Same old, same old start to the New Year!!!

1. The stock: RUBHD

2. The article:

Ranhill Utilities to be privatised?
Water treatment company is Ranhill Bhd’s jewel in the crown. Over the past month or so, Ranhill Utilities Bhd (RUB) has been among the more actively traded counters on Bursa Malaysia, and its stock, in line with the interest, has surged, to say the least.

• Saturday December 30, 2006
  
  Ranhill Utilities to be privatised?
  
  By JOSE BARROCK
  
  OVER the past month or so, Ranhill Utilities Bhd (RUB) has been among the more actively traded counters on Bursa Malaysia, and its stock, in line with the interest, has surged, to say the least.
  
  From early last month, RUB’s share price has gained as much as 117%, and the stock ended trading last Thursday at RM2.87, its 52-week high, with about 1.7 million shares changing hands.
  
  Market talk has it that RUB may soon be the subject of a privatisation exercise, with its 70% parent, Ranhill Bhd, looking at buying the shares it does not already own in the water treatment service provider.
  
  It is understood that Ranhill plans to pay between RM3.30 and RM3.50 a share for the remaining equity in RUB. Such an exercise will cost Ranhill between RM292mil and RM309mil. Based on last Thursday's close, a 30% stake in RUB had a market value of about RM254mil.

Hm.... no more sources?? LOL! Them wordings have changed but still same old, same old!! It is understood, market talk etc etc all boils down to nothing but NON factual reporting.

Err.. some would call them rumour mongering, yes?

3. The stock.


Article was published on 30th Dec 2006.

On the next trading day, the stock rose a nice 10 sen or 3.4%.

4. Today, RUBH answered the querries posed to them from the SC.

Article Entitled : Ranhill Utilities to be privatised?
We refer to the Bursa Malaysia Securities Berhad ("Bursa")'s letter dated 3 January 2007 querying on the article that appeared in The Star, Bizweek section, page BW 3 on Saturday, 30 December 2006, particularly the caption below:

"...RUB may soon be the subject of a privatisation exercise….Ranhill Bhd....buying the shares it does not already own…"

"…Ranhill plans to pay between RM3.30 and RM3.50 a share for the remaining equity in RUB."

The Company wishes to inform that it has not made those statements and wish to clarify that it has not appointed RHB Sakura Merchant Bankers Bhd to assist or advise the Company on such proposals.

Article Entitled : Ranhill Utilities to be privatised?
We refer to the Bursa Malaysia Securities Berhad ("Bursa")'s query letter dated 3 January 2007 in relation to the article appearing in The Star, Bizweek section, page BW 3 on Saturday, 30 December 2006, particularly the following captioned:

"...RUB may soon be the subject of a privatisation exercise….Ranhill Bhd....buying the shares it does not already own…"

"…Ranhill plans to pay between RM3.30 and RM3.50 a share for the remaining equity in RUB."

We wish to advise that the Company is not aware nor has any knowledge of the subject matter referred to therein.

*********************************************
So how?

Newsmedia write article on a stock, the stock goes up and then the company denies the story.
Ah, of course one would argue that since the stock only went up a measyly 10 sen or 3.4%, some might argue where is the profit of cooking up the story?

Ah, but consider this...

Story was PUBLISHED on a Saturday, 30th December 2006.

This means that it's possible that the story was 'planned' much earlier. (Ah, I am speculating here. I could be wrong but what if I am right?)

Have a look at the trading data if I expand things a little bit back... have a look.


Look at how much the stock was trading on 20th December, 7 trading days earlier. RUBHD's opening price was 2.49. And just on the 27th December, RUBHD opened the trading at only 2.69.

Look at it today. Closed at 3.00.

See the possibility that exists for massive profits to be made by publishing such stories?

Oh, of course I could be wrong.

And last but not least, the process of SC doing nothing but search the news for such articles and then querrying the companies, isn't it a total waste of time and money of the SC?

And then, the company involved, being querried by the SC, again, yet another waste of time and money amd most of all comapny productivity to answer to such querry.

Oh, I wonder why, there is nothing in regards to the newsmedia for publishing such articles?

Shouldn't the newsmedia and their editors be more responsible in ensuring that there is CREDIBILITY in the articles published in their papers?

How Brown Cow?

Regarding RUB

• Could you share your opinion on RUB and explain why pe ratio so low?

First of Ranhill Utilities was listed in the exchange back in 2002 (ipo price was 2.50). And based on the reported earnings, its current 4 quarters earnings totals some 125.690 million, its current earnings per share is 42.7 sen. And based on a closing price of 1.34, it is trading at a current pe multiple of only 3.13x.

So yes, RUB is trading at a very low PE ratio.

Firstly, to understand why the PE ratio is so low, perhaps we need to understand the PE yardstick. The PE yardstick merely indicates how the stock is trading in the market when compared to its earnings. And of course it gets complicated when one uses the yardstick in an advanced manner by using a projected (forward) earnings. And some even base the earnings on a projected 2 years earnings into the future. Which of course could get pretty complicated and the accuracy of the projection is always very subjective for one is forecasting the future earnings.

Anyway, the most important thing to remember is the yardstick measures how the stock is trading on the market when compared to its earnings.

And the most important thing is that one needs to realise that the yardstick does not indicate the quality of the stock!

Meaning to say, stocks trading at a low PE multiple does not necessary mean that this is a good stock and neither does it necessary mean that it is the hidden gem. As the saying goes, never say I ass-u-me!

Before continuing, one thing I would like to point out is that perhaps you should look at how RUB has performed since listing.



How? Doesn't it appear that the stock is on a clear decline?

So what is wrong with this stock?

The company is reporting more earnings than ever and based on the current earnings of 125.690 million, the company could be on track to record its best ever earnings but yet the stock is decling even more!

Has the market got this stock really wrong or is the market correct and that this stock has some serious issues which is causing investors to avoid it like plague?

Perhaps we could get a better understanding if we take a good look at RUB earnings and its balance sheets.

The below two tables represent the compilation of RUB quarterly earnings since its listing.

1. Just for the record, did you know that RUB reported it has earned some 346.692 million since its listing? (this figure is derived if you add the total of net profit in both tables)

So for a company generating so much 'wealth' what does an investor get?

2. The last row indicates the cash position (total cash - total loans) of the company. At the first column, RUB's 02 Q4 earnings, RUB was in a net debt position of 427.393 million. Look at the latest column; it states that RUB is now in a net debt position of 1595.216 million. WOW!

3. Debts. Look at the very last column. Total loans now total some 2218.838 million. WOW!

4. Now let's put this debt into perspective. Look at the 05 Q4 quarterly earnings. See the two green boxes. The financial cost for that quarter totals more than its earnings! And if you add the most recent 4 quarters financial cost, RUB paid 97.972 in financial costs!

5. When RUB first reported its earnings, it has this entry called 'project development cost' under its current asset. This went on from 02 Q4 to 03 Q4. And the next four quarters, this project development cost disappears and my guess it is lumped under 'property and plant'. And what is even more interesting that in 05 Q1, there is now an entry called 'receivable from State Govt'. In 05 Q1, this amount was 566.638 million. The latest? 668.476 million! WOW!

So from RUB listing till now, what wealth has it generated?

Ah, this is a very important issue. Some call it gauging the quality of a company's earnings.

What kind of wealth has RUB generated since it reported earnings totaling some 346.692 million since listing?

Well, its property and plant seems to be worth more. State govt owed them more money.

But most important, the very bottom line is that it is now in a net debt of 1595.216 million!

Do you see any wealth at all?

If the answer is no, then the quality of RUB's earnings and the quality of the management is seriously in question.

And if you put all this into perspective, isn't it clear why RUB is trading at such a low PE multiple?

And if that is the case, does it make sense risking your hard earned money in this stock?

How?

Btw, if not mistaken, I have read it before that RUB will not be paying any dividends till 2012!

Last but not least, these are my opinions of this stock as requested. If you think my reasonings is wrong, then it is wrong ok? Please make sure your own judgement and reasoning is sound in your own investing decisions. My opinions are mere second opinions.

Cheers!