A Look At iCapital's Buy Call on NasionCom!

I have gotten an interesting comment on my posting, NasionCom Founder Charged With Bribery!

• From The Wanderer
  Dear Moola, (the financial watch cow)
  I don't want I Cap to conveniently forget about their buy call on 18/08/2006
  The buy below 0.15 is......?????

Here is the screen shot of what The Wanderer posted.

In the last paragraph, iCapital wrote the following:

• iCapital finds NasionCom to be an interesting company, with one of the factors being the direction and strategy that the new managing director has planned for the group. However, what worries us is the level of borrowings currently carried by the group. As at 1Q06, the group has rm64 million worth of borrowings, rm3.6 million of cash, and incurred interest expenses of rm1.3 million (35% of operating profit). On balance, iCapital rates NasionCom as a Buy below rm0.15 for the medium-term.

Ok, iCapital was looking at 06 Q1 earnings of Nasioncom, Quarterly rpt on consolidated results for the financial period ended 31/3/2006

It was nice to see that iCapital recognise that NasionCom had a terrible balance sheet but then on the other hand, why then does it want to rate NasionCom as a BUY below rm0.15 for the medium-term???

Sounds not so correct, yes?

So I decided to compile a table on NasionCom.

Let's look at the numbers based on simple logic reasonings.

1. Net profit - Ok, for 06 Q1 did ok but the previous 2 quarters 05 Q3 and 05 Q4, the earnings has been terrible.

2. The net profit margins is terrible eh?

3. Cash balances. Cash balances have depleted, yes? Exactly a year ago, Nasioncom reported it had cash of 10.285 million in its 05 Q1 earnings. Now it only has 3.636 million.

4. Loan balances. Total loans is at 64 million. A year ago for the same period, Nasioncom had loans of only 28.138 million!

5. Receivables. Holy moly. Incredible. A year ago, Nasioncom Receivables was at 48.445 million. A year later, the receivables have balloned to 71.115 million. Which didn't make sense because during this period, from 05 Q2 to 06 Q1, NasionCom only had net earnings of 4.352 million! Earn so little, how could the receivables balloon so much? Not fishy, meh?

How?

Seriously, NasionCom looks like a damn lousy company yes?

Poor earnings, terrible margins, depleting cash, ballooning debts and receivables.

So many issues yes?

Would you want to invest in this company based on these information?

And yet, iCapital had a MEDIUM-TERM buy on this stock at 0.15 sen!

Do you understand their MEDIUM-TERM buy recommendation at all? I, for one, do not.

So why did iCapital make such a call?

And the only announcement of significant that NasionCom had was on the very same day, Nasioncom announced that it had a huge private placement of up to 80,000,000 new ordinary shares of RM0.10 each (Shares) in NHB, representing up to 10% of the existing issued and paid-up share capital of NHB (Proposed Private Placement)

And this is how NasionCom has done since 18th Aug 2006.

ps: The Wanderer, I wonder if iCap changed their recommendation on NasionCom since Aug 2006?