Regarding PSCi

What does the Moo Moo Cow think of PSCi? Is it really a stock to avoid at all cost?

Hi,

PSCi is a mess. Really. It's in such a mess that a rescue package has been put in place to help.

The Moo Moo Cow is not able to offer direct advice but all the Moo Moo Cow can do is lay out the facts.

So how bad is PSCI? Here is the link to its latest earnings. Quarterly rpt on consolidated results for the financial period ended 31/12/2006

The following is the important notes in its balance sheet.

1. Deposits: 17.665 million
2. Accumulated losses: 779.481 million
3. Total debts: 589.829

Now obviously, item 2 and item 3 needs to be addressed badly. ASAP.

On Nov 7th, PSCI reported this on Star Biz.

• Tuesday November 7, 2006
  
  PSCI sells building in Penang to lower debts
  
  By IZWAN IDRIS
  
  PETALING JAYA: PSC Industries Bhd's (PSCI) wholly-owned unit PSC Asset Holdings Sdn Bhd has proposed to sell a building known as Menara PSCI in George Town to Boustead Holdings Bhd for RM54mil cash.
  
  Boustead owns a 32.5% stake in PSCI.

Ahh... Boustead owns PSCi. A 32.5% stake. So Boustead will buy a building from PSCi for rm54 million cash. Ok, it's clearly a rescue package and some cynics could be extremely critical and bash such a funky corporate exercise. Well, wouldn't you? (link to announcement on bursa here )

Anyway the other commentary in that news article worth reading..

• The property is currently charged to OCBC Bank (M) Bhd for a principal loan amounting to RM67mil obtained by PSCI subsidiaries PSC Asset and Penang Shipbuilding & Construction Sdn Bhd.
  
  The loan has been in default.
  
  “Proceeds from the proposed disposal would be utilised to partially repay the outstanding loans,'' PSCI said.
  
  As at Dec 31, 2005, the audited net book value of the property was RM70mil. It generated a total gross income of RM5.48mil last year.
  
  The valuation for the disposal was arrived on “a willing buyer-willing seller basis” after taking into consideration, among other things, the building's indicative market value of RM55mil.
  
  “The proposed disposal is expected to result in a group loss of RM4mil for the year ending Dec 31, 2006,'' PSCI said.

And the other rescue package put in place was here. (do read this announcement!)

What it says is..

• The Proposed Share Capital Reduction pursuant to Section 64 of the Act will involve the reduction of the issued and paid-up share capital of PSCI of RM174,083,348 comprising 174,083,348 ordinary shares of RM1.00 each in the following manner:-
  a) 3 ordinary shares of RM1.00 each in the issued and paid up capital of PSCI which are held by Boustead will be cancelled;
  b) the remaining 174,083,345 ordinary shares of RM1.00 each in the issued and paid up capital of PSCI after 2.1.1 (a) will be reduced by RM0.80 per share to become 174,083,345 ordinary shares of RM0.20 each.
  (Collectively the "Proposed Share Capital Reduction")


• Thereafter, the issued and paid-up share capital of PSCI of RM34,816,669 comprising 174,083,345 ordinary shares of RM0.20 each will be consolidated such that every five (5) ordinary shares of RM0.20 each shall constitute one (1) ordinary share of RM1.00 each credited as fully paid-up ("Proposed Share Capital Consolidation") and the issued and paid-up share capital of PSCI of RM34,816,669 will comprise 34,816,669 ordinary shares of RM1.00 each.

Click on the attached word file here in that announcement.

A 5 into 1 capital reduction and then there will be a rights issue.

This funky corporate exercise was approved by the SC recently. (see here )

• On behalf of the Board of Directors of PSCI, Affin Investment Bank Berhad (formerly known as Affin Merchant Bank Berhad) ("Affin Investment") is pleased to announce that the Securities Commission ("SC") has vide its letter dated 19 March 2007 (which was received on 21 March 2007) approved the Proposed Disposal and Proposed Restructuring Scheme.

So is PSCi out of the woods?

Now the following article posted on the Edge is worth reading: 26-03-2007: PSCI to be profitable in FY08.

• PSC Industries Bhd (PSCI) is expected to return to the black in the next financial year ending Dec 31, 2008 after three years of consecutive of losses on the back of its restructuring exercise and a strong order book of RM250 million.
  
  The company has also targetted to wipe out all its accumulated net loss of RM172 million within the next two to three years.
  
  Its deputy chairman Datuk Seri Ahmad Ramli Mohd Nor said PSCI was on track to a recovery as it was now debt free, and could now apply for loans to carry out its business of building ships.

Ok, this is the Moo Moo Cow's interpretation. The strong order book. This was one of the reason: 21-02-2007: PSCI secures RM146m job for 3 chemical tankers.

Ok, it says rm250million in order book. See, this rescue package, does not wipe out everything. There is still residue. rm172 million left. Can a rm250 million order book wipe this rm172 of accumulated net losses within the 2 to 3 years? That's a big ask if you ask the Moo Moo Cow. You are talking about wiping out on an average of rm57.3 million of losses per year for the next 3 years. Is this rm250 order book so profitable for PSCi to achieve this target? This is what I would be asking.

PSCi's best ever performing fiscal year was its 2003 fiscal year. Quarterly rpt on consolidated results for the financial period ended 31/12/2003. Look at the operating margins. It's around 9% only.

So how? Let repeat again: this rm250 order book so profitable for PSCi to achieve this target of wiping out its accumulated losses? This is what I would be asking.

Is PSCI debt free? After this rescue package, there will be a residue of 1.119million in debts. That is what stated by PSCi in their earlier wordfile here. How?

But look at what the intention laid out by the company.

• Its deputy chairman Datuk Seri Ahmad Ramli Mohd Nor said PSCI was on track to a recovery as it was now debt free, and could now apply for loans to carry out its business of building ships.

Could apply for loans again???

WOW!!

Er, some would NOT like it at all. A capital reduction and a rights issue to help clear its mess. Now it wants to apply for loans again in the future?

Start the debt bubble again?

Yeah, it does get really contagious such a habit.

The edge article continues by saying the following...

• “The proposed restructuring scheme will resolve once and for all PSCI’s huge debt overhang and restore the balance sheet,” he told reporters after PSCI’s EGM in Kuala Lumpur on March 26.
  
  He said the company currently had an order book of RM250 million, and it was in talks for several contracts, which it hopes to announce this year.
  
  PSCI reported a net loss of RM93.75 million in its last financial year from a net loss of RM533.49 million in FY05.
  
  The restructuring exercise involved the settlement of the group’s total borrowings of RM595 million via the issuance of new shares and raising RM69.6 million through a rights issue, PSCI said in a statement. The proceeds raised from the rights issue would be used for working capital requirements.
  
  The exercise will also reduce PSCI’s accumulated losses from RM771 million to RM172 million and improve shareholders’ funds to RM67.46 million from the previous negative amount of RM535 million.
  
  Meanwhile, Ahmad Ramli said PSCI’s existing contract include four offshore patrol vessel (OPVs), undertaken by its 20% owned Boustead Naval Shipyard, which would be fully delivered in 2009.
  
  PSCI is also building three tankers for Gagasan Carriers Sdn Bhd, valued at RM146.7 million, to be delivered by March 2009.
  

How now Brown Cow?

This company which is in a mess has a rescue package in motion.

Would PSCi come out a better corporate after this rescue?

Would you dare put your hard earn money on it?

Hope these second opinions help and I have no idea how the share will perform, so please do not ask me if it will move higher or not...

And most of all, are you even aware of the capital reduction and rights issue?

regards,