rely on internal funds for ETP project

• Smartag to rely on internal funds for ETP project
  Written by Kamarul Azhar
  Thursday, 21 April 2011 11:54
  
  PUTRAJAYA : Newly-listed Smartag Solutions Bhd will rely on internally generated funds to finance the implementation of radio frequency identification (RFID) infrastructure at customs checkpoints throughout Malaysia. This was one of the Entry Point Projects (EPP) announced by Prime Minister Datuk Seri Najib Razak at the Economic Transformation Programme (ETP) progress update on Tuesday.
  
  “The Customs checkpoint project enables containers transported via roads to be tracked using our RFID system, which is based on international standards. The RFID seals will be tagged to the containers and scanned by RFID readers which will be set up at land checkpoints,” CEO PK Lim told The Edge Financial Daily in a telephone interview yesterday.
  
  Smartag will provide customs checkpoints with RFID readers to read seals tagged on containers and certified products via a system called Smartrack, he said. Smartrack is a software that serves as a date repository system allowing seamless information sharing between different parties in a RFID system.
  
  The company registered RM5.7 million and RM267,000 in revenue and net profit in the first six months ended March 31. As at March 31, it had total assets of RM30.6 million while total liabilities stood at RM1.7 million. It had cash and cash equivalents of RM1.3 million.
  
  Smartag debuted on Monday on Bursa Malaysia. Its core business in is the provision of RFID solutions, including consultation, planning and implementation. RFID is an electronic system that uses radio frequency signals to identify individually tagged objects or personnel.
  
  The company has been in talks with the Customs Department to implement its RFID system to enhance the efficiency of container clearing and improve security for certified products such as timber, palm oil and halal products.
  
  According to company chairman Datuk Abdul Hamed Sepawi, the project would benefit Malaysian companies as it would pave the way for the creation of paperless customs checkpoints throughout Malaysia, reducing the hassle of paperwork to obtain clearance for containers and transport.
  
  “This project will benefit Malaysian companies, especially manufacturers, exporters, courier service providers and transporters, as it improves the security of certified products such as timber, palm oil, and halal-certified products,” he told the press conference after the announcement of new EPPs by the prime minister on Tuesday.
  
  Smartag will invest RM45 million in the project, which will be spent in tranches until 2020. The EPP will have a Gross National Income impact of RM201 million by 2020.
  
  Smartag’s stock was one of the most actively traded on Bursa yesterday with 63.7 million shares changing hands. The counter closed 3.5 sen or 8.75% higher at 43.5 sen.
  
  
  This article appeared in The Edge Financial Daily, April 21, 2011.

The stock rallied strongly on the news of the award.


On 12th May, Smartag announced the following: OTHERS

• Kenanga Investment Bank Berhad on behalf of the Board of Directors of Smartag, wishes to inform that a Memorandum of Understanding (“MOU”) between Smartag and the Jabatan Kastam Diraja Malaysia (“JKDM”) was signed on 12 May 2011 for the Security and Trade Facilitation System using Radio Frequency Identification (“RFID”) (“Project”) for JKMD throughout Malaysia.
  
  The objective of the partnership between Smartag and JKDM to undertake the Project is to reduce the traffic and waiting time at each customs checkpoint location and also further improve the information system of JKDM in deterring security threats with the use of RFID technology.
  
  The salient terms of the MOU area as follows:-
  
  (1) Scope of Work and Responsibilities
  
  - Smartag will be the main contractor in implementing the RFID system and setting up the necessary RFID hardware at the customs checkpoints throughout Malaysia. - In implementing the RFID system under the Project, both Smartag and JKDM will host seminars and courses to educate and spread awareness about the RFID system to various stakeholders in the logistics industry including members of logistics and transportation associations in Malaysia. - Smartag and JKDM will perform pilot tests on the RFID system under the Project for three (3) months from 1 June 2011.
  
  (2) Period
  
  - The MOU will be in effect until the signing of a superseding agreement between Smartag and JKDM, if any, or any termination request from either parties.
  
  (3) Cost
  
  - Smartag will bear all costs related to the implementation of the Project. The exact quantum of costs and financial impact to the Company cannot be determined at this juncture given the nascent stage of the Project and the full scope of work involved is still being assessed by the Company. Furthermore, the pilot tests have yet to begin.
  
  (4) Termination
  
  - Both parties may terminate the MOU by way of notice in writing at least ninety (90) days in advance.
  
  (5) Confidentiality
  
  - Both parties agree to ensure that all documents, information and relevant data received from each other over the period of the MOU and after the termination of the MOU are kept private and confidential unless such documents, information and relevant data are required by law to be revealed.
  
  Further announcements on the progress of the Project will be released in due course.
  
  This announcement is dated 12 May 2011.

So far, that's all there is.

At this moment of time, it's a MOU only.

On 24th May, Smartag was featured in a Business Times article.  Smartag to start RFID trial run at Customs

• KUALA LUMPUR: Smartag Solutions Bhd stands to make a minimum RM70 million a year once its Radio Frequency Identification (RFID) solution to track container movements is made compulsory.
  
  Smartag, together with the Royal Malaysian Customs Department, will undertake a trial run of the RFID system at the latter's checkpoints from June 1.
  
  Smartag chairman Datuk Abdul Hamed Sepawi said the pilot project will run for three months with major companies from the logistics and manufacturing sectors such as Western Digital, TNT, Federal Express Brokerage and Priority Cargo having signed up for the test run.
  
  Abdul Hamed said the company may charge around RM10 per trip/container for journeys within the country. Taking into this account, Smartag is set to make at least RM70 million a year once the RFID solution is made mandatory. However, this was just an indicative pricing for now, he added.....

The Chairman speaks of the rm 70 million potential.

Yes.. but note that he's saying it's only possible 'once the RFID solution to track container is made compulsory' and for what it's worth... it's just an indicative pricing now.

So how?

Do you want to bet on this potential?

Er..then I saw the following announcements:

Changes in Director's Interest (S135) - Lim Peng Keong

Lim Peng Keong? That's the CEO and according to that announcement some 6,800,000 shares were disposed on 9th May.


Macam mana ni? On the 19th April, Smartag was announced that it will be getting a slice of the ETP projects. On the 9th May, the CEO shows his confidence in his own company by selling a substantial chunk of his shares? Average price of disposal was 0.352.

What lah!

And then on the 20th June, there was another disposal of shares!

Changes in Director's Interest (S135) - Lim Peng Keong

Accordingly the CEO said that 'The disposals were transacted by Namnan Co. Ltd, which my spouse has controlling interest.'
The wife's company also sold shares. Some 4,250,000 were disposed at a price of 32 sen. ( Just one sen above the ipo price of 31 sen).

How?

Project is supposed to be big.

Big money is there to be made.

The chariman openly said that the RFID project could see Smartag making some 70 million a year. Sorry a MINIMUM of 70 million once the RFID solution is made compulsory.

70 million is a lot of money.

And surely if that's true... the shares would be worth many, many times than what it is trading now. And certainly worth much more than what the CEO sold his shares for. And also certainly worth much more than what the CEO wife sold for.

How?

I dunno... but what the CEO and wife is doing here... is clearly sending a bad signal to the market.
And perhaps the current earnings is not helping much.

Which probably explains why the stock is doing so poorly since its IPO listing.

How?

Do you really want to bet on Smartag?

Do you really think it could be an ACE in the ACE stock market?














ps: I am not Paul, Paul's gone and I do not know if Smartag will soar to the moon and neither do I know if it will crash and burn. And oh... neither am I friendly too. :P

ACE Market: Same Old, Same Old Issue

So much talks about bad apples of the ACE stock market.

Yesterday the Edge Financial had this write-up: Perils of investing in ACE Market

• Perils of investing in ACE Market Written by Commentary by Max Koh
  Monday, 20 June 2011 11:39
  
  The recent slew of listings on the ACE Market has dampened the already moderate sentiment for stocks listed in that category of Bursa Malaysia.
  
  Who would blame investors for shying away considering that the debuts of recent listings — XOX Bhd and MClean Technologies Bhd — were accompanied by announcements of losses and plunging share prices. In the case of MClean, a substantial shareholder exited the company by selling a 12.8% stake on the maiden trading day.
  
  But should it deter investors from the ACE Market?
  
  To recap, XOX pulled a stunner when it reported a loss of RM1.66 million for 1QFY11 just a day before its debut. The company forecast an annual net profit of RM19.8 million for the full year. The loss sent its share price downhill. As at last Friday, XOX slipped to 44 sen, down 45% from its offer price of 80 sen.
  
  MClean also raised more than a few eyebrows. Just three weeks after its listing, MClean announced a quarterly net loss of RM190,000 blaming the teething problems at its Chinese operations.
  While the company has since assured that it will be profitable for the year as a whole and could still exceed FY10’s net profit of RM5.9 million, investors are likely to remain cautious. Last Friday, the company’s share price closed at 23 sen, down 56% from its IPO price of 52 sen.
  
  These events make it no surprise that investors are becoming wary of getting caught with the wrong companies.
  
  To be fair, however, investors should be aware of the perils of investing in the ACE Market.
  
  The whole purpose of the ACE Market is to allow new start-ups and companies with growth potential but no track record to access the capital markets.
  
  While ACE Market-listed companies have less of a track record than their Main Market counterparts, investors are actually taking a higher risk on these companies.
  
  And, as in any game of chance, there are bound to be winners and losers. Picking winners isn’t an easy feat.
  
  So, how can investors avoid being caught with a bad hand?
  The ACE Market is a high risk-high return game — but it still offers better odds than a game of pure chance at the casino. There are numerous things that investors can do.
  
  It is important for interested investors to do their due diligence and study the company’s prospectus before investing their money.
  The company would state its historical earnings (or losses) and its plans for the monies raised from the IPO.
  What was the financial track record like? Were there unusual swings in profitability or revenue, especially in the year just prior to listing? If there were, what were the reasons?
  
  Are most of the monies raised in the IPO meant for the company’s expansion, or do they accrue to a company’s major shareholders?
  That alone should tell the intention of the IPO — whether it is a “cashing out” exercise, or a chance to tap capital for growth.
  
  For instance, the listing of JCY International Bhd last year saw all its proceeds accrue to the major shareholder. JCY’s shares have since slumped to 59.5 sen from an IPO price of RM1.60 last February, dampened by a slowdown in the hard disk drive industry.
  
  For cyclical industries, one should ask if the cycle has peaked, or is nearing a peak.
  
  Some companies, though not all, provide an earnings forecast for the year, as well as the strategies to be used to achieve it.
  
  For example, XOX has projected its revenue to rise to RM249.5 million this year, which is more than a 10-fold jump from RM20.1 million a year earlier. In addition, it plans to increase the number of subscribers from 391,000 to 1.5 million in just one year. Whether these goals are attainable remain to be seen.
  
  It is interesting to note that XOX’s losses expanded from RM239,000 in FY07 to RM15.9 million in FY10. It expects a net profit of RM19.8 million for this year.
  
  XOX rides on Celcom Bhd’s network and has to pay the latter a “minimum commitment” amount annually for these services. If one peruses its prospectus, one would notice that the amount is set to more than triple this year to RM61.5 million from RM17.3 million last year.
  
  And this “minimum commitment” is set to escalate to RM109 million in FY12 unless there is a mutual agreement reached with Celcom to change it.
  
  However, it is important to remember that one or two examples should not represent all ACE Market-listed companies.
  
  Some loss-making companies could be going through a temporary rough patch, and these should be given a chance to prove themselves.
  
  ACE Market-listed companies that have proved successful include EA Holdings Bhd and Genetec Technology Bhd.
  EA Holdings had seen its net profit rise from RM200,000 in FY07 to RM4.1 million in FY10. Genetec’s net profit rose to RM12.4 million for FY11 from RM5.5 million three years earlier.
  
  Others such as Notion VTec Bhd and MyEG Services Bhd have since migrated from the old Mesdaq to the Main Market and are widely held by institutional funds.
  There were also companies that were caught in circumstances beyond their control.
  
  Green Packet Bhd, for example, which migrated from the former Mesdaq to the Main Market has seen numerous broadband licences going to other companies since its listing.
  
  While its target to break even earnings before interest, tax, depreciation and amortisation remains elusive as ever, the company continues to draw good faith from investors. Last year, South Korea’s SK Telecom bought a 25.8% stake in Green Packet’s subsidiary for US$100 million (RM304 million).
  
  In a nutshell, would these former small firms have grown to their current size without the Mesdaq or ACE Market?
  
  This article appeared in The Edge Financial Daily, June 20, 2011.

Ok, to my best recollection, there have been six newly stocks in the ACE Market this year.

Now, I am going to discard the IPO prices. Is that a stunner? Why? Well, the IPO is a silly game of lottery for the investing public and since the stocks have been listed, it's pointless to talk about their IPO pricing now. It's history.

Instead, I would look at how these six stocks have performed since listing and the best way to highlight them is via simple charts.

Ok, you don't need to be a technical expert to read and interpret the charts but I strongly believe all these six charts speaks for themselves and the story line or rather the chart line is so clear at this moment of time. (Note the keyword here is 'at this moment of time'. Yeah, stocks are traded 5 days a week and prices changes all the time. )

How?

What do you see?

.

Back in 2005, I blogged the following: http://whereiszemoola.blogspot.com/2005/12/oh-messdaq.html

Oh yeah.

M'sia to unveil tougher rules for Mesdaq listing.

Finally something is being done over the clear lack of quality of the newly listed stocks, especially those being listed on the MessDaq.

Here is a snippet from the article which clearly highlights the appalling lack of quality control on stocks being listed on the MessDaq.

Litespeed's showing so far typifies that of many a Mesdaq company. Listed only last Thursday on Malaysia's tech index, the counter is trading at 31.5 sen - 15.5 sen lower than its offer price of 47 sen.

On its debut it opened one sen higher but closed the day at 39 sen, the second most-actively traded counter. A total of 11.4 million shares were traded, more than double the public IPO portion of five million shares.

Litespeed raised RM16 million (S$7.2 million) from its public issue of 32.5 million 10-sen shares, and its public portion was subscribed almost six times.

Unfortunately for those subscribers, only a few days into its listing, Lite-speed announced a net loss of RM1.9 million for its quarter ended July 31.

Aiyoh! Only a few days into its listing, Lites-speed announced a net loss of rm1.9 million for its quarter ended July 31!!!!!

This is simply NOT ACCEPTABLE.

Truly appalling!

A waste of market capital.

Only this Lite-speed like this? or is there more?

Ok... how about EB Capital ??

Listed 2nd Aug 2005.

Yesterday I saw this bugger's quarterly earnings.

Sales Revenue: 1.802 million
Net loss: 1.064 million!!!

First quarterly earnings after listing and it reports a net loss!

Imagine a horsie horse in a cup race. The bell rings and the horse stumbles, throwing the jockey off the horsie. How? Out off the gates and already no hope liao!!

Disgusting or not?

You tell me lah.

And worse still, this EB Capital losses is at operating level and the company is net debt.

And lagi worse still for EB Capital, based on yesterday's closing price, EB Capital market capital is worth some 21.4 million.

And lagi, lagi worse still.. just imagine if the bossie owns 13% of this stock. This means the bossie is worth some 2.78 million based on his shares value in the market.

You tell me lah.... how come sky NO eyes one?

So, so easy to be a million hair ar?
So, so easy to be kaya raya!!

Sigh!

And lagi, lagi, lagi worse... just how did such company got listed?

Mana tu QC?

Well, i dunno but u guys and gals but muah is certainly pleased to read that SC is aware of this issue and is enforcing stricter rules.

Comeon... SC let's kick some butt!!!!!!
But there are some who are sceptical.

Will it really help?

I dunno... but... at least the very first small step is being made to rectify this issue.

I shall keep my faith... for now.

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

See? Mclean and XOX aren't the only ones. This very issue of the company announces that it is losing money shortly after listing is not new.

It had been happening long, long time before!!!!

There were talks about tougher rules back in 2005.... but.....

sigh.

Here's another posting made on 27 Dec 2005.

http://whereiszemoola.blogspot.com/2005/12/impressive-year-for-messdaq-ipos.html

Given the issues mentioned and highlighted in the following two posts:

1. Oh MessDaq
2. Comments on IPO

My fingers were itching when i found out that Star Business today had an article: Impressive year for Mesdaq IPOs


From a business-perspective, it would definately make sense for Bursa Malaysia to highlight these issues. As a business-entity, Bursa is now focused on the Moola itself. This is its responsibility to its shareholders. To make Moola.

However, making moola at all costs?

Is it wise and feasible?

Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?

Anyway, as mentioned in the article, there were simply more new listings in the Messdaq than in the main board or the second board. And the article does shed some light on why is it so.

“For many companies, a listing via Mesdaq was less cumbersome because there were fewer requirements to fulfil,” an analyst with a research house said.. ( EASIER!)

In the case of Mesdaq, companies do not need to show a profit track record. (Lousy company can also list wor!)

“The listing on Mesdaq allows young companies and less-established ones to focus on growth and improving earnings in the early years of listing without having to worry too much about meeting the exchange's stringent rules and regulations, especially on earnings,” he said.

“The cost of entry into Mesdaq is lower (including listing exercise) while allowing companies flexibility to grow globally,” he said.
Those were some of the reasons why the Messdaq seduced more listing...

Now consider some of the following issues mentioned in this blog.

Isn't there one too many companies which lost money after being listed on the Messdaq? (see Oh MessDaq ). For example, Litespeed accounced losses a few days after being listed!! Or companies like EB Capital and DVM.

Now, why is it such a big deal?

Yeah, yeah, yeah... the Messdaq is a good hunting ground for speculators and punters. A lot of fortune has been made.

What about the losers?

Yeah, they deserve to pay the price for their foolishness... but take the following issue mentioned in Karensoft "Move over who: Part Vii"

When Kenanga first wrote on Karensoft, Kenanga stated that Karensoft some 69.2 million shares then.

Get this... at 0.96 sen, Karensoft then had a market capital of rm65.8 million

Today?

Karensoft (which had a 1-for-2 bonus issue in June 2005) now has some 115.015 million shares.

Now at 0.065 sen, Karensoft market value (market cap) is only some 7.475 million.

Soooooooooooo ...... from 2nd Dec 2004 to 20th Dec 2005, some 58.35 million in market value has simply vanished!
This for me is the huge issue. Huge Issue. Cos most of the messdaq stocks have been trading at a rather high price before crashing. Look at Karensoft, one of them Messdaq stocks had a market value was much as 65.8 million on Dec 2nd 2004. Now, almost a year later some 58.35 million has vanished!!

Think about it.
For a stock like Karensoft, this stock had the means to erase some 58.35 million in market capital from our stock exchange. And this is only one of them troubled Messdaq stock. Aren't the numbers mind boggling?

Do such listings create or ultimately destroy value?

How?

If an investor bought and hold such a share, what would happen to their value of their shareholding?
See the importance of creating value in the market and not quantity?

Yes, yes, yes in this incident, the investor was probably wrong and silly to buy and hold a poor quality stock but let's think in regard to the market itself. Yes, Mr.Market.

Can the market survive without these 'investors'?

Can the market exist without any minority shareholders?

Can the market survive if all there exists is rather poor quality stocks?

Who would want to invest in a poor business?

Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?
Is bigger neccessary better?
Think about it.

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

How?

It's now June 2011.

Look at Mclean. Look at XOX.

Aren't we talking about the same old issue, over and over and over again?

Sigh.
And I ask once more:

Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?

ACE Stocks: The good apples of ACE?

The following was published on Star Biz last Saturday: The good apples of ACE

The section on Green Packet caught my attention! Oh yeah, my favourite EBITDA stock. LOL!  ( Past postings:

• .... Green Packet
  Another ACE Market migrant is Green Packet Bhd, a mobile broadband networking solutions provider listed on the Mesdaq Market in 2005, and which transferred in July 2007.
  
  While still a loss-making company, group managing director (MD) and chief executive officer (CEO) Puan Chan Cheong noted in a recent media briefing that losses have narrowed year-on-year with the company on-track to achieve EBITDA or earnings before interest, taxes, depreciation and amortisation break-even target by year-end.

Yeah it's still a loss-making company.

Oh yeah babe! The CEO had kept on repeating and repeating and repeating and repeating and repeating and repeating and repeating that Green Packet is on-track to achieve EBITA earnings before year-end. And since Feb 2008, we are still waiting for it to happen!

So is Green Pack a good apple?

Now there's only one true statement in the stock market.

A stock is a good stock if it makes money for you and the stock is a damn bad stock if you lose money!

Everything else does not matter.

Let's look at before and after Green Packet migrated to the main board.

18 July 2007 was the migration date: GPACKET-Transfer from Mesdaq Market to Main Board of Bursa Securities

Here's Green Packet chart as a MeSS-daq stock.

Look at that!

Now that's an awesome stock chart, yes?

How?

Stock is up... I guess I cannot argue much that Green Packet is not a good Green apple of ACE. (LOL! Sorry I cannot resist the pun! )

Now look at this... this is Green Packet performance since it migrated to the main board.

How then?

What kind of apple is Green Packet?

This is how Green Packet had performed since listing. The dark vertical line highlights 18 July 2007, the day Green Packet migrated to the main board.

ps: This is a good example to show that the 'migration' doesn't mean the stock would be a stock market winner. Look at Green Packet. It had crash and burned since migrating to the main board.

And Who Is Helping The Stock Market Become A Casino?

On the Star Biz last weekend, there were a series of articles on the ACE Market

1. A place for ACE?
2. Rookies take a beating
3. The good apples of ACE
4. Divided over listing issues

The very first article, A place for ACE?, the very first sentence caught my attention:

• The alternative market has drawn harsh scrutiny due to some bad apple.

Harsh scrutiny? Bad apples?

Towards the end..

• “Stock markets are a casino tell me which market isn't? This is particularly true for emerging growth markets, so investors should know what they are investing in,” an analyst says.

Waloeh! Like this meh?

Let me re-use a recent posting on April 2011: What Do You Look For In A Report? Ms. Sexy Stock?

AsiaEP was trading below 20 sen for a large period of time back in 2006. Then in Dec 2006, it started climbing and climbing. And by 6 Feb 2007, it closed the day trading at 0.355 sen!



Up so much already woh. And then here come KN with its guns blazing claiming that AsiaEP is our country's "A homegrown Google and Baidu in the making"!
Sounds sexy enough?

In a 8 page report on a relatively unknown Masdaq stock (now ACE stock), KN gave the market an incredible initiation report.




....
STRONG BUY with a 12-month target price of RM0.99, which is based on a FY09 P/E of 10.0x. We believe Itah SE is worth a lot as a technology. Wall Street will not accord Google and Baidu with a market capitalisation of US$149b and US$4.0b otherwise. Moreover, players without a strong presence in the paid-search space, such as Microsoft, EBay and etc., may be willing to pay top dollars for Itah SE once proven.
And of course, as in most reports, the 12-month target is based on a very optimistic future earnings. In AsiaEP's example, the target price hinges on the estimates of what AsiaEP could earn in FY 2009.

And here's the earnings estimate table once more.

So AsiaEP was a company that was making just 3 million. But because of this new project, this "A homegrown Google and Baidu in the making", AsiaEP earnings could soar to 21.8 million.

Oh yes. The company was making just 3 million. And the research report said it can and because it can, it rates AsiaEP to be worth a whopping 99 sen based on the fact that earnings could fly to 21.8 million!

Aha...that's the sexy story told.

And as you know in the market, a stock's future price is based in what it could earn in the future.

And that's how unreal it was. AsiapEP which was trading for a long time under 20 sen, had soared to 35.5 sen (up 78%!!) was given an incredible buy recommendation of 99 sen based on an incredibly optimistic earnings projection.

And then local papers helped. On Feb 24th, the Star Bisweek carried this article: Googling for growth
And what did AsiaEP do after such a sexy report?

Fly it did.

By 26 Feb 2007, the stock was trading at 0.82 sen!


And incredibly, the next month on March 2007, Goldman Sachs decides to jump into the bank wagon! Yes, Goldman Sach decides to be an investor (err.. not sure if you call them an investor - if you read what happens next).

This was reported on March 9th by the Edge reported the following: 09-03-2007: Goldman Sachs buys 5.7% stake in AsiaEP.

And KN decides to the utmost incredible.

It raised the target price based on the fact Goldman Sachs bought!

Duh!

KN called it the Goldman factor and they reasoned:

VALUATION AND RECOMMENDATIONWhile our FY07, FY08 and FY09 earnings forecasts remain unchanged (Please refer to our Initiation Report dated 6 February 2007), investors should not under-estimate the positive impact of GSI’s presence in asiaEP for the following reasons:

• Emergence of GSI as a substantial shareholder in asiaEP could lend Itah SE instant credibility – a big vote of confidence on its business potential;
• Presence of GSI could enhance deal possibility between asiaEP and other BIG SE players on Wall Street; and
• Deal potential tends to inflate valuations.

We continue to rate asiaEP a STRONG BUY with a revised 12-month target price of RM1.97 (+99.0%), which is based on a FY09 P/E of 20.0x. Increasing foreign interests, who seem to better appreciate the company’s growth potential, to a large extent, drives the latest re-rating.

And did you know what was the price of AsiapEP when KN made this buy upgrade on 9th March 2007? AsiaEP was trading at 94 sen!!!

Yes, stock was below 20 sen in Dec 2006. On 6 Feb 2007, At 35.5 sen, KN gave it a buy with a target price of 99 sen. A month later, at 94 sen, AsiaEP target price was upgraded to 1.97!!!

Hail Mary!

And yes, AsiaEP reached a high of 1.14 in March 2007!

Back to Goldman Sachs.

Their arrival notice was made on 8th March: Notice of Interest Sub. S-hldr (29A) - GOLDMAN SACHS INTERNATIONAL. Goldman Sachs bought 12,421,100 shares or a 5.72% stake.

But at the end of March 2007, Goldman ceased to be a major shareholder: Notice of Person Ceasing (29C) - The Goldman Sachs Group, Inc. They sold some 2,300,000 shares and so they were no longer considered a substantial shareholder (which meant that Goldman Sachs need not report anymore to Bursa Malaysia on their shares purchase/disposals on AsiaEP! )

On 18th June: asiaEP BHD (“asiaEP” or “Company”)Proposed acquisition of 800,000 ordinary shares of RM1.00 each in General Perfect Sdn Bhd (“GP”) (“GP Shares”) representing 80% equity interest therein, for a cash consideration of RM23.2 million (“Proposed Acquisition”).

AsiaEP announced it was spending 23 million to buy a NEW dormant company which had NO financial track record!

And of course the selling started in July and by the end of month, AsiaEP sell down was highlighted on the Edge. (sorry no more link)

• 27-07-2007: asiaEP RM23m buy raises concern
  by Maryann Tan
  
  KUALA LUMPUR: asiaEP Bhd shares and warrants suffered further losses yesterday, going down 17% or 9.5 sen to 44.5 sen and 15% or six sen to 33 sen.
  
  On Monday, asiaEP shares and warrants hit limit down in afternoon trading before it announced plans to buy an 80% stake in General Perfect Sdn Bhd for RM23.2 million in cash.
  
  In the last four trading days, its share price fell by almost 50% from last Friday’s closing of 87 sen while its warrants lost 42% from 56.5 sen last Friday.
  
  General Perfect, currently held by two individuals, Liang Chee Wah and Liang Chee Hoo, intends to venture into the electronic top-up and payments kiosk business.
  
  The acquisition has aroused suspicion, as General Perfect is a dormant company, incorporated on May 11 with no financial track record.
  
  AsiaEP said the Liangs will provide a net profit guarantee of RM25 million effective from the date of completion of the purchase (expected to be end 2007) up to Feb 10, 2010. This amounts to RM20 million over two years in net profit attributable to asiaEP.
  
  The Liangs and other key management will also remain in the company for five years from the date of the acquisition.
  
  The cash consideration, which asiaEP will finance entirely through borrowings, will be held by a stakeholder (jointly appointed by asiaEP, the vendors and the financier) in an escrow account, the company said.
  
  This cash will be released to the Liangs, upon General Perfect fulfilling the profit guarantee. Should there be a shortfall in profits during the guarantee period, the difference will be made up with the cash in the escrow account.
  
  Given the non-existent financial record and highly competitive nature of the business, investors are not surprisingly, concerned over the proposal......

But the chairman said "NO PROBLEM!". On Star Biz Volatility of shares no cause for concern: AsiaEP chairman

How?

Newly incorporated dormant company in May 2007 and needless to say no financial track record and AsiaEP dared to announce that it wants to buy it for 23 million!!!!

Did the deal go thru in the end?

Sadly.... no. :P

Deal was terminated on Nov 2007. asiaEP BHD (“asiaEP” or “Company”)- Proposed acquisition of 800,000 ordinary shares of RM1.00 each in General Perfect Sdn Bhd (“GP”) (“GP Shares”) representing 80% equity interest therein, for a consideration of RM23.2 million (“Proposed Acquisition”)

And what about Goldman Sachs?

On 1st Aug 2007, Goldman Sachs became a substantial shareholder again! Notice of Interest Sub. S-hldr (29A) - Goldman Sachs International - it purchased some 8,000,000 shares. And Goldman Sachs said it was holding some 15,961,500 shares.

WOW! That was what I said back then. Despite the 'stunt' to purchase that dormant company for 23 million, 'some how' Goldman Sachs decided to buy more AsiaEP shares!

And again, a few weeks later, Goldman Sachs was disposing their shares again! Changes in Sub. S-hldr's Int. (29B) - Goldman Sachs International

And by Nov 2007, Goldman Sachs ceased to be a substantial shareholder again. Notice of Person Ceasing (29C) - Goldman Sachs International

And remember KN's initial buy recommendation? Remember how KN valued AsiaEP at 99 sen? The valuation was based on an expected earnings of 21.8 million for AsiaEP's fy 2009.

And how did AsiaEP did for fy 2009? Quarterly rpt on consolidated results for the financial period ended 28/2/2009 - AsiaEP lost some 7.46 million for fy 2009!

And in April 2011, AsiaEP announced it had losses of 31.2 million!

In response to the current volatility of the world economic conditions affecting the local market as a whole, the Management decided to adopt a prudent stance by providing an impairment on the intangible assets amounting to RM28.268 million during the current quarter ended 28 February 2011. This has resulted in the Group recording a consolidated loss of approximately RM31.256 million for the current quarter ended 28 February 2011 (before taking into account the aforementioned impairment, it would have registered a consolidated loss of only RM2.988 million), compared to the corresponding quarter of the preceding year ended 28 February 2010 when the Group registered a consolidated loss after taxation of approximately RM0.942 million. In view of the aforementioned market condition, the Group revenue generated was approximately RM 0.234 million for the current quarter ended 28 February 2011 compared with approximately RM1.633 million as posted in the preceding year corresponding quarter.

Last Saturday, 18th June 2011, on Business Times.

• asiaEP to venture into new businesses
  
  By Presenna Nambiar Published: 2011/06/18
  
  PUTRAJAYA: asiaEP Bhd is likely to make a minor loss or at best break even, as it focuses on venturing into new businesses to prop up itself.
  In April this year, asiaEP announced it would buy a 41 per cent stake in an iron ore miner, Global Mineral Technology Sdn Bhd.
  "As long as the company we are buying can give positive impact to us, we will explore," asiaEP managing director Dr Tan Boon Nunt said after its annual general meeting (AGM) yesterday. The AGM lasted some two hours as shareholders voiced concerns on its financial standing.
  
  In 2010, asiaEP recorded a net loss of RM33.1 million due to RM28.3 million impairment losses of intangible assets for the financial year ended February 28.
  
  Despite the losses, Tan is confident the company will be able to forge ahead with its plans to venture into more new businesses.
  
  As at February 28, the company has no borrowings on record.
  
  Tan said part of the losses were due to its technical contract with MuslimSE.com, the world's largest Muslim online search engine.
  
  It was reported that the contract was worth US$26 million (RM79.30 million).
  
  "Middle East is very volatile. Even though it is not officially terminated yet, the board decided to be prudent and make the impairments before hand, so that it does not eat into our future profits," he said.
  
  No more such provisions are expected to be made.
  
  "The IT business is declining, that's why the board is looking for new revenue streams and has decided to change the name of the company from asiaEP Bhd to asiaEP Resources Bhd," Tan said.
  
  asiaEP is still in the midst of a due diligence on Global Mineral.
  
  While financial statements filed to Bursa Malaysia Bhd showed that Global Mineral made a net profit of RM2 million for the period between March 2009 and June 2010, the Companies Commission Malaysia (SSM) has no financial accounts filed with it.
  
  Documents filed with SSM, however, showed that it was registered on March 25 2009 and that it has about RM4 million in borrowings. This included RM2 million charged in May 2011.

AsiaEP now wants to buy an iron core miner???

AsiaEP was THE star in the Mesdaq (now known as ACE) markey back in 2007. The stock was below 20 sen back in Dec 2006. By March 2007, it was trading at a high of 1.14!!

And as quickly as it rose, it's plunge was dramatic too. The chart below says it all.



Now back to the statements made on Star Biz this weekend.

• The alternative market has drawn harsh scrutiny due to some bad apple.
• “Stock markets are a casino tell me which market isn't? This is particularly true for emerging growth markets, so investors should know what they are investing in,” an analyst says.

I believe everyone understands that we should know what they are investing in but let's reflect on AsiaEP. Yes, clearly the stock was stir fried.

But think about the events surrounding the stock back in 2007.

The stock was already up some 78% when KN made its buy call on Feb 2007. At 35.5 sen, with the stock up some 78% since early Dec 2006, KN gave it a huge buy call, stating the stock should be worth 99 sen! And the stock continued to soar. The local media highlighted that research report. Then the big name fund, Goldman Sachs bought a stake. And the stock was upgraded AGAIN - from 99 sen to 1.97 based on this factor alone. The local media highlighted this so-called good news. Everybody was happy and the stock went up, up and awayyyyyyyyyyy.

Did anyone care what was AsiaEP actually doing? Did anyone bother to ask if KN's valuation on AsiaEP on Feb 2007 was perhaps way too optimistic?

Was there the need to own research?

Goldman Sachs was buying woh. What's there to argue about?

As you all know, many only consider a stock to be a good stock if they make money from it. And the stock is only a bad stock if they lose money in it.

And AsiaEP was a good stock. It was the Mesdaq (ACE) darling of 2007.

But when AsiaEP turned and started falling in July 2007, was AsiaEP still a darling?

Or did it turn into a rotten apple?

However, think about it for a moment. If you are just an observer, with no vested interests at all in the stock market, how exactly would you rate AsiaEP based on what has happened?

How did the stock rise to fame? How did the stock soar? Why did it plunge?

Or should one blame the stock market itself cause it is a casino?

But think about it for a minute. Just who's helping the stock market to become one?

The owners of the stock? The buyers of the stock? And judging from AsiaEP example, do you think the research houses could do much better?