Move Over Who?: Part II

How? How? How?

The very first year listed after being listed, Karensoft lost money.

Cash in piggy bank was depleting fast.

Loans increased.

And company had troubled collecting their sales revenue as the trade receivables kept on increasing!

Makes you wonder.

Really.

If you were the boss, what would do?

I dunno. I am not.

Company was burning up cash fast. So came April 2004, they announced the following: PROOPOSED PRIVATE PLACEMENT OF UP TO TEN PERCENT (10%) OF THE ISSUED... a private placement plus a bonus issue. Yup, private placements (p/s i think private placements is simply disgusting!) were hot then and Karensoft decided to use it as an alternative to raise cash..

CameMay 2005. (fy 2004 Q1)

Quarterly rpt on consolidated results for the financial period ended 31/3/2004

1.Sales 1.393 million.
2.Net profit 0.036 million
3. Cash 2.826 million (last year, same period they had 6.397 million!)
4. Loans 3.119 million (up from 2.870 a quarter ago)
5. Trade receivables 9.417 million. (up from 8.394 million)

Does it look good?

With the mentioned bonus issue thingy announced in April, Karensoft got hot again in Aug 2004. So hot they got ze UNUSUAL MARKET ACTIVITY thingy again.

A couple of days later, Karensoft reported its earnings (2004 Q2)

Quarterly rpt on consolidated results for the financial period ended 30/6/2004

1.Sales 1.7.09 million.
2.Net profit 0.484 million
3. Cash 2.945 million (improved slightly)
4. Loans 3.574 million (up again!)
5. Trade receivables 10.699 million. (up again!!!! what's the problem dude?)

First tranch of placement shares issued: KRNSOFT-Private Placement of up to 10% of the issued and paid-up share capital in KRNSOFT ("PRIVATE PLACEMENT")

Came Nov 2004. (2004 Q3)

Quarterly rpt on consolidated results for the financial period ended 30/9/2004

1.Sales 1.502 million.
2.Net profit 0.293 million
3. Cash 2.886 million
4. Loans 4.173 million (up again!)
5. Trade receivables 11.790 million. (up again!!!! what's the problem dude?)

December 1st 2004.

KARENSOFT TECHNOLOGY BERHAD ("KTB" OR THE "COMPANY") - PRIVATE PLACEMENT OF UP TO TEN PERCENT (10%) OF THE ISSUED AND PAID-UP SHARE CAPITAL OF KTB ("PRIVATE PLACEMENT"); AND - PROPOSED BONUS ISSUE OF UP TO 41,326,175 NEW ORDINARY SHARES OF RM0.10 EACH IN KTB ON THE BASIS OF ONE (1) NEW ORDINARY SHARE OF RM0.10 EACH FOR EVERY TWO (2) EXISTING ORDINARY SHARES OF RM0.10 EACH HELD ("PROPOSED BONUS ISSUE"); (HEREINAFTER REFERRED AS THE "PROPOSALS").

Karensoft is seeking an extension to their proposed private placement.

Huge implications here. What is wrong? Not laku wor. Why? How come?

In a hot, hot market where placement shares were in such a demand, Karensoft is seeking an extension.





how?... stay tuned.... Part III coming!

Move Over Who?

LOL!!!

Ahh... i remember this one all too well.

It was just last December 2nd 2004 when Kenanga wrote extremely bullishly about Karensoft's prospect: Move Over Bill

A made-in-Malaysia software package that could challenge the great Microsft's Office Suite.

Naturally, i was impressed and proud when i read about it.

Anyway, that's not what i want to mumble about. Consider this, when Kenanga branded Karensoft as a buy in their notes, Karensoft was trading at 0.96. Target price was supposed to be rm1.46 sen. Karensoft today is trading at a price of 6 sen.

Amazing?

Yup... the potential mentioned by Kenanga till today have yet to materialise...

Ahh... how it pays to remember that potential does not necessary equate to profitability!

How about doing a CSI-like forensic on Karensoft?

Karensoft was listed on Jan 2003. Now if you look at the earnings table provided by OSK, Karensoft had a rather poor earnings history. One year lose money, one year make money and the next year lose money again. Ding-Dong earnings history.

So it was not too surprising that based on the poor earnings history that OSK made the following remarks in their ipo notes:

Valuation?. We peg a fair value of RM0.49 for KarenSoft. This is 20% below its IPO price of RM0.61. Our fair value was derived based on the average PER of Mesdaq companies of 20x on FY12/03?s EPS of 2.4 sen.

keke... IPO price rm0.61 sen. Fair Value only 0.49 sen!!

Sibeh geng lah!

So Karensoft was listed on Jan 22nd 2003.

It made its debut with a price of 69 sen.

It reported a quarterly earnings the very next day.

Quarterly rpt on consolidated results for the financial period ended 30/9/2002

1. Sales 1.295 million.
2. Net profit 0.445 million
3. Cash 1.372 million
4. Loans 2.491 million

Decent but the value of the sales and the net earnings were extremely smallish in value, isn't it? I mean it's really like a kuci-mai size company, tiok boh?

And more interestingly, the company fast-fast make big announcement:

KarenSoft Achieves 123% Revenue Growth for Q3, Bullish for Q4

123% revenue growth wor!!

But.. but... buttt..... all this is kinda debatable.... cos.... it does state that karensoft lost money for the corresponding period the previous year. So in all honesty, what's the big deal, isn't it?

Company then announced that it will be the first Mess-daq stock to pay a dividend. ( KarenSoft, First Mesdaq Tech Counter to Propose Dividend ), which it duly did.

Comes May 2003, it reported its next quarterly earnings. 2003 Q1

Quarterly rpt on consolidated results for the financial period ended 31/3/2003

1. Sales 1.146 million.
2. Net profit 0.078 million (a profit of 78 thousand?)
3. Cash 6.397 million
4. Loans 0.941 million
5, Trade receivables 5.927 million

Amidst a rather bullish article appearing on the Edge (18-08-2003: KarenSoft says there's increasing confidence in the company ) this stock became a rather hot item, promting an UNUSUAL MARKET ACTIVITY querry from the Bursa.

Here is some of the interesting comments mentioned in the article.

He says this development is an indication that institutional investors are beginning to take interest in KarenSoft. MBTF is a growth and income fund that pursues steady income and long-term growth. Mayban Unit Trust Bhd, a subsidiary of the Malayan Banking Bhd, manages the fund. "What is significant is that we are expected to be in a growth fund. With the entry of MBTF, we believe more funds will invest in KarenSoft," Chee tells theedgedaily.com....The counter was traded at RM1.07 in active trading at 10.30am on Aug 18.

Hmm... very interesting... without a profitable track record, Karensoft can be considered in a growth fund, meh?

Anyhow.. do note the price is now 1.07... up some 46 sen or some 75% from its ipo price of 0.61 sen.

Hehe... market was hot... so was Karensoft...

way to go babe!!

next came fy 2003 Q2

Quarterly rpt on consolidated results for the financial period ended 30/6/2003

1. Sales 1.873 million.
2. Net profit 0.409 million
3. Cash 5.728 million
4. Loans 1.708 million
5. Trade receivables 7.147 million

next came fy 2003 Q3

Quarterly rpt on consolidated results for the financial period ended 30/9/2003

1. Sales 1.568 million.
2. Net profit 0.228 million
3. Cash 5.132 million
4. Loans 2.489 million
5. Trade receivables 8.394 million

Boring? Wait... here comes fy 2003 q4. Let's see howKarensoft did for its first full fiscal year after being listed on the Messdaq!

Quarterly rpt on consolidated results for the financial period ended 31/12/2003

1. Sales 0.516 million!!! (huh? sales only 516 k???!!)
2. Net loss 1.202 million!! (which wipes out everything!!)
3. Cash 3.865 million
4. Loans 2.870 million
5. Trade receivables 8.237 million

Fiyooo... see onot!

This meant that from this quarterly earnings, Karensoft unaudited loss for its first fiscal year after being listed is 595k. Yes, it's a small amount... but a loss is a loss is a loss! And Karensoft posted a loss of 595 thousand the very firsy year it was listed. What about the quality control over the new listings? And what is bad is look at the rate the piggy bank is depleting. Then look at how the loans increases. And also the trade receivables too.

Another quality company being listed on the Messdaq?

sibeh geng leh?

And this was only 27th Feb 2004.


to be continued.... Part II.

Mems: Part V

Ahh... Ze never-ending saga?

Here is Part V: The chronicals of Mems and CIMB.

As mentioned earlier, CIMB was rather very bullish about Mems and its growth prospects. In their very detailed IPO notes on Mems, CIMB said the following:

There are no comparables for Memstech on the Bursa Malaysia and this region. Only France’s Memscap is comparable but it is loss making. Hence, we believe Memstech should be considered and valued as a rapidly-growing technology company.... Hence, we think it is fair to value Memstech in line with Redtone, which we value based on 14x CY05 PER. Attaching a similar multiple of 14x to CY05 PER (average of FY05 and FY06), we arrive at a target price of RM2.00 for Memstech.

And as mentioned ealier, Mems closed at a remarkable 1.65 on its maiden trading day. Truly remarkable considering that its ipo price was a mere 0.62.

With CIMb assigning a fair value of rm2.00 for Mems, who is to complain? The speculator or the punters? The ipo investors?

Do you reckon they will complain about the overly optimistic earnings projections CIMB wrote on Mems?

No way Jose.... tiok boh?

What to complain? It was Moola, Moola, Moola and lots of Moola in a rich man's world!

That was in Aug 2004.

Came December 2004. Mems fy 2005 Q1 earnings.

Quarterly rpt on consolidated results for the financial period ended 31/10/2004

1. Sales 12.037 million.
2. Net Profit 3.119 million. (margin 25.9%)

CIMB wrote the following comments on Mems:

1QFY05 net profit jumped 33% q-o-q, and when annualised is only 33% of CIMBS’ FY05 forecast. The results are still within our expectation as we expect a surge in Memstech’s 3QFY05 (quarter ending April 05) profitability when we anticipate the company to begin production of potential contracts that are currently in the final evaluation by potential customers.

See onot? They realised that Mems performance, which on a standalone was very decent, cos it achieved a 33% q-q growth... but then... they were caught rather naked... cos based on an annualised basis, Mems is underperforming CIMB's expectation by some 33%!!

CIMB then fast-fast tried to explain the shortfall:

The key attraction to Memstech is several sizeable potential contracts for silicon microphones for two Japanese customers, fuel pressure sensors for a major automobile group and blood pressure sensors for several customers. Our forecast captures the bulk of these potential contracts. According to Memstech’s release to the BMSB, “The Group has successfully developed the 2G dual axis accelerometers, integrated pressure sensors and silicon microphone for consumer electronic applications. These products are in the final stages of qualification by various potential customers and we expect volume commercial production to commence in 3QFY05. In addition, the Group has also successfully developed pressure sensors for the automotive industry and is expecting to commence commercial production in the 4QFY05.” December and January are crucial months as the results of its qualifications by customers will be made known. We believe any confirmation of these potential contracts should help re-rate the stock.

Yup... so discounting the potential embarressment, CIMB still had a OUTperform rating on Mems.

18th Jan 2005.

CIMB wrote again.

Mems is now 2.03 (wahh... what u know... see... u see... Mems achieved CIMB's target price mah... baru in Aug 2004 listed...now Jan 2005... Mems oredi achieve CIMB's target price of 2.00 wor... soooo.... how dun simply-simply tok bad hor!)

and.... CIMB gave a new target price of..... ahem..... rm3.30 for Mems.

An upside potential of 63%!

Shocking?

IPO price was some 0.62 a few months ago. Price now 2.00. Not enough wor. They want 3.30 wor!

Anyway this is what CIMB wrote...

A new potential customer, a leading producer of injection-molded disposable medical devices, will be auditing its production facility before Chinese New Year to source blood pressure sensors. If everything goes well, we expect this to crystalise into orders in March or April. Neither the volumes nor value of this potential contract are known at this stage. (hhmm .. volume nor value of potential not known wor!! how?)

We are slashing our FY05 net profit estimates by 35%, but raising FY06 and FY07 net profit forecast by 7% and 11% to factor in delays in production of the silicon microphones for FY05 and partially for FY06, but include sales of infrared cameras which should kick-in from 2QFY05.

We are raising Memstech’s end CY05 target price from RM3.10 to RM3.30, in line with our FY06 and FY07 net profit upgrades, and based on an unchanged 11.2x CY06 EPS. Maintain OUTPERFORM. Memstech has re-rated 30% and outperformed the KLCI by 19% in the past 3 months. We believe this is on expectations of potential contracts for silicon microphones and fuel pressure sensors. A further re-rating in share price will likely be from: i) the securing of the above contracts, and ii) quarterly profits to rise, in our opinion.

Ahh..... u see? u see? remember Mems only reported a net earnings of rm3.119 million for fy 2005 Q1 and based on an annualised basis, Mems 'could' be earning roughly some 12.4 million net profit only for fy 2005. As you and I know, 12.4 million is very far from the initial CIMB estimate of some 37 million.

Which is why CIMB is lowering their expected earnings for Mems fy 2005 from 37 million to 24.7 million.

24.7 mil? Just for the record, Mems only did 13.7 mil!! So despite lowering their estimates by so much, Mems still missed CIMB's estimates!!

And consider this, CIMB lowered their earnings expectations by 35%. Err... would i be wrong if i word it as 'Downgraded earnings expectations by 35%'?

And here is the interesting curve ball thrown by this CIMB writer.

So fy 2005 earnings estimates is lowered by some 35%.... this bugger then raised it's fy 2006 and fy 2007 earnings estimate by some 7% and 11%.

Well 7% and 11% sounds pretty innocent but if one put in the actual figures, CIMB is estimating a net profit of 96.6 and 98.3 million for Mems fy 2006 and fy 2007.

96.6 million wor.

Now isn't this simply way too optimistic?

And then remember the issue they made about unknown volume and unknown value of potential?

Look at what Mems earned for fy 2005: 13.706 million only.
And the first quarter of fy 2006, Mems only managed a net profit of only 3.009 million.
At such rate, Mems annualised net earnings for fy 2006, would be around 12 million or so.

And CIMB's estimate? rm96.6 million!!!

Can 13.7 zoom to 96.6???

Now is this sibeh geng or what?

Mems: Part IV

Let's have a real good look at Mems since there are interest in it.

How?

How should i write this piece of ... err.... blog?

Well, firstly, i thought it was interesting to see how the company projected itself to the investing public before it was listed. And as usual, it wasn't a surprise to find out that Mems was overly bullish in their press interviews before they open shop in the Messdaq stock exchange on Aug 11th 2004.

Here is one such article: MemsTech bullish statements..

MESDAQ-bound MEMS Technology Bhd (MemsTech) hopes to achieve US$35 million (US$1 = RM3.80) to US$40 million revenue for the financial year ending July 2005.For the nine months ended April 30 2004, the company made a net profit of RM5.86 million on a revenue of RM23.04 million.... The global MEMS market was worth about US$4 billion in 2003, and a compounded annual growth rate of about 20 per cent is not out of the question, he said.

Again it was proven that these statements were rather overly optimistic.

Quarterly rpt on consolidated results for the financial period ended 31/7/2005

Let's leave that aside first... and focus on how the industry preceived and promoted Mems.

CIMB, in its very detailed IPO notes on Mems, said the following:

There are no comparables for Memstech on the Bursa Malaysia and this region. Only France’s Memscap is comparable but it is loss making. Hence, we believe Memstech should be considered and valued as a rapidly-growing technology company.... Hence, we think it is fair to value Memstech in line with Redtone, which we value based on 14x CY05 PER. Attaching a similar multiple of 14x to CY05 PER (average of FY05 and FY06), we arrive at a target price of RM2.00 for Memstech.

14x sounds reasonable, tiok boh?

But... ahh.... the key is.... what is their projected fy 2005/2006 earnings for Mems? Well CIMB project that sales will be around 152 million for Mems for fy 2005 and 224.2 million for fy 2006. Net earnings ass-u-med was 31.7 million for fy 2005 and 56.8 million for fy 2006.

(if u refer the above link again, Mems did a sales of 48.269 million for fy 2005. Net earnings was 13.706 million.)

Incredible isn't it? 13.706 million is very, very far off from 31.7 million!!!!

OSK called it a blue chip in the Messdaq market. OSK had a projected net profit of 35.8 million from a sales revenue of 100m for Mems fy 2005.

Again.. Mems missed the target way, way off.

How could they be so wrong in their projections???

As for Mems, it wasn't too nice of them to have made such optimistic statements before they were listed. Right onot? It might even give some folks the total wrong impressions on them...

Now consider this... Mems after their IPO was to have some 321 million shares. Which meant OSK was estimating an eps of 11.1 sen for Mems for its fy 2005, while CIMB was estimating eps of around 9.8 sen.

So based on the IPO offer price of only 0.62 sen, OSK was screaming a fair value of 1.70, while CIMB shouted out loud a fair value of 2.00 for Mems!

And so it was not too surprising that Mems ended its maiden first trading at 1.65!!!!

IPO price was only .62 sen!

Market was hot, Mems was hot and everybody went wheee-wheee home happily.

What a debut.

Now consider this.... Mems only did 13.706 million. Based on those 321 million shares (mems had a 1-for-1 bonus issue on Feb 2005), Mems actual eps should have been only 4 sen!

Do you think CIMB could have justified Mems to have a fair value of 2.00? Or Osk's estimation of a fair value of rm1.70? It would have meant that CIMB was calling for a fair value based on a earnings multiple (pe) of 50 while OSK's fair value was based on a pe of 42.5x! Incredible?

Let's brush all this aside and look at how Mems have done since listing.

Quarterly rpt on consolidated results for the financial period ended 31/7/2004

1. Sales 10.732 million.
2. Net Profit 2.348 million. (margin 21.8%)
3. Piggy Bank 56.017 million.
4. Loans 5.02 million

Quarterly rpt on consolidated results for the financial period ended 31/10/2004

1. Sales 12.037 million.
2. Net Profit 3.119 million. (margin 25.9%)
3. Piggy Bank 49.794 million.
4. Loans 4.884 million

Quarterly rpt on consolidated results for the financial period ended 31/1/2005

1. Sales 12.254 million.
2. Net Profit 3.202 million. (margin 26.1%)
3. Piggy Bank 45.856 million.
4. Loans 4.259 million

Quarterly rpt on consolidated results for the financial period ended 30/4/2005

1. Sales 12.226 million.
2. Net Profit 3.290 million. (margin 26.9%)
3. Piggy Bank 45.856 million.
4. Loans 4.259 million

Quarterly rpt on consolidated results for the financial period ended 31/7/2005

1. Sales 11.712 million.
2. Net Profit 4.095 million. (margin 34.9%)
3. Piggy Bank 38.265 million.
4. Loans 3.808 million.

Quarterly rpt on consolidated results for the financial period ended 31/10/2005

1. Sales 11.061 million.
2. Net Profit 3.009 million. (margin 27.2%)
3. Piggy Bank 29.658 million.
4. Loans 3.893 million.

How?

That's how Mems had performed since listing, which was pretty decent i think. Yes, the cash flow is a bit questionable but all in Mems is decent.

Did Mems deserve the rather optimistic projections, assumptions from folks in CIMB, OSK and even S&P?

How?

For me, i believe this is a rather simple example of an overly-hyped stock which simply failed to meet their expectations. It reminds me of Warren Buffett's mumbling that when the tide resides, we will know who has been swimming naked. Well, from Mems actual reported quarterly earnings, we can clearly see the nakedness in Mems share price and of course the insane earnings projections assigned to Mems.

So curious to know... since Mems has not meet these so-called expectations... i wonder... i really wonder... did Mems failed or did the market itself failed? What do you reckon?

Oh, Mems last traded at 0.35 sen.

With trailing net earnings at only 13.596 million, Mems has an eps of 2.1 sen, Mems is currently trading at an earnings multiple of 16.6x current earnings. Sooooo..... after the price dropping sooooooooooooo much from the highs..... do u reckon that the current 'low price' of Mems represents a buying opportunity?

Megan: Part IV

One of the basic ideas in investing is to take advantage of the market fluctuations when it causes depressed stock prices. With the depressed stock prices, we, the investors are represented with opportunities to invest in stocks that are selling at a much discounted prices. Take advantage of the depressed share prices. That's our advantage.

Now obviously if we simply invest in any stock or any business simply based on the fact that the price is cheap compared with what it used to be, all our advantage is then neutralised if the stock or business does not have a solid underlying foundation. Tiok boh?

Think of this famous mumbling from Warren Buffett.

I guess I had too much inclination originally to buy mediocare, or worse than mediocare, businesses at a very cheap price. That works OK, in the sense that you never lose money; but you never end up with a great business that way either. So that emphasis has shifted over the years. We don't want to buy the worst furniture store in town at the cheapest price; we want to buy the best one at a fair prcie.

See how important is it to determine the QUALITY of the business and not base the decision to invest in the stock based soley on the price factor?

Paying a cheap price is always good but the object or the little thingy that we buy or the business we buy must also be good, else it defeats the whole purpose, right?

Else what we buy could simply end up cheaper in value!

I remember me Ah Poh teaching me...

A cheap item low in quality will always remain low in value!

Same in business... an average business bought at a cheap price will most likely to remain an average business over time. And if that is the case, would this represent the best investment for our hard earned moola? Where's our advantage then?

This is what i have been thinking on why the attraction lingers on for Megan.

For i can clearly see this so-called "opportunity" from the chart as provided by Chargingbull in his blog.

Megan's share price has dropped sooooooooooo much mah....

If it falls so much from the previous highs of around 2.30+... surely the price now around 0.955 must be ok mah. No meh?

And then... and then... Megan make big money what. No meh? Last year it made rm66 million wor. Earnings per share more than 32 sen. Low PE what?

Ahhh..... tiok... tiok... very tiok. All these facts is but correct....

but...but.... butttt...

why is Megan's debts such a big issue and why is Megan's earnings and share price ignored by the market?

Is the market wrong or should we adopt a contrarian approach against the market?

Firstly, let it be stated that long ago... in 2001 and 2002... Megan was a pretty decent company. A company with growth and operating with a decent net profit margins around 18%-19%.

But as you and i know, growth can be engineered or as they say artifically created via acquisitions which are funded via insane borrowings.

For some company do borrow tons of money to buy other business and some even goes to the extreme of buying related businesses to generate the profit growth for the company. And as everyone knows such engineering and buying of profits generally makes poor business sense especially when the amount borrowed by the company does not create any value or any real wealth or value for the company. Worse still, we know very well that sooner or later, these borrowings needs to be repaid back to the bankers.

So what is the best way to define value or wealth? How about the piggy bank Moola?

Show Me the Moola mah.......

Agree onot? Tiok boh?

let's go thru the most recent 6 quarterly earnings once more.... let's do some clicking and compiling of some actutal data from the Bursa website. (pls do verify my data hor..i could make some typo mistakes)

Quarterly rpt on consolidated results for the financial period ended 30/4/2004

1. Sales 220.050 million.
2. Net profit 12.790 million. (5.8% net profit margin)
3. Total loans then was some rm389 million.
4. Total trade receivables was some rm190 million. (the previous year was rm57 mil)
5. Piggy bank cash then was rm37.218 million.

Quarterly rpt on consolidated results for the financial period ended 31/7/2004

1. Sales 203.708 million.
2. Net profit 14.305 million. (7 % net profit margin)
3. Total loans then was some rm457.224 million. (increased by 68.224 million)
4. Total trade receivables was some rm213.501 million. (increased by rm23.501 mil)
5. Piggy bank cash then was rm14.914 million.

Quarterly rpt on consolidated results for the financial period ended 31/10/2004

1. Sales 221.397 million.
2. Net profit 15.113 million. (6.8 % net profit margin)
3. Total loans then was some rm482.297 million. (increased by 25.073 million)
4. Total trade receivables was some rm231.821 million. (increased by rm18.320 mil)
5. Piggy bank cash then was rm35.253 million.

Quarterly rpt on consolidated results for the financial period ended 31/1/2005

1. Sales 211.989 million.
2. Net profit 15.642 million. (7.3 % net profit margin)
3. Total loans then was some rm520.608 million. (increased by 38.311 million)
4. Total trade receivables was some rm198.438 million. (improvement wor!!)
5. Piggy bank cash then was rm54.295 million.

Quarterly rpt on consolidated results for the financial period ended 30/4/2005

1. Sales 267.602 million.
2. Net profit 21.107 million. (7.8 % net profit margin)
3. Total loans then was some rm592.993 million. (increased by 72.385 million!!!!)
4. Total trade receivables was some rm252.957 million. (increased by rm54.519 mil)
5. Piggy bank cash then was rm35.467.

Quarterly rpt on consolidated results for the financial period ended 31/7/2005

1. Sales 248.859 million.
2. Net profit 12.969 million. (5.2% net profit margin)
3. Total loans is now some rm634 million. (increased by 41.007 million!!!)
4. Trade receivable is now some rm270 million. (increased by 17.043 million)
5. Piggy bank cash is now only rm28.810 million.



Now here is an interesting way to interpret these results.

(remember i said Megan used to be a decent company? Last time it used to operate with net profit margins between 18-19% way back in 2001-2002. Now? 5% for the latest quarter? See how drastic the change in fortune for Megan?)

take from the very first link. ie from period ending 30/4/2004. If we tally some of the figures up, we will have the following.

1. Total sales: 1373.605 million.
2. Total net profit: 91.926 million.
3. Net borrowings increased from 389 million to rm 634 million. An increase of 245 million.
4. Trade receivables rose from 190 million to 270 million.
5. Piggy bank cash is now 28.810 million. (Piggy bank at start of the period was 37.218 million)

Soooo where is the wealth or value generated?

Where is the moola?

Mana tu moola pegi tok?

Show Me the Moola!!!

Does it make sense for a business to borrow some 245 million more moola to make a reported net profit of 91.926 million when all u have to show for is....

1. A depleted piggy bank. Piggy bank used to be 38.810 million. Now only have rm28.810 million!!
2. Trade receivables. Amount owed to Megan increased by some 80 million! (What is shocking is when we put into perspective, the total net profit earned by the company for this period is only 91 million. (80 million out of 91 million equates to a whopping 87%!!!))

Does such business make business sense?

Borrow so much moola to do business and all the company has to show for is more people owing them moola?
And the most malu thingy is the piggy bank gets depleted to do such business.

Now this is where the commonsense comes in for the investor or the folks seeking opportunity in a stock whose price has been depreciating for so long. (remember being contrary doesn't mean we have to be silly!)

Does such business makes sense?

Do you agree that it is illogical to see a company borrowing so much money and the end result is that the bulk of the profit generated made is in the form of 'trade receivables' or IOUs?

What if Megan's customers doesn't pay up for all these hutang? Then how?

What about Megan's own hutang to their bankers? U think Megan must pay or no need to pay? rm634 million wor!!!

Again... does it make business sense?

If no... does it matter how much Megan makes if all they make is in the form of 'trade receivables'?

And if so does it matter how much Megan's earnings per share is?

And if so does it matter how much Megan's share price is?

Does it matter if Megan trades around 95 sen? or 85 sen? or 75 sen? or 65 sen? or 55 sen?

* last edited 8.20 pm - 17th Dec 2005 *


^ ^ post is dedicated to anonymous ^ ^

I still do not understand why you say Megan's debt is bad.Care to explain? Thks!

Privatisation Issues

The issue of privatisation and the subsequent delisting of a listed subsidiary.

Generally there are two ways companies can be delisted from a stock exchange in.

The first case is the enforced, compulsary delisting of a company, in which the stock exchange forces the delisting of the stock because the listed company has failed to comply with the stock exchange listed requirements. And these are usually based on commercial reasons in which the listed companies simply cannot operate in a profitable manner.

The second manner a company can be delisted from a stock is where the company voluntary imforms the exchange that they no longer want to be listed. And a variation of this case, is the delisting of a listed subsidary is made by its holding company, in which the minority shareholder of the listed company is forced to choose between the offered compensation price or risk being involved in a private company, which would ultimately offers no transparency rights.

I have no problem at all with the first case. These are them koyak companies. Chap-lap companies which are losing money like crazy.

The second one, the privatisation and the subsequent delisting of the listed subsidiary, this one i really dun like at all.

It's just totally unfair to the minority shareholder and it makes a total mockery of the whole stock exchange.

Listed Companies should not be given the approval so easily to privatise their listed subsidary company in which the general investing public is forced or threatened with the issue of delisting. And as mentioned earlier once the company is delisted this offers the investor no transparency rights at all. So when a listed company is able to list and delist their subsidary companies as per their whimps and fancy this would make a total mockery of the stock exchange.

And what about the general offer price for the minority shareholders stake in that listed company? Would the minority shareholders get an offer that is fair or would the minority shareholder be placed in a disadvantage position? Would the premium offered over the existing share price to adequetly compensate the minority investors?

If no, this ultimately means that the minority investors would never be given a chance to being adequately compensated for the permanent withdrawal of a good investment opportunity.

And if this is the case, then this would contradict the government's plan to woo more investors into Bursa Malaysia cause investing would have indeed turned very unattractive, a game which is very biased against the investing public.

Privatisation and the subsequent delisting of Johor Port.

(Bloomberg) -- MMC Corp., a Malaysian builder and engineering group controlled by Syed Mokhtar Al-Bukhary, agreed to buy his 52 percent stake in Johor Port Bhd. for 427 million ringgit ($113 million), expanding its port business.MMC is buying 170.8 million Johor Port shares at 2.50 ringgit apiece from his Seaport Terminal (Johore) Sdn Bhd., it said today in a statement. MMC will later offer to buy the rest of Johor Port and delist it.

Let's look at some simple facts and figures.

This is what Johor Port has been earnings since fisal year 2001. (read from left to right)

58.1mil -> 60.1mil -> 74.8mil -> 83.9mil -> 83.4 mil (improving trend wor)

Most recent 4 quarters net profit totals some 100.962 million. (an eps of 30.5 sen)

Current year-to-date net profit (3 quarters) 88.098 mil.

Current year-to-date cash flow. ie piggy bank increased by some 41.742 mil.

Piggy bank cash? 286.787 mil. Loans? Some 180 million long term islamic loans.

Err... net cash about 106.787 mil lor... Johor Port has some 330 million shares. (so nett cash is already about 35.5 sen)

And then there is entry in the balance sheet which states that amount due from holding company is 50.223 million.

Sooooooo.....

MMC announcing to offer to buy from the minority sharholders of Johor Port some 170.755 million Johor Port shares at 2.50. Or cash moolah.... $426,887,505.00. They want to buy these shares with a subsequent plan to delist the share.

Issit fair?

And what about the issue of delisting? Doesn't it sound like take this offer or else you would left holding shares in a private company?

This morning the Busines Times had an article on it: Analysts welcome MMC buy of Johor Port

I am natutally not too pleased at how they have put this whole issue into perspective.

Analysts say the acquisition of Johor Port Bhd (JPB) will bring synergy between JPB and its sister port, Port of Tanjung Pelepas and advise JPB shareholders to take up the RM2.50 cash offer.

Of course it would bring synergy and monetary benefits for MMC but what just about the JPB minority shareholders?

Don't the minority shareholders or the investing public count for nothing?

Yeah, i know, i know these analysts have a duty to write but for whom do they write for?

Just imagine. If there is NO investing public, will these analysts ever exist? And for this privatisation issue, just who is more important? MMC or JPB minority shareholders?

In a deal where JPB shares is taken private, surely there must be due consideration for the minority shareholders? Tiok boh?

Or dun tell me that the minority shareholders merely represent OPM (other people's money) and that they are not important?

Or what if all these minority shareholders gives up.... what then? will there be a market left?

Worth considering?

Or am i just mumbling and bumbling along again?

Take the last part of the article.

OSK Research Sdn Bhd manager Chris Eng said he expects JPB to add some RM900.9 million to MMC’s net present value.“In terms of net profit, we expect MMC’s to rise by 4.5 per cent for FY06 and 9.1 per cent for FY07, assuming that the acquisition may be completed by June 2006,” he said, maintaining his fair value of RM2.55 per share for MMC. Eng also recommended that JPB shareholders take up the RM2.50 cash offer as it helps to mitigate the land development risk.

See the very last sentence, he recommended that the JPB shareholders take up the rm2.50 offer to mitigate the land development risk!

And again this is simply not right.

Take a step back.

That land development risk? That was the funky corporate exercise which caused the fundamentals of JPB deteriorate because it proposed that JPB to acquire 2,255 acres of leasehold mangrove land in Pontian, Johor, from its controlling shareholder (ahem!). A whopping RM383m deal that really made little commercial sense according to RHB research.

So we have a case in which JPB announced a shocking corporate exercise. This caused JPB shares to be depressed. And with the shares being depressed, MMC announces this whole privatisation thingy.

Oh consider this issue. Without this funky corporate exercise, would MMC being able to privatise JPB at such a low offer?

Take the following quote from yesterday's Business Times article.

Avenue Securities Sdn Bhd head of research Noor Azwa Mohammad Noor said that although the RM2.50 offer price is already at a premium to the current share price, he believes JPB stock should be worth more.“Based on my forecast FY06 earnings per share of 37.5 sen, at RM2.37, JPB is trading at FY06 price-earnings ratio (PER) of only 6.3 times, versus the three previous calendar years’ PER average of eight times.“Given its steady earnings profile, we believe the stock still offers further upside potential,” he added.

See the potential in JPB? And how cheap the current traded share price is?

So what do you think of this whole privatisation and subsequent delisting issue?

Fair onot?

Poor minority shareholders of JPB. First, they had to endure the ordeal of the company proposing a deal which made little commercial sense. Now the owners wants to privatise the company. And the offer price is rather low. And what options do they have? Accept or own shares in a delisted company!

Fair onot?

What say u all?

Sky.. oh sky.... u got eyes to see onot?

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Update: 16th Dec 2005

Corporate: MMC buys Johor Port... finally
By Maryann Tan

The Edge Weekly carried an article on this Johor Port privatisation issue.

Again... the whole focus is on MMC itself.

But just what the minorities?

Again... do or do they not realise that the minority shareholder is an important integral of the share market?

Without the minority shareholders, will there even be a share market?

Think about it!

Soooo.... what do you think if you read the following statements in that article?

Incensed by the acquisition of land as settlement of an inter-company loan with Seaport Terminal, minority shareholders will likely jump at the chance to liquidate an asset that was at great risk of deteriorating in quality.

"You could call it a fairy tale ending for minorities," says Chris Eng, transport analyst at OSK Securities, who, like most, agrees that it is best to take up the offer even if it may be a little below JPort's fair value of RM2.70.

Fairy tale ending?

gee!!

Consider the following again (let me just paste what i wrote earlier):

That land development risk? That was the funky corporate exercise which caused the fundamentals of JPB deteriorate because it proposed that JPB to acquire 2,255 acres of leasehold mangrove land in Pontian, Johor, from its controlling shareholder (ahem!). A whopping RM383m deal that really made little commercial sense according to RHB research.

So we have a case in which JPB announced a shocking corporate exercise. This caused JPB shares to be depressed. And with the shares being depressed, MMC announces this whole privatisation thingy. Oh consider this issue. Without this funky corporate exercise, would MMC being able to privatise JPB at such a low offer?

I really do not see how one can consider this a fairy tale ending!!!

And did u see the last paragraphs of the Edge article?

Infrastructure revenue (from its ports business) will be boosted by almost 50% to RM816.9 million, lifting total revenue to RM2.3 billion in fiscal year 2006. OSK expects net profit for the group to rise by 43% to RM289 million from the RM202.5 million forecast for this year, as a result.

Still, in spite of the improvement in net earnings, OSK is not adjusting its fair value of RM2.55 for the group because of higher gearing and additional risks from developing the land in Seaport Worldwide.

See? OSK themselves expects the net profit to be bang bang so geng!!!

But... but.... butt....... butttttt.......

"in spite of improvement in net earnings, OSK is not adjusting its fair value of rm2.55"

ahem.... ahem.... ahem...... why?

why...why...why....just tell why lah to all the minority shareholders why OSK is NOT adjusting the fair value!!!

Hmmmm.... fairy tale ending wor.....!!!

Megan Part III

Tc wrote the following reply to blog entry: Megan Part II

OK, back to discussion.

1. About "Hope", tcbull's [dun mind that I shorten ur name a little ;)] comment is from people who hold Techncal Analysis as the back bone for decision making. But for Fundamentalist investors, it is "Hope" to the company/product future growth potential that have them investing and keeping the stocks. OK, so now you know I'm subscribed to Fundamental analysis :)Also, I'm not exposed to the idea of technical analysis. I'll keep learning more in this area. Got to find more books from popular or mph

2. About the drop of earning from Q4'05 to Q1'06 FY, I think this largely was due to higher oil price. I beg to differ it was due to decline in DVD demand (see point#4). As you know oil are among the main raw material (polymer) to manufacture DVD/CDs. As moola pointed out, this is a bit alarming.

3. I was mentioning megan has about 40cents earning per piece. Take FY2003 example, annual net earning after tax is RM28.7mil, with average 6.3mil pieces produced per mth. You can calculate that translate into ~38cents net earn per piece. FY2005 net earning RM69mil, with 15mil pieces per mth, this also translate into ~38cents net earn per piece. So for FY2006 with predicted 19mil pieces produced per mth, assuming 38cents net earn per pcs, annual net earning shud be ~ RM85mil. It can be said that DVD business net earning is maintaining ~ 38cents through out the yr. The only way to increase earning is to expend your production capacity. This is why I think Megan have to expense production line fast to tap for DVD growth.

4. Talking about DVD growth, it was forcasted world demand is 5.5 billion pieces for yr 2006. A growth of 40% from yr 2005http://www.dvd-recordable.org/Article2338.phtmlDVD with 4.7GB capacity is about RM2 nowadays, Thumb drive has no match in price wise. 256MB thumb drive cost ~ RM80. You need 18pcs of this thumb drive (over RM1k?) to match a RM2 piece of DVD capacity. What will a user choose? That is for sure users will choose DVD for storage. thumb drive meant for small size storage, carrying 18pcs thumbdrive is too troublesome vs 1 DVD. DVD meant for world wide DVD holywood movies distribution, DVD-A audio and personal reliable storage. You also just can't imagine how many house hold DVD players there are world wide nowadays. It was just like 10yrs ago VCD (CD) is so popular in household.I believe DVD is here to stay for years, before replacing by next gen of DVD (blu ray, HD DVD), which are developed and back by major firms in the world (sony, philips, samsung, mitshubisi, pioneer, panasonic, toshiba ...etc)

5. I think investors are concerned over the large borrowing, and this causing the down trend?? 2 sifu please shed some lights... The borrowings (RM600 mil) is mostly recoverable in 5yrs time or more. While, if you are fundamental type investor, and have the patience to wait like Warren Buffet ("Hope"?!), perhaps Megan is your gem :p Again, I thank moola and tcbull for being critical. At least I'm not lonely anymore in finding friends/mentor to chat and learn about stocks.

rgds,tc

Hi Tc,

Regarding hope. I am sorry but i too do not believe in investing in a business based on hope.

Either the business is good or the business is shaky.

Since you have vested interest in this stock, it is paramount to your own financial health to determine this issue.

Buying in hope that the business that a struggling business will be good again in the future is rather risky.

Yes?

Oh, yes it makes good sense to understand why the business is struggling and in Megan's case the drastic concern over its huge slump in its recent q-q earnings. Now if the company has a strong durable product to sell or the company is fundamentally sound then perhaps one has the rights not to be overly concern over such issue.

But.... does Megan has a strong product? Just how strong is it? Just how durable is it?

Again it's up to your own responsibility to determine and evaluate this issue.

Now assuming u are right.. then u shudn't be wrorried, yes?

But if it is proven otherwise... ?

The issue of Megan's debt.

or rm634 million to be precise.

Do you think this debt can be recovered in 5 years time?

If you own the stock, have you considered your position?

Have you considered the risk if it does not?

Consider the following issues...

take the June 2004 quarterly earnings report and compare it to present day...

Quarterly rpt on consolidated results for the financial period ended 30/4/2004 (link for that june report)

1. Total loans then was some rm389 million.
2. Total trade receivables was some rm190 million. (the previous year was rm57 mil)
3. Piggy bank cash then was rm34.845 million.

Compare it versus their last reported earnings in Sept 2005.

Quarterly rpt on consolidated results for the financial period ended 31/7/2005

1. Total loans is now some rm634 million.
2. Trade receivable is now some rm270 million.
3. Piggy bank cash is now only rm11.797 million.

So how?

in slightly more than a year... the total loans went from rm389 to rm634 million. Were the loans justifiable?

Look at the piggy bank cash. If business were good ... why did the piggy bank cash deplete so much? Why the negative cash flow if business were bang bang sound so geng?

Is the borrowings even justifiable?

Does the borrowings made business sense?

Then consider the trade receivables issue. The drastic increase is truly alarming cause it suggests that Megan is having trouble collecting its sales.

Again, does it make business sense to borrow so much money in an industry when one cannot collect back what it sells?

Is it strange that the trade receivables can increase from 57 million (2 years ago) to a whopping rm270 million cuurently?

Isn't it strange?

Wouldn't you be worried about the competency if the management?

Can you even trust the management?

What if a portion of these debt turn bad?

Now consider this issue. Megan said it made rm12.969 million for the first quarter of its current fiscal year. Yet its piggy bank shrank by some rm 5.4 million.

Where did the Moola go? So how do u possibility see the loan issue be solved in say 5 years time when the piggy bank cash keeps depleting and the loans keep increasing?

Also, as a technology based product, can DVD last more than 5 years?

What if they invent something new?

A new disc version that needs new plant and machinery. Then what? Megan spend more capex again? Borrow more again?

Sooooo TC, how do u rate ur chances of buying and hoping in such a company?


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here is an interesting discussion on the new Ipod Nano : The Better to See You With - The New iPod Hands On

Mems Part III

Let me paste again what i wrote in part 2: Mems Part II

The key point for me is REASONABLE EXPECTATION.

Now look at how S&P expectation. As mentioned earlier..As can seen from the table posted by S&P, Mems did managed to post a net earnings of 13.7 million for its fiscal year 2005. What i see next is S&P projecting a net earnings of 17.9 million for Mems fiscal year 2006. Oh, this works out to be a growth rate of 31%. And the next fiscal 2007, Mems is projected to earn a net earnings of 47.6 million.Wow!from 13.7 -> 17.9 -> 47.6!!!!Sayyyyyy ... isn't S&P is projecting a compounded annual growth rate of 86.4% for Mems next two fiscal years??

I keep asking me-self this….a 86.4% compounded annual growth rate for the next two fiscal year?

Does Mems earnings power deserve such highly optimistic expectation?

Isn’t it just wayyyyyyyyyyyyy too lebih?

Mems reported its 2006 Q1 earnings today.

Quarterly rpt on consolidated results for the financial period ended 31/10/2005

It had sales turnover of 11.061 million. Net earnings was a decent 3.009 million.

Which is decent i guess...

However... consider the fact that folks like S&P was recommending a hold when Mems was trading at 0.64 when it first iniated coverage on the stock.

And now consider that S&P estimated/projected/assumed net earnings for Mems fy 2006 is at 17.9 million.

err... this 3.009 million net profit from Mems looks might disappointing, doesn't it?

how?

Was Mems performance really that poor or was the expectations/estimation/projected earnings simply too optimistic?

how?

Mems closed today's trade at 0.365 sen.