Mieco: Part VII

Mieco announced its earnings last night.

Mieco announced that it had made a net profit of 2.682 million for its 2006 Q3 earnings (2006 Q2 it reported a net profit of 2.891 million).

So are we looking at a turnaround case here?

anyway this is what the company said in its notes..

• Quarter on Quarter review
  
  Group revenue increased from RM77.8 million to RM90.8 million in the current quarter due mainly to favourable sales price of chipboard and related products.
  
  Group operating profit before financial cost, depreciation and amortisation increased by RM6.0 million to RM11.7 million from RM5.7 million in the same quarter last year due mainly to higher sales of chipboard and related products and higher production output, though adversely affected by increase in raw material prices.

anyway regarding the turnaround issue...

it's rather simple.. the past 2 quarters, Mieco showed profits instead of losses (although cash flow is still terrible). Q2 Mieco earned 2.9 and yesterday, it reported its q3 earnings to be 2.7 (rounded up).

So we are looking at a company which should be earning around 2.7-3.0 mil per quarter.

Which i find it totally incredible because back in the GOOD days.. the days when Mieco was a so-called an investment grade stock, Mieco was earning some 8-9 million per quarter, and it was a company in nett cash position of 182 million (see mieco's 2003 q2 earnings). Blogged on this here: Mieco and i think in that posting i compiled a table of Mieco's earnings (reload/refresh the page of the msn group if ur browser says the page cannot be found).

Anyway... the main cause of this is the huge capex as mentioned in that blog posting.

• Anywayyy… let’s consider the following chain of events.
  
  As noted, the first sign of weakness in the company’s earnings happened when Mieco announced its 03 q4 earnings on 24th May 2005. Price of Mieco then was 2.89. It was trading around an earnings multiple of 19x based on trailing earnings.
  
  There was a huge increase in the company’s borrowings. Now this one is debatable cause Mieco’s borrowings was incurred because it wanted to built a brand new factory. Capex was estimated at around 300 million.

How? Big money was used to build that brand new, state of the art factory. And the end results, surely it's not justifiable at all. Earnings around 2.9 million per quarter is no way close to what the company was earning back in 2003, in which Mieco was earning around 8-9 million. Company is now in a huge debt when previously it was in such an enviable position of a nett cash of 180++ million.

I think this is a good case study here... In Mieco's case, perhaps the capex was way too huge for itself (classical example of perhaps the hat became too small for the management) and if the announced capex sounds too ambitious, then perhaps the investor should exercise extreme prudence.

past blog postings:

1. Mieco
   
2. Mieco: Part II
   
3. Mieco: Part III
   
4. Mieco: Part IV
   
5. Mieco: Part V

ROI on YiLai: Part VII

Yi-Lai just announced its 2006 Q3 earnings. (past blog postings on it can be found here: Part I , Part II , Part III , Part IV , Part V , Part VI)

The following is a snapshot of how Yi-Lai has fared for its most recent 4 quarters.

And this was what the company management had to say in their earning notes.

• For the current quarter under review, the Group recorded a higher turnover of RM34.9 million compared to RM30.8 million for the corresponding quarter in 2005 whilst profit before tax was RM8.9 million compared to RM8.7 million for the corresponding quarter in 2005. The improvement in results was attributable to higher sales volume achieved in the current quarter.
  On a cumulative basis for the first nine months of 2006, the turnover increased by 14.8% to RM100.6 million (2005 – RM87.7 million). However, profit before tax was lower by 5.0% to RM24.7 million (2005 – RM26.1 million) as a result of higher cost of production and stiff price competition.

For me the two issues I mentioned in Part VI still remains. Here is what I wrote back then. (in blue italics)

• So two clear and present issues.
  
  Remember the issue of it's the business that counts?
  
  Well, Yi-Lai's business is struggling in the current tough business environment. The tough business environment is hurting Yi-Lai's profits. Make no doubt about it.
  
  How concern would you be on this issue? How worried are you that Yi-Lai's earnings is hurting?
  
  However, the balance sheet is top draw. Another rarity since we are witnessing an extremely healthy growth in the cash flow despite the tough business environment. It's highly commendable what the management is achieving during current times..
  
  How brown cow?

Same issue for me.

Yes, I think Yilai is still managed brilliantly...

BUT....

I really believe the current ballgame has changed. It's a tough current ball game. The current YiLai ain't as good as the YiLai of the yester-years!

When will it change? How long will it last? And worse still, will the situation worsen?

How?

Here are some commentary from a RHB writeup this morning:

• X 9MFY12/06 net profit came in at 78-84% of our full-year forecast and the full-year market consensus. However, we consider the results within expectations as we expect weak performance in 4Q as operating conditions continue to deteriorate.
  
  X Competition in the domestic ceramic tiles industry continues to intensify against a backdrop of massive excess capacity and softening demand on the back of a weak property market. The rising production costs coupled with local players’ inability to penetrate the export market in a major way do not help either. Yi-Lai is not spared.
  
  X However, the weak prospects will not impair Yi-Lai’s ability to pay out a generous gross dividend of 12sen/share per annum, translating into a gross dividend yield of 9.9%. This is because of its net cash of RM58.5m or 37sen/share as at 30 September 2006 coupled with minimal capex projected at only RM4m per annum going forward. Indicative fair value is RM1.16 based on 8x FY12/07 EPS, in line with its 1-year forward historical average PER. Maintain Market Perform.
  
  
  

Frustration, Persistance & Stubborness

More from Sun Tzu On Investing

Sun Tzu often warned his generals that it is adaptive strategy that win wars, not persistence.

Persistence can be a fine quality, but blindly, stubbornly and obstinately pushing ahead in the wrong direction is not going to make you more successful.

Your persistance must be rational.

Stubbornly holding onto losing stocks as their business fundamental decay, hoping they magically return to your purchase price is no way to ensure victory, in fact, it all but gurantees defeat.

When the evidence says sell, then sell. Be persistent in the application of your strategy, not in banging your head against the wall or burying it in the sand. Be open to accept new information, face facts and take action as necessary. Ignoring important business developments in your portfolio won't make them go away.

Selling a stock that no longer measures up, or one that was purchased without accurate or complete evaluation is not admitting a mistake or any cause for embarresment, it's just one more necessary, even essential step toward victory.

If the stock price rises after you sell, don't be frustrated - you made a rational decision, the best you could based on the information you had at the time - and over your investing lifetime this rational approach will win out.

You invest your time and your energy into every business analysis, so after a sell decision you need not write off the company forever. If the business prospects and fundamentals improve later, you can and should reconsider repurchasing. Each decision must be viewed independently from previous decisions. Selling as fundamental decay is essential, as it frees capital to be redeployed into another productive investment.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Ahh... being frustrated when after we decide to sell the stock, the stock decides to move up!

In the stock market, haven't we witnessed that sometimes after thorough reasoning, we come to the conclusion that the certain stock is not worth to be invested in anymore. And the minute we execute our SELL decision(s), the stock miraculously rises!

Err... so what gives?

Yes, being frustrated is understandable but what else can be done? Nothing more! I repeat nothing more! The point is, in the stock market sometimes this kind of stuff does happen, and it could happen again in the future. All can we can do is say 'Que Sera Sera'!

For me, there is no way I could tell whether a stock is gonna go up or down. It is mere impossible for me to figure out which way the stock is really going to go. Haven't we seen them bad to the bone, them rotten stocks, them almost bankrupt stocks, go up via cosmic movements? It does happen but for me, trying to catch which and when these rotten stocks will go up is the equivalent of buying a lottery ticket. I simply cannot do it. Again, let me say out loud again, I am not saying that it cannot be done, all I am saying is that I realise I do have the abilities to play such a game.

And in my opinion, for the investor, the most important issue is making clear logical reasonings to invest in a stock or to stay invested or to cash out of a stock investment. That's the investors edge. Making commonsense investing decisions. That's all that matters. If we take this edge away from ourselves, what then will become of we? Does it make sense to try to play a game that we don't understand too well just so long as we can be a hero? Remember.. Without faith in his own judgement no man can go very far in this game! - - Lefevre

So what's our investment edge? The very basic of our edge is we buy a 'good' stock at a cheap price and we sell the investment when either we get a really 'good' price (ie some paying an insane price for our investment stake... but how could i call it insane since this will be a good thingy for me? :P) for our investment or if the investment makes no sense anymore - ie the stock used to be good, but due to for some reasons or another, there are clear signs that the stock won't be good no more! And obviously we also sell if and when we made an investment mistake, ie a wrong stock selection.

Remember the issue of making mistakes? Here's some words of advice yet again...

There is no shame in making a mistake. Despite a great deal of research and analysis, I make plenty of them -- and so does every other investor -- because the future is inherently unpredictable. But there is shame in refusing to acknowledge a mistake and rectifying it. - - Warren Buffett

So if a stock goes up after we decided to sell (ie the stock investment makes no sense no more), what's there to be frustrated?

Should we continue to stick to our game plan and not get bothered? (see this blog posting: Developing an Investment Philosophy )

Or should we try to get the best possible price out of our mistakes? (Isn't this like HOPING for the market to correct our mistakes?? Does it make sense? Are we even that lucky all the time that the market will rectify our mistakes? What if that one mistake wipes us out of the game? How then?)

Lastly...

"persistence can be a fine quality, but blindly, stubbornly and obstinately pushing ahead in the wrong direction is not going to make you more successful"...

How very true!

Remember ... there is a verv, very fine line between being correct and being stubbornly wrong... hence it is most important that one's persistance must be rational!

It Is Believed..!!!

Where is the intergrity of our financial news when our reporters are allowed to publish articles based on IT IS BELIEVED!

Gee!

Take today's Business Times article.

• MTD Infraperdana plans RM460m capital payout
  It is believed that the payout proposal alongside a plan to raise as much as RM800 million in fresh debts was submitted to the board for consideration this week

It is believed!

How about for once printing some actual facts?

How about not printing financial news based on IT IS BELIEVED or ACCORDING TO SOURCES??

• MTD Infraperdana plans RM460m capital payout
  By Francis Fernandez
  bt@nstp.com.my
  
  November 17 2006
  
  MTD Infraperdana Bhd, country's second largest toll road operator, is believed to be considering a proposal to return as much as RM460 million to shareholders, bankers familiar with the matter said yesterdayIt is believed that the proposal alongside a plan to raise fresh debts was submitted for consideration to the board this week.
  
  A capital repayment of 40 sen a share translates into a total cash payment of RM460 million, based on MTD Infraperdana's paid-up capital of RM1.16 billion.

And when the stock reacts to such news, there is unreal profit to be made.

And obviously my question is DOES THE REPORTER PROFIT FROM WRITING SUCH BASELESS NEWS?

And this was the same 'writer' (I do not use reporter cos he's a fancy story writer isn't he?) who wrote the following articles IJM said to be weighing plan to buy into Talam and Satang Jaya soars on talk it may acquire Airod. Both stories which were denied by both parties. And this is the writer who wrote the same incredible story on Sugar. A stock which soared and then plummeted a couple of days later.

Sigh.

Whatever happen to reported financial news based on facts?

Sigh.

Has The US FED engineered a Soft Landing?

Here is a highly interesting commentary on the US Market. Written by Paul J. Nolte, the piece is posted at FSO website: Has the Fed Engineered a Soft Landing?

The following part interests me the most:

• Moving toward the corporate side of the economy (and the more healthy side) the merger and buyout activity has been staggering. A benefit of all the activity has certainly been stock prices – as supply is being reduced faster than the IPOs are able to replace it. The combination of corporate buybacks or buyouts is putting money into investor’s pockets that, given the sharp rise in stock prices, will be put back into stocks. In what can only be called “keeping up with the Joneses," investors (especially the professional ones) have been playing a game of catch-up since the bottom in August. Valuation levels remain elevated and earnings growth should slow (especially if the economy remains cool) and margins may also contract (as wage growth picks up a bit). So why are investors willing to pay top prices for earnings that are likely at or near a peak? The same question was asked in 1997, WELL BEFORE the peak nearly three years later. My contention is that the market is risky at current levels – but that does not say WHEN the markets will turn south. The signposts have been there for some time, but so far ignored – and it could be a while before they are heeded. So for those who have a penchant for shorting the markets – the old adage certainly applies today: the markets can stay irrational much longer than you can stay liquid. We prefer to see the beginning phases of the decline before we jump ship, realizing that to “pick a top” is a fool’s game – better to stay with the trend and take the fat out of the middle.
  
  So corporations are flush with cash, the consumer is slowly beginning to repair their balance sheets and the housing market (so far) has been a relatively contained mess. The odds do not favor a soft landing, as the Fed has only engineered one in the past ten attempts – BUT SO FAR, it looks like it has succeeded. Investors are reacting in the normal way by buying stocks. In fact, we are seeing hedge funds increase their equity weights and those in RYDEX funds shun the short funds. As mentioned above, the market is already at a high valuation and room for a new bull market seems rather small. So, where should investors go for return? How about them bonds? We saw this in the late 90’s as investors piled into stocks and left the safety of treasury bonds. Over the period from 1997 to 2002, even though stocks rose dramatically until 2000, the performance of treasuries clobbered stocks for that five-year period. I believe that a similar period may be at hand. While not exciting, total returns on ten-year treasuries could approach 10% for the next five years as the Fed cuts rates (we haven’t seen a cycle of rising rates followed by a pause and then another rising rate environment – I know there is always a first!), while stock returns may struggle just to be positive.

How?

Update on Scomi

Update to earlier blog psoting: Privatisation Of Scomi

Just saw this earnings announcement:

SCOMI GROUP BERHAD
ARTICLE ENTITLED: "Scomi to be taken private?"

• Reference is made to a query from Bursa Malaysia Securities Berhad dated 15 November 2006 in relation to the article appearing in The New Straits Times (Business Times, page 39) on Wednesday, 15 November 2006 and in particular pertaining to the statement which is reproduced as follows:
  -"…major shareholders of Scomi Group Bhd may take the … firm private in a bid worth as much as RM1 billion."
  The Board of Directors of Scomi Group Bhd wishes to advise that, the Company is not aware of any plan or intention by its major shareholders relating to the issues highlighted in the said article and has not received any notice from its major shareholders relating thereto.
  In addition, the Company has made due enquiry with its largest shareholder, Kaspadu Sdn Bhd, and has been informed that although Kaspadu has received a number of preliminary proposals relating to its stake in the Company, no decision with respect thereto has been made that warrant announcement by the Company.

So who COOKED UP the story??

:P

Privatisation of Scomi?

Yesterday, there was an article stating that Scomi could be taken private.

Scomi was a stock that I had blogged a couple of times before. See regarding scomi , regarding scomi group again. (recommended reading :D ) and scomi again

• Scomi to be taken private?
  By Shahriman Johari
  ashahriman@nstp.com.my
  
  November 15 2006
  
  SPECULATION is rife that major shareholders of Scomi Group Bhd may take the integrated oil services firm private in a bid worth as much as RM1 billion.
  
  Sources said the main shareholders, who include the son of Prime Minister Datuk Seri Abdullah Ahmad Badawi, are considering this as an option as Scomi's market price does not reflect its true value.
  
  Taking it private could also in a way address unwarranted criticism that the group was favoured in bidding for government contracts because its major shareholder, Datuk Kamaludin Abdullah, is the son of the Prime Minister.
  
  Officials of Scomi, which makes drilling fluids that cool drilling heads and provides drilling waste management services, could not be reached for comment.
  
  Scomi's chief executive officer, Shah Hakim Zain, did not answer calls made to his handphone.
  
  Major shareholders could bid for the rest of Scomi at a price range of RM1.20 to RM1.50 a share, bankers said, citing swirling market speculation. The stock closed 6.2 per cent up at RM1.03 yesterday.

I am a strong believer that no corporate will embark on a corporate exercise if there is no monetary benefit to the corporation.

Is it profitable to take Scomi Group private? Have a look at this blog posting (scomi again )

Yes, Scomi made a remarkable record high earnings of 23.657 million for its last announced quarterly earnings.

But..

look at the bottom-line.

This company is in a NETT DEBT position of 903.946 million.

Let's look at what the article said next.

• "Scomi has a very strong cash flow. And based on what's been said about it, it makes sense for them to do it," said an executive close to the group.
  
  The major shareholders of Scomi are Kamaludin and Shah Hakim. Both hold 34.66 per cent of the company through Kaspadu Sdn Bhd as at May 11 2006.
  
  French insurance group AXA is the second biggest shareholder with 6.3 per cent, followed by the Employees Provident Fund with 5.73 per cent.
  
  This means that if the main shareholders were to make a bid for the rest of the shares, they might have to fork out some RM976.6 million based on an offer of RM1.50 a share.
  
  In September, Scomi said it expected to more than triple its sales to US$1 billion (RM3.64 billion) by 2009, helped by organic growth and new technology.
  
  "We are growing at a very fast pace, and certain markets this year will have between 50 per cent and 80 per cent growth," Shah Hakim said at the time.
  

Strong cash flow said an executive close to the group???

Could this EXECUTIVE define STRONG CASH FLOW????

Remember, back in Scomi's fiscal year 20003 Q2, Scomi Group was a simple stock earning 4.037 million for the quarter. But it's net debt was a mere 7.515. Very manageable. Look at it now. In a nett debt position of 903.946 million!

Is this the STRONG CASH FLOW?

How very strange!

I wonder which EXCUTIVE said that statement.

In today's Star, there's an artilce entitled "Scomi up on privatisation talk".

• “The possibility of Scomi being taken private is high as the group’s shares are grossly undervalued and, with all of its subsidiaries listed (after the listing of its oil field services division (OSD) on the Singapore Stock Exchange next year), it makes sense to take it private,” TA Securities said in a note.

Grossly undervalued? LOL!!!

• Meanwhile, sources said an announcement on a proposed privatisation of the group could be made soon.
  The TA Securities note said based on an indicative price of RM1.20 to RM1.50 per share, the privatisation deal could cost the group’s major shareholders, Datuk Kamaludin Abdullah and Scomi chief executive officer Shah Hakim Zain, RM787mil to RM984mil.

As, I was saying earlier, "I am a strong believer that no corporate will embark on a corporate exercise if there is no monetary benefit to the corporation."

So do you think it make sense to partake in a deal worth rm787 to rm984 million to fully own a company that has a nett debt of RM903.946 million???

Doesn't make much sense to me.

What say you?

About Magnum Again

Magnum announced their earnings last night.

Again, I felt extremely bewildered to read that Magnum announced their payouts were higher yet once more.

Here is a snippet of some comments from Mayban Securities.

• Unfortunately, Magnum’s gaming profits were again hit by higher prize payout which rose to 71% from 68% in 3QFY05 and 64% in 2QFY06. As a result, gaming division operating profit declined by 20.4%yoy to RM67.2m. However, the overall positive growth in group operating profit can be mainly attributed to profit generated by the investment holding division arising from the disposal of investments and a much lower provision for impairment losses in long term quoted investments in the current quarter.

Really just how bad is one's bad luck? (see this blog posting : here )

I actually first blogged on Magnum back in January 2006 ( See Magnum fall out of favour ) and I blogged on it again back in Feb 2006. ( see magnum again. )

I find it so very strange about these high payouts.

Why is it constantly increasing?

Striking these 4D numbers so easy, meh?