LCL Lost Another 130 million

Two words... go figure.

LCL was listed 2004.

The following are links to all its Q4 earnings.

2004: Quarterly rpt on consolidated results for the financial period ended 31/3/2004 (I would discount this one - since it's too soon after listing)

2005: Quarterly rpt on consolidated results for the financial period ended 31/12/2004

2006: Quarterly rpt on consolidated results for the financial period ended 31/12/2005

2007: Quarterly rpt on consolidated results for the financial period ended 31/12/2006

2008: Quarterly rpt on consolidated results for the financial period ended 31/12/2007

2009: Quarterly rpt on consolidated results for the financial period ended 31/12/2008

Now if you add up all the profit, LCL said to make... how much did you get?

3 months ago, I wrote this: LCL Hit With 334 Million Losses!

Yesterday, LCL reported earnings. It lost another 130 million!

Its retained losses is now 490.9 million!

Which means... if one adds up all of LCL earnings since listing, LCL did NOT make a single sen!

Now consider this... in the posting, How Now For LCL?, I posted a snap shot of KN's report on LCL. Here's the link to the screen shot again: click here for screen shot.Can you see the market capital of LCL back then when LCL was trading at 5.70? LCL was worth an incredible 2.34 billion back in 2007!

Error! Many apologies!

O.o

Yeah... go figure!

LCL Hit With 334 Million Losses!

LCL reported its earnings. It wasn't pretty!

Flashback:

In the posting, More Comments On LCL, I highlighted LCL's receivables.

• Trade receivables - 221.436 million
  Amount due from customers for contract works - 154.107 million
  Amount due from related companies - 41.641 million

Assuming and having faith that all these receivables are in order, I would be concerned which of these figures are from its work done in Dubai.

As the sum is rather substantial and with Dubai World current debt issue, surely one has to ask if the debts cannot be collected. And if they cannot be collected, these debts would have to be re-classified as bad debts, which would equate to losses.

And last but not least, given LCL's current financial position, can LCL afford any more delay in its collection of debts?

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

Company said the following in its notes:

• Compared to the cumulative preceding year corresponding quarters, the Group’s revenue decreased by 33.3% to RM309.8 million as compared to RM465.0 million previously recorded. This is mainly due to the lower progress billing for most of the on-going Dubai projects which are close to completion by 4th quarter 2009. The Group has also recorded a loss before taxation of RM392.2 million as compared to profit before taxation of RM4.2 million as compared to the preceding year quarter. The losses were mainly attributed to the delay in the projects resulting in cost overrun arising from the prolongation of projects, additional costs incurred in down-sizing our operations in Dubai, ie retrenchment, logistics and pre-mature termination of accommodation arrangement, impairment of assets, writing down of contracts (work in progress) and allowance of doubtful debts.

From the company's balance sheet:

113 Million in provision of doubtful debts and 170 million write down of contracts!

And this again highlights why the trade receivables are so important. When the receivables snow balls so high, it usually means the company has a problem in collection of debts and when collection of debts cannot be made, provision is a must and the company earnings will be hit big time!

So how deep in trouble is LCL now?

Total loans is still high at 398.464 million!

And here are LCL's current asset.


The amount due from customers for contract works is now wiped clean to just 87 thousand as LCL wrote down some 170 million worth of contract works. Receivables are still high at 121 million.

Company's cash flow.

LCL paid some 24 million in financial costs!

How?


Do you think LCL can make it through this extremely tough patch?

On Star Business: LCL posts higher loss on lower progress billings

• Wednesday February 24, 2010
  
  LCL posts higher loss on lower progress billings
  
  PETALING JAYA: LCL Corp Bhd incurred a sharply higher net loss of RM334.72mil for its fourth quarter ended Dec 31 from a net loss of RM17.39mil in the previous corresponding period.
  
  Revenue for the quarter fell to RM66.11mil from RM115.89mil previously while basic loss per share was 233.85 sen against a loss of 12.15 sen before.
  
  For its financial year ended Dec 31, the company had a net loss of RM393.35mil compared with a net profit of RM9.35mil previously while revenue for the period fell to RM309.83mil versus RM464.98mil.
  
  In a filing with Bursa Malaysia yesterday, the company said the results were mainly due to lower progress billings for most of its ongoing Dubai projects.
  
  “The losses were mainly attributed to the delay in the projects resulting in cost overrun arising from the prolongation of projects and additional costs incurred in downsizing our operations in Dubai,” it said.
  
  LCL Corp said its classification as a PN17-status company, and the appointment of a receiver and manager to LCL Furniture Sdn Bhd, a major contributor to its operations, “had severely hampered the operations of the group on an ongoing concern basis.”
  
  “The board of directors is of the view that without the meaningful recovery of our debt from our customers and the success of the debt-restructuring scheme with all our lenders and creditors, the prospects of the group remain uncertain,” it said.
  
  Due to the fallout from the Dubai financial crisis, LCL Corp, which has several projects there, has been struggling to recoup its outstanding bills from its Middle East customers.
  
  As at Dec 31, it said the group had credit facilities from financial institutions totalling RM455.27mil which are guaranteed by LCL Corp.
  
  Accordingly, LCL Corp was contingently liable to the extent of credit facilities utilised by the subsidiary companies amounting to about RM269.67mil, the company said.
  

Positive News For LCL?

Here's an update to the posting How Now For LCL?

Now the news of Dubai $10 billion bailout saw some interesting movement from the stock yesterday afternoon. It provided a nice spring board for the stock.

This morning there was this news clip.

• Interior fit-out specialist LCL Corp (7177.KU) may extend its rebound to test 10-day moving average of 30 sen as concerns over the company's loan default may ease further following news Abu Dhabi provided $10 billion in financial aid to Dubai. Separately, LCL says in filing with stock exchange that block of 16 million shares (or 11.2% stake) owned by LCL founder and chairman Low Chin Meng was sold on Dec. 11 by CIMB, the bank in which Low pledged his shares to; Low ceases to be substantial shareholder of LCL after sale. "The Dubai news should continue to have positive impact on LCL on expectation of loan recovery," says dealer with local brokerage; news of LCL chairman's block sale already has market speculating about identity of buyer, which may emerge in coming weeks. Stock closed +4.5% at 23 sen yesterday.

Now that's rather interesting!

CIMB sold the chairman's shares that were pledged to the bank!

Yeah, Abu Dhabi news would create positive sentiment for the stock. LOL! Yeah, the stock could certainly move much higher. Me? I do not know. Stocks are unpredictable. Sometimes they move up, sometimes they move down. Other times, they do the crab dance!

Fundamentally (for all its worth) I would imagine that there are plenty of sceptics around.

Why?

LCL is LCL is LCL.

Who is LCL? Just a small listed company from Malaysia with some upaid bills. How much would LCL see of these bailout money?

And some question the time frame. Would LCL be repaid fast enough for it to cover its debts due? And how much would LCL be paid? Remember LCL had already defaulted some 72 million. Perhaps this bailout from Abu Dhabi comes a bit too late for LCL!

How Now For LCL?

Yeah, LCL used to be a darling stock. The stock gave many an investor a very rewarding investment if they had invested in the stock in 2005-2006. By 2007, they would have been in dreamland.

Hence, now the stock had plummeted to such low levels, naturally its understandable that there would be interest.

It's natural.

For no stocks go down forever and neither does it go up forever.

Hence, some are pondering if the sell down is perhaps overdone, which means this could be a heavenly opportunity.

Let's explore via these comments from the posting LCL Stock Gets Hit On Payment Default!

• solomon said...
  It teaches us the importance of biz concentration risk and country risk.
  
  However, I see values in the company with its good track records. Only timing and people fails her.
  
  The major shareholder could almost double its stake now with his previous stake paring. If the company can reschedule some of the loans, I think it can overcome the bad times.

Interesting comments.

Let me skip the first line for a moment and let me share my opinion on the second line. '.. the company with its good track records'.

Yes from fy 2005 to fy 2007, LCL showed a rather impressive growth, where its net earnings went from 8 million to 12 million to 21 million. ( I guess this is the good track record you are referring to and needless to say, the market was also extremely impressed with what they saw - despite some clear flaws in its financial fundamentally..)

It's impressive no doubt but..... let's look at one report back in 2007, in which K&N Kenanga initiated coverage on the stock. I do have a copy of that report. Here's a snip of the report.

First, the price of LCL back then on 11 June 2007. Notice the incredibly high price target from K&N. (IINM LCL had a one for 2 bonus issue in 2007)

Secondly, natually is Dubai. The small arrow.

• ....Their impressive capex has no doubt enabled them to secure large contracts where most of its competitors outsource their fabrication work. Its current orderbook is RM437m with 83% in Dubai.

Current order book worth rm437 million, with 83% in Dubai. And the title of the report, was 'Malaysia Middle East Success Story'. (come back to the 2007 order book 0f 437 million in a moment)

Would it not be correct to say that the success where LCL built its solid track record (some also argue that this track record is not solid enough because it's only 3 short years!) was from Dubai itself?

Now Dubai have come crashing down.

Would this not put a huge question mark over its good track record?

Thirdly, the receivables issue. (See this was an existing problem back in 2007!)

• Large trade receivables but good quality clients. Given the nature of the work process where a certain quantity is shipped together upon completion of fabrication in the factory, the amount of receivables is high. In addition, Kerzner International and Emaar Properties have payment period of 4 to 8 months upon presentation of bills. The 75% of the value of the shipment of fabricated IFO materials is billed upon delivery on site and the remaining 25% is billed when it has been installed. Payment default by clients is expected to be low.

I am sure that many can see instantly the questionable issues with the analysis made.

Kerzner International and Emaar Properties have payment period of 4 to 8 months!

Many would wonder if this is such a healthy business practice at all. How could a payment period of 4 to 8 months be considered as good quality clients???

And the last statement, 'payment default by clients is expected to be low'........ oops!

Lastly, a quick remark on how K&N valued the stock.

• Initiating with BUY and target price of RM7.48 using 8x PER on FY08 EPS of 93.5 sen.....

Here is fy 2006 Q4 earnings reported on Feb 2007. Quarterly rpt on consolidated results for the financial period ended 31/12/2006. LCL made 12.9 million for the year or an eps of around 32 sen.

Here is fy 2007 Q1 earnings reported on May 2007. Quarterly rpt on consolidated results for the financial period ended 31/3/2007. LCL made only 4.1 million or some 10 sen eps.

In June 2007, K&N values the stock based on the next year, fy 2008 earnings. It expects LCL to make some 38 million or a massive eps of 93.5 sen!!! Optimistic forecast?

Some sure say yes! And to give such an optimistic report given the fact the stock HAD already flown sky high (see small chart on K&N report) would be questionable, yes? (This is probably why we keep hearing that one generally would be better off if one avoids all these bullish reports)

And now we come back to the first issue. "It teaches us the importance of biz concentration risk and country risk."

Yes, business concentration risk and country risk should always be considered if one is an investor.

A business with a large single customer always carry a larger risk.

In an older posting, Understanding My Investment Risks, I wrote the following:

• For example, take the stock VADS. It was a stock market winner but I chose to ignore it because I simply could not comprehend the risk involved in investing in the stock. VADS is a stock in which its majority shareholder is also the main and only customer for the business. Such a model simply did not make sense to me. Hence, from an investing perspective, I had chosen to give it a pass.

Yeah, as a stock, VADS was a stock market winner. LOL! Seriously till this very day, I feel nothing for missing out. As an investor, I see no sense in investing in something which I did not understand.

Which exactly is the same for LCL.

For all its growth, its growth was based on a single country. Dubai, housing market was booming insanely, so was LCL. And needless to say, for LCL, it came with the risk of a single country with an existing issue of having a long payment period.

No doubt, the initial years were good. It gave LCL the early promise (the 'track' record') but it also saddled LCL with massive payment collection issue.

Would I say that 'Only timing and people fails her'?

In my flawed opinion, my answer is no.

The long payment period (4-8 months) was an existing issue and the fact that the bulk of LCL business came from Dubai. These were the two issues that the management knew from day one. And what about the Dubai itself. Surely, the management would have understand that nothing grows forever.

Back on Feb 2008, there was this interesting posting by Mish: Where is All The Oil Money Going?

The very first pix Dubai in 1990 (clickable link to the picture posted by Mish), the second showed Dubai in 2003. The subsequent pictures of Dubai from 2007 was simply astounding. Could Dubai actually support such an astounding growth as a city?

And LCL has gotten its hands smack right in the middle of it all.

Despite the payment issues, would it not be fair to say that it appeared that LCL adopted a no-risk-no-gain business policy?

Look at the end result today.

So did market timing and people fail her?

Me? I think, in my flawed opinion, the management should hold its hands up and admits that perhaps it should have done much better!

Lastly..

• The major shareholder could almost double its stake now with his previous stake paring. If the company can reschedule some of the loans, I think it can overcome the bad times.

What was his reasoning to dispose so much of his shareholdings in November 2009? Why? Now a month, later, in December, LCL has defaulted on RM72m loans. What if this was one of his reasoning that he disposed his shares? Given LCL balance sheet (as per LCL earnings notes in November (see posting Quick Look At LCL's Earnings)), LCL only had some 12.59 million in its piggy bank and with the known difficulties in collection of monies from Dubai, wasn't this one of the main reason he sold?

And if so, what's the implication to HIS minority shareholders?

Some probably invested in his company because of the faith in him. But doesn't it look as if he had abandoned ship?

Yeah, he could double his stake back NOW by buying back the shares.

But IF... I am a potential investor, do I like what had transpired? Would I have faith in him?

Ah, the rescheduling of the loans could be a breather for LCL but will the bankers do it?

As per CIMB report highlighted here, Affin Bank holds the huge of the loan, at some 69 million. Would Affin Bank show some good ole Christmas kindle spirits by allowing LCL to defer its loan repayments?

It's tough for me to answer this. I think Affin Bank has gotten its head wet in a rather difficult situation. These are the list of banks listed in CIMB report.

1. Affin Bank
2. Am Bank
3. Alliance Bank
4. Bank Islam Malaysia
5. Bank Muamalat Malaysia
6. CIMB Investment Bank
7. EXIM Bank
8. Kuwait Finance House (M)
9. Public Bank
10. Standard Chartered Bank (M)
11. Royal Bank of Scotland

(LOL! Did I read some articles claiming that our banks have no exposure to Dubai? Well, LCL has demonstrated that indirectly, many banks are exposed to Dubai!)

Now I do believe in miracles. I do, really. So I shall not be nasty and suggest that LCL has no chance at all. But assuming if LCL do get a lucky break from its bankers, where and when is LCL going to get money?

Look at the next snip from CIMB report. LCL has a massive 293 million loans maturing within the next 12 months! LCL has 12 months to pay back its bankers some 293 million. (CIMB do expects more default in payments!)

Where to get those money?

In the posting, More Comments On LCL, I highlighted LCL's receivables.

• Trade receivables - 221.436 million
  Amount due from customers for contract works - 154.107 million
  Amount due from related companies - 41.641 million

Amount due from related companies... 41.641 million???? Hmmm.... why so much? Since LCL in trouble, how come these related companies not paying back???

Receivables and amount due from customers equates to a massive 375.543 million.

Could LCL collect these money tp repay its bankers?

Sceptics answer most likely is that if LCL could have collected, they would not have defaulted that 72 million. The opportunist, would say, miracles do happen! (Give them a break, it's the holiday season!)

Oh.. some would also re-ask again, given all these that has happened, why did LCL Corp Bhd chief operating officer (COO) Michael Tan Jin Sun resign back in Oct 2009? Anything to do with all this mess? And why in November 2009, did the five non-executive directors resign? Four of these non-excutive directors resigned from the AUDIT committee. Anything smelly?

Now would you bet on it?

How?

More Disposal Of Assets Seen In LCL

In my last posting on LCL, More Comments On LCL, I mentioned the following..

• One has to consider how healthy LCL is with a cash balance of a mere 12.59 when LCL paid out some 18.748 million per quarter for its Financial Cost.
  
  And more of a concern too there were several disposal of properties mentioned.
  
  Given LCL's current financial position, some would be curious. Why the disposal?

On the Edge Financial Daily last night, LCL to sell sofa maker for RM1.14m

• LCL to sell sofa maker for RM1.14m
  Written by Yong Yen Nie
  Tuesday, 08 December 2009 23:00
  
  KUALA LUMPUR: LCL CORPORATION BHD [] has entered into a management buy-out agreement (MBO) with sofa maker Secret Sofa Sdn Bhd to dispose of the entire businesses and management of its unit LCL Cushion Sdn Bhd (LCLC) to the latter for RM1.14 million.
  
  LCL said its board had today entered into the MBO which would see the disposal of LCL's 80% stake in LCLC to Secret Sofa. Subsequently, Secret Sofa will take over the operations and management of LCLC and its unit LCL Sofa Creations Sdn Bhd (LCLS).
  
  LCL said the disposal was part of its strategies to streamlines the group's operations and business activities.
  
  "Secret (Sofa) shall take all profits and existing movable and immovable assets including but not limited to all stocks, materials, foam, machinery, tools, vehicles, and works under all projects of the company as at Aug 31, 2009 and shall assume all debts and liabilities incurred from Sept 1, 2009," LCL said.
  
  It added that the purchase price would be used to offset against the net amount owed to LCLC or LCLS by LCL's subsidiaries or associate companies as at Aug 31, 2009.
  
  "Any net amount owed to LCLC shall be considered as goodwill and result in an upward adjustment of consideration," LCL said.
  
  LCL said given that the original cost of investment in LCLC was RM438,000, the disposal in LCLC would result in a gain of RM698,404, based on the latest audited accounts of the group as at Dec 31, 2008. LCL said the disposal would be completed within four months.

Makes you really wonder, no?

Is this yet another indicator that not is well for LCL?

More Comments On LCL

Got the following comments on the posting Quick Look At LCL's Earnings

• dennisctp said...
  the reduce in trade receivables and debts might also influenced by currency. maybe these figures went down just because of currency (RM is stronger) not that LCL really get paid and pay for the debts...

dennisctp,

Many thanks for your comments.

Oh, the trade receivables could go down because of currency fluctuation. Me? I choose not to speculate how and why the receivables were down. I rather note it as it is.

And as it is, there's just too many concerns in this company.

I would be more worried of the cash position of a mere 12.59 million versus a debt position of 391 million. Is this a healthy position?

The following was from LCL's cash flow statement.


One has to consider how healthy LCL is with a cash balance of a mere 12.59 when LCL paid out some 18.748 million per quarter for its Financial Cost.

And more of a concern too there were several disposal of properties mentioned.



Given LCL's current financial position, some would be curious. Why the disposal?

Yesterday Star Business had an article. Malaysian construction firms in Dubai have minimum exposure‎

• Interior fit-out (IFO) company LCL Corp Bhd founder and executive chairman Datuk Low Chin Meng said payments were generally slow in Dubai.
  
  “We will shift our focus on interior fit-out (IFO) contracts in cash-rich Abu Dhabi, after the completion of projects in Dubai,” he said.
  
  The company has projects such as Atlantis The Palm Hotel, Dubai Metro System, Dubai Mall and Dubai Marina Hotel.
  
  Concern over the level of debt held by the Government and its affiliated companies had sent jitters throughout the Gulf region and had affected investors confidence level.
  
  Earlier in the year the Dubai’s stock market was down 60% and many residents believed that the property market was on the brink of collapse.
  
  Dubai had borrowed billions to finance its infrastructure and construction companies such as Dubai World, and Emirates Airline.
  
  A local property analyst said Dubai was likely to be on the road to recovery.
  
  “The worst is likely over as the market has bottomed out. The economy was very bad at the start of the year. The housing market fell into a slump and property prices fell as much as 50% even in prime location and many expatriates left the place,” he said.

Past posting on Dubai's property woes were highlighted in this clickable link.

So payment from Dubai 'were' generally slow. LCL receivables are now separated into three entries. As per its earnings notes last night:

1. Trade receivables - 221.436 million
2. Amount due from customers for contract works - 154.107 million
3. Amount due from related companies - 41.641 million

Assuming and having faith that all these receivables are in order, I would be concerned which of these figures are from its work done in Dubai.

As the sum is rather substantial and with Dubai World current debt issue, surely one has to ask if the debts cannot be collected. And if they cannot be collected, these debts would have to be re-classified as bad debts, which would equate to losses.

And last but not least, given LCL's current financial position, can LCL afford any more delay in its collection of debts?

How?

past postings on LCL here

Quick Look At LCL's Earnings

Last blogged LCL Hit By Arabtec Claims!

LCL reported its earnings today.

What's more worrying is when we compare the balance sheet as posted in the earlier posting LCL Hit By Arabtec Claims!, LCL's balance got even weaker.

Cash balances is now only 16.4mil and receivables has increased to 270.501 million. (Given the massive issues in Dubai housing market, should one discount this issue? Perhaps a chunk of these receivables might be doubtful? ) (Compare the previous balance sheet table shown here: here )

And loans had increased too!

LCL Hit By Arabtec Claims!

The bad news keep coming for LCL!

On Business Times: LCL: Arabtec makes claim

• LCL: Arabtec makes claim
  
  Published: 2009/06/06
  
  AN ADVANCE payment of 25.4 million UAE dirham (AED100 = RM97.39) made to LCL Corp Bhd for interior fit-out works for a Dubai project is being re-claimed, it told Bursa Malaysia.
  
  LCL’s Dubai based unit LCL Interiors Contracting LLC (LCLIC) was previously awarded the subcontract for interior fit-out works for Tiara United Towers by Arabtec Construction LLC but LCLIC’s part was later omitted due to project changes.
  
  LCLIC had received an advance payment of AED 39 million which was secured against an equivalent sum of advance payment bond issued by the bank.
  
  LCLIC had also issued a performance bond of AED 15.6 million to Arabtec being 10 per cent of the total contract value.
  
  Arabtec has now made a claim on the advance payment bond for AED 25.4 million.
  
  The financial impact for the LCL group includes a net cash flow impact of AED 25.4 million, an increase of net gearing ratio to 2.92 times from its current 2.75 times, and an additional loss recognition of AED 3.1 million.

Ouchhhhh!!!!

Recent postings on LCL

• LCL and Its Dubai Woes
• Some Thoughts On LCL
• Update On LCL
• Warning Sign On LCL As It Misses Deadline To Submit Audited Reports!

Here's LCL latest balance sheet.

As can be seen, the balance sheet is rather stretched!

And here are two contrasting views on LCL after it announced its earnings.

LCL and Its Dubai Woes

LCL reported its earnings.

As expected not good.

From the company's quarterly earnings notes...

• Compared to cumulative preceding year corresponding quarter, the Group has recorded lower revenue of 22.19% to RM 80.334 million. This was mainly due to some of the on-going projects have coming close to completion and hence resulted in the lower progress billing to date. The Group also recorded a loss before taxation of RM 16.433 million as compared to profit before taxation of RM9.537 million. The continuous cost overrun of on-going projects in Dubai, mainly due to the prolongation of projects and additional financial cost incurred resulting from slower collection, has negatively impacted the financial performance of the Group.

• The Group recorded a decrease in revenue of 30.68% to RM 80.334 million as compared to preceding quarter of RM 115.894 million. However, there has been some marginal improvement in the financial performance whereby the loss before taxation recorded narrowed by 22.26% to RM16.433 million as compared to RM 21.138 million recorded in the preceding quarter. During the quarter, the Group has embarked on aggressive collection exercise and has written down some receivables after commercial settlement reached with clients on payment of contract proceed due. The on-going consolidation and scaling down exercise of selective non-profit contributing operations have also contributed to the unsatisfactory performance of the Group.

Hmmm.... "mainly due to the prolongation of projects and additional financial cost incurred resulting from slower collection".. that's the main issue right?

Why is the prolongation of the projects happening? Would the answer be the property market in Dubai crashed!

Why is the slower collection happening? If the property market crashed, wouldn't the developers have a difficult time paying?

And with LCL's own balance sheet extremely stretched to extreme high borrowings, would you say that an investment in LCL is extremely risky?

Oh, how ironic it is that on the Financial Edge: Dubai leads global housing-market slump

• LONDON: Dubai, home to the man-made Palm Jumeirah and The World island developments, suffered the biggest reversal among global housing markets following the collapse of an investment bubble, Knight Frank LLP said.
  
  House prices in Dubai, the second-largest of the seven sheikhdoms that make up the United Arab Emirates, fell 32% in the 12 months ended March 31, according to a report by the London-based property broker published yesterday. A year earlier, homes appreciated at an annual rate of 48%.
  
  Dubai “is in a mess”, said Nick Barnes, head of international residential research at Knight Frank. “A lot will depend on developers and how long they can hold on before getting into fire-sale territory.”
  
  The sheikhdom was hurt more by the global financial crisis than other property markets because of the construction boom that created thousands of new homes just as demand began to evaporate. Within a year, Dubai went from being the fastest rising of 46 markets monitored in the Knight Frank global house-price index to the second-biggest decliner after Latvia.
  
  Deyaar Development PJSC, the Dubai-based company that put a quarter of its projects there on hold, will announce a 500 million-dirham (RM478.45 million) property fund to buy distressed assets within three weeks, chief executive officer Markus Giebel said in an interview on May 14.
  
  In the first quarter of 2009, house prices in Latvia dropped 36%, while Singapore was the third-worst performing market with a slide of almost 24%. They were followed by the US and the UK, where prices declined about 17%.
  
  The biggest increase in property values tracked by Knight Frank was for Israel, where homes appreciated by almost 11%. The Czech Republic and Jersey came second and third respectively, the broker said.
  
  “In Israel, demand still outweighs supply,” said Werner Loval, founder of Anglo-Saxon Real Estate, an Israel-based property broker. Israel’s largely Jewish foreign buyers are motivated “more by sentiment” than by speculation, he said. — Bloomberg

Yup, that super nice looking Palm Jumeirah and The World island is in trouble! (do see Dubai's House Prices Drop 41% In Q1!! and also No Longer The Same Dubai As Global Economic Crisis Hits Dubai Hard. )

Past postings on LCL

• Some Thoughts On LCL
• Update On LCL
• Warning Sign On LCL As It Misses Deadline To Submit Audited Reports!
  

Some Thoughts On LCL

Got some comments on Update On LCL

stormillionaire said...

• So what's your view on this Moola?. TA's call or CIMB's outlook? They're night and day.

Hello,

Do understand I am not an investment advisor. Ok?

And I have no idea whether a stock price would go up or down.

What I can do is, I can chat and offer you some flawed views on certain issues.

As it is, for LCL.

Fact it, it's last quarterly earnings it reported massive losses. That is a fact.

It reported its audited earnings late. That is a fact.

It's main cash cow is Dubai. That is a fact.

Dubai home prices has crashed some 41% for the first 3 months of the year. That is a fact. (see Dubai's House Prices Drop 41% In Q1!! )

Would the property crash in Dubai have a huge impact on LCL? Take a look at CIMB's own report (second picture) and figure out how much Dubai means to LCL.

Why is Dubai important?

This is LCL's last reported quarterly earnings: Quarterly rpt on consolidated results for the financial period ended 31/12/2008

It reported net quarterly losses of 17.389 million.

It's main customers, from Dubai, is being hit by a property crash. Needless to say, this would be bad for LCL's business.

Here is a screen shot of their balance sheet taken from the quarterly earnings notes.

Have a look at where I had inserted arrows.

1. Inventory is blown up compared to a year ago.
2. Trade receivables is blown up too.
3. Amount due from customers for contracts work is up.
4. Their own cash - depleting.
5. Their borrowings had sky rocketed.

Now, I would wonder.

I always do wonder.

Since their main customers from Dubai is having a property crash, isn't this exactly why the amount due from their customers is sky rocketing? Well I would ass-u-me and guess that LCL's customers is having problem with payment.

And then look at the trade receivables.

Huge amount.

Concern always is if the trade receivables goes bad, the company would have to declare them as bad debts, which means it would have to end up as losses.

Inventory build up is no good either.

Assumption, if the inventory is for renovation work for their customers, then there is a possibility these inventory might not be ok for other customers. Dubai 'used' (can I use this word?) to be a city of extremely high luxury. So there is always a chance that other customers might not want these inventory. (This is called assessing the business risk, yes?)

The last two issues.

Massive concerns.

Depleting cash and the fact that LCL has massive borrowings. Total cash of only 14.3 million versus total group borrowings of 379 million does not sound like a healthy company at all. And when you consider that their main business model (renovation work in Dubai) has a huge question mark hanging over it, then the risk multiplies.

ps: another issue for consideration. LCL had a rights issue proposal all drawn up. But according to an announcement in March, see here, LCL managed to get an extension of this proposal to Aug 2009. I would perhaps ask why the rights issue was postponed. No one interested?

These would be my flawed concerns on this company. Hope this help as a second opinion.

Update On LCL

Posted last Friday: Warning Sign On LCL As It Misses Deadline To Submit Audited Reports!

Yesterday on the Financial Edge: TA cuts LCL to sell, values IFO outfit at 35 sen

• TA Securities views LCL Corp Bhd’s failure to submit its audited financial statements ended Dec 31, 2008 before April 30, 2009 which violated listing requirements as a negative surprise.
  
  The research house, which downgraded LCL to a sell at 57 sen from a buy, now values LCL at 35 sen from 82 sen previously, based on the revised three times CY09 earnings per share. .
  
  The interior fit-out (IFO) company now has less than three months to submit the audited financial statements before Bursa Malaysia suspends the trading of LCL shares. Also, LCL will be delisted if it fails to submit the audited financial statements within six months from now.
  
  TA Securities said LCL’s management attributed this negative surprise to a stock verification issue in Dubai, which has prolonged the audit process.
  
  “We understand that there is no payment issue or any conflicts in the method used to recognise VO (variation order) claims. In 4Q08, LCL reported an increase in inventories of 19% quarter-on-quarter and 38% year-on-year respectively to RM34 million.
  
  “This was nothing unusual given the increased amount of works in Dubai. Hence, we do not expect LCL to take too long to publish its audited financial statement unless a much more complicated issue arises,” TA said in a research report yesterday.
  
  Nevertheless, TA reckoned that LCL would be fined for failure to furnish audited financial statements on time. In the past, Bursa Malaysia has fined various companies from RM2,000 to RM72,000 for late submission of audited accounts.
  
  TA maintained its FY2009-2010 earnings projections given that the fine is expected to be immaterial.
  
  “However, until the audited FY2008 financial statements are being audited, we raise the discount attached to the construction sector (10 times) now from 30% to 70% to factor in the risk of misrepresentation of FY2008 financial performance,” said the research firm.
  
  LCL fell three sen to close at 54.5 sen yesterday.
  
  This article appeared in The Edge Financial Daily, May 5, 2009.

Nothing is mentioned about the property plunge in Dubai. :D

I just received a copy of CIMB research report on LCL just now.

This is what they wrote.

• 
  
  
  

Warning Sign On LCL As It Misses Deadline To Submit Audited Reports!

Hmm.. on Star Business LCL misses deadline to submit report

• Friday May 1, 2009
  
  LCL misses deadline to submit report
  
  PETALING JAYA: LCL Corp Bhd missed yesterday’s deadline to furnish its audited financial statements for the financial year ended Dec 31, 2008.
  
  The company informed Bursa Malaysia yesterday the report was at “finalisation stage” and that “the company is working closely with the auditors to finalise the audit expeditiously.”
  
  “LCL will submit its audited financial statements 2008 as soon as the audit is completed,” it added.
  
  Under listing regulations, LCL had to submit the report not more than four months after the end of its financial year, which was on or before Apr 30.
  
  Companies that fail to submit their financial reports on time face suspension or delisting, according to Bursa rules.

Huge worry sign.

Here's why. Let's go back in time. 28th January 2009: LCL down 20% on credit tightening woes

• KUALA LUMPUR: LCL Corp’s share price fell as much as 20.3% or 10.5 sen to a low of 41 sen in mid-morning on Wednesday on concerns about the impact on its projects in Dubai arising from tightening of credit facilities.
  
  Its share price opened at 51 sen, down 0.5 sen from last Friday’s close. At 11.30am, its share price was down five sen to 46.5 sen. It was the second most active with 4.42 million shares done.
  
  LCL Corp’s Dubai chief executive officer Hakim Asmaun was quoted as saying the group needed government support to weather the global economic slowdown. The current economic slowdown was disrupting the group’s plans as local banks were tightening their credit facilities.
  
  Hakim was also quoted as saying the group needed the Malaysian government’s support and added that five to six big Malaysian companies in Dubai were also affected by the tightening of credit facilities.
  
  CIMB Equities Research said LCL Corp was not alone in facing a liquidity squeeze. Local banks had been under fire recently for pulling credit lines on listed and private companies as they took a cautious view amidst the global slowdown.
  
  “Local banks need to understand that the interior-fit-out (IFO) business remains a viable business in Middle East, even in Dubai.
  
  That said, IFO companies must have established and credible clients who are good paymasters,” it said.
  
  The research house had lowered its target price at RM1.95. It was maintaining its earnings forecasts for now while noting that there is downside to our numbers if there are delays in the announcement of new projects or if the credit squeeze does not ease.
  
  “However, our target price is reduced from RM2.35 to RM1.95 as we widen the discount to the construction sector’s 11 times P/E target from 40% to 50%, in line with WCT’s target valuation. The large discount reflects LCL’s small market cap and worries about the Middle East,” it said.
  
  CIMB Research said LCL remained an outperform on the potential re-rating catalysts of success in landing major IFO contracts in other countries, probably Abu Dhabi or Singapore first; listing of its Dubai operations and trough price-to-earnings and price-to-book value valuations. Furthermore, dividend yields are almost 10%.

Now Dubai is a worry. See Dubai's House Prices Drop 41% In Q1!! ( also No Longer The Same Dubai As Global Economic Crisis Hits Dubai Hard. )

The next following day, 29 January 2009 LCL sees no potential impact from credit tightening

• PETALING JAYA: Interior fit-out (IFO) works provider LCL Corp Bhd, whose shares have been slipping on concerns over funding problems arising from tighter credit facilities, says it sees no potential impact on any of its projects.
  
  The company said its Dubai operations chief operating officer Abdul Hakim Asmaun was misquoted in an earlier report as saying the group needed government support to weather the global economic slowdown.
  
  “Hakim was speaking in his capacity as a member of the Malaysia Business Council and was talking about Malaysian companies in general and not referring to LCL,” chief operations officer Michael Tan said in a statement to StarBiz yesterday.
  
  He added that LCL’s credit facilities were in the form of project financing and were secured during the award stage of the contracts.
  
  “It (the loan) is non-revolving and will be retired gradually towards the last stage of IFO works as the project progresses.
  
  “Therefore, banks tightening their credit facilities is not an issue as the repayment is secured against the assignment of contract proceeds whereby the banks will receive payment directly from the customers,” Tan said.
  
  Yesterday, LCL’s shares fell 5.5 sen, or 11%, to 46 sen, an all-time low.
  
  Currently, about 75% of LCL’s business is derived from Dubai. Tan said the group was looking to diversify into other countries in the Middle East, namely Abu Dhabi, Bahrain and Qatar.
  
  “We strongly believe that these countries are good markets as they have some of the highest oil reserves in the world.
  
  “They also have a very good track record in terms of GDP (gross domestic product) growth in the past five years,” he said.
  
  On the outlook for the IFO business in the Middle East amid the current economic climate, Tan said: “There is no doubt the Middle East is also affected by the global economic situation. However, our projects are still progressing, albeit at a slightly slower pace.
  
  “Even though there is a slowdown in construction, IFO comes in at the very end of a project and we strongly believe that our clients will not forfeit the entire project so close to completion.”
  
  Closer to home, Tan said the group was looking to expand its IFO business into Singapore.
  
  “We are currently actively bidding for projects in Singapore and one of our main targeted projects is the Singapore Marina Bay Sands Integrated Resort.
  
  “With Singapore being so close to home, the mobilisation cost will be much more effective and we can also accommodate our current workforce should downsizing of operations in the Middle East be required,” he said.
  
  Tan said the group was adopting a cautious approach in taking on new projects.
  
  “We are more selective about whom we work with and we are negotiating for better conditions with enhanced payment terms as a measure to mitigate risks,” he said.
  
  LCL currently had an outstanding order book of RM454mil which would last the group another year, Tan said.

The next day on the Financial Edge.

• 30-01-2009: Foreign hands suspected in LCL selldown
  by Tony C H Goh
  
  KUALA LUMPUR: The selldown of more than six million shares that pushed LCL Corp Bhd shares to an all-time low of 46 sen on Wednesday, following reports that the company was facing financing problems and turned to the government for assistance, was probably the work of foreign institutional investors.
  
  Foreign shareholdings in the company stood at 13% before the selldown, and some of the largest foreign investors include JP Morgan Co Ltd, NT Assets Co and Morgan Stanley Co Ltd, said LCL chief operating officer Michael Tan.
  
  The selldown by the foreigners is said to be related to a report earlier this week that LCL is seeking government assistance to help overcome tightening credit conditions in implementing its projects in the Middle East. Since then, the company had refuted the report and clarified that its financing for projects was intact and they needed no government assistance.
  
  After clearing the air over its credit lines, LCL's priority is now geared towards managing its borrowing levels besides eyeing new markets in the Middle East and around this region to secure additional contracts
  
  According to Tan, going forward, LCL would also be mindful of the interest of its stakeholders and was working on reducing its gearing levels to ensure a healthy balance sheet.
  
  Tan added that LCL is in the midst of securing new contracts in Abu Dhabi and Singapore's Marina Bay Integrated Resort project worth S$46 million (RM110 million), expected to be finalised by next month.
  
  "In addition, we are also hopeful of securing the Dubai Metro-Green line (the second underground Metro line in Dubai) worth RM600 million, and the Al-Reem Island in Abu Dhabi valued at RM15 million to RM20 million.
  
  "We are also bidding on smaller scale projects, worth about RM5 million to RM10 million locally. In total, we are tendering for more than RM1 billion worth of projects both locally and around this region," Tan told The Edge Financial Daily yesterday.
  
  Tan said LCL is working on reducing its gearing level due to the deferment of its proposed rights issue that was supposed to raise RM70 million and bring its gearing level to below 1.5 times from more than two currently.
  
  "Some of the options that we are exploring is the possibility of foreign equity partnership or strategic alliance with developers and property players based in the Middle East. This is to enable us to secure jobs without incurring high borrowings," he said
  
  LCL, which specialises in the interior-fit out (IFO) industry, had outstanding projects worth about RM1.15 billion as of Nov 8, 2008. Among the ongoing projects that will keep the group busy until the end of the year are the Dubai Metro-Red Line, consisting of 14 stations worth RM312.6 million and a RM33 million contract from Bank Negara Malaysia.
  
  Projects in the Middle East, in particular Dubai, are affected by poor sentiment rather than actual credit issue, so there are still plenty of jobs available in the region, Tan said. He clarified that every project undertaken by the company has its own financiers, and all the funding arrangements were actually finalised in Malaysia.
  
  Clarifying the report citing an LCL official in Dubai stating that they sought government assistance to complete the projects, Tan said that the company official was speaking in his capacity as a member of the Malaysia Business Council, during a dialogue in Dubai about Malaysian companies in general, and was not referring to LCL.
  
  "All the bank borrowings for our projects have been secured, and cooperation from banks is still good, as the company is not facing any problem in securing additional funds to finance its future projects," said Tan.

A month later, LCL reported its earnings: Quarterly rpt on consolidated results for the financial period ended 31/12/2008.

LCL reported losses of over 17 million for the quarter!!

It makes you wonder about the sell down a month earlier, eh?

Anyway, in that quarterly earnings, classic investment warning flags were all over the place. Massive debts and the surge in trade receivables to more than 300 million is a massive worry.

And today LCL has missed the deadline to submit its audited financial statements for the financial year ended Dec 31, 2008!

Caveat!