LCL Stock Gets Hit On Payment Default!

Recent postings on LCL:

1. More Disposal Of Assets Seen In LCL
2. More Comments On LCL
3. Quick Look At LCL's Earnings
4. LCL: New trouble brewing?

On today's Business Times:

• LCL hit by Dubai crisis
  Published: 2009/12/11
  
  LCL Corp Bhd, a Malaysian interrior design company, has been “severely” impacted by the “financial turmoil” in Dubai, the company said in a disclosure to the KLSE.
  
  Its subsidiary, LCL Furniture Sdn Bhd, has defaulted on payments on its credit facilities, the company said, pointing to a “plunge” in property prices in Dubai and non-non-payment by clients. — Bloomberg

Am I shocked? No.

The statement posted at Bursa website: LCL CORPORATION BERHAD ("LCL" or "the Company") - Default in Payments of Credit Facilities by the Company’s subsidiary, LCL Furniture Sdn Bhd

So we are now looking at defaults on payments on its credit facilities by LCL!!!

In the posting: Quick Look At LCL's Earnings

• I was more worried about its balance sheet.
  
  Cash balance dropped but there is slight improvement in its receivables.And the total debts reduced.
  
  However the cash versus total debts is at rather extreme, yes?
  
  How? Given the whole mess in Dubai, would you want to be in this stock, now?

As highlighted in the above posting, cash balances were only 12.593 million versus total debts of 391.322 million.

In the posting, More Comments On LCL

• So payment from Dubai 'were' generally slow. LCL receivables are now separated into three entries. As per its earnings notes last night:
  
  Trade receivables - 221.436 million
  Amount due from customers for contract works - 154.107 million
  Amount due from related companies - 41.641 million
  
  Assuming and having faith that all these receivables are in order, I would be concerned which of these figures are from its work done in Dubai.
  
  As the sum is rather substantial and with Dubai World current debt issue, surely one has to ask if the debts cannot be collected. And if they cannot be collected, these debts would have to be re-classified as bad debts, which would equate to losses.
  
  And last but not least, given LCL's current financial position, can LCL afford any more delay in its collection of debts?
  
  How?

This morning LCL shares were hit hard yet again!

How sad!

This was once a darling stock for many.

For example, when KN Research iniated its coverage it had a buy rating on the stock and this was said of LCL.

• Initiating with BUY and target price of RM7.48 using 8x PER on FY08 EPS of 93.5 sen. The 8x PER is 20% discount to average small size construction companies PER of 10x given LCL shorter contract period. and previously below expectations quarterly results. Its approval from SC for transfer to Main Board would help increase it profile. It is still trading at cheap FY07 and FY08 PERs of 10x and 6x respectively. We will issue a more comprehensive report later.

And here's one rozy article on LCL back on June 13th 2007.

• Wednesday June 13, 2007
  
  LCL outlook increasingly positive
  
  By Leong Hung Yee
  
  PETALING JAYA: LCL Corp Bhd's share price fell back apparently on profit-taking yesterday, but despite having gained 226.2% year-to-date, the stock remains clearly in the radar of investors, given its steady flow of contracts, continued capacity expansion and good earnings visibility.
  
  The counter has risen from a low of RM3.34 at the beginning of this month to a 52-week high of RM6.25 on Monday. Although it lost 35 sen to RM5.35 yesterday, the share price is still up RM2.01 so far this month.
  
  An analyst said the company, which had an increasingly positive outlook, was a very good proxy to the construction sector.
  
  Kenanga Investment Bank in a report initiating coverage with a “buy” call, gave LCL a target price of RM7.48, valuing it at eight times expected earnings per share of 93.5 sen for the financial year ending Dec 31, 2008.
  
  The research outfit believes that LCL, which has established itself in Dubai, would bag more contracts in Dubai and the Middle East where the interior fit-out market is estimated to be RM18bil per annum for the next five years in Dubai alone.
  
  “Its 50:50 joint venture with IJM (India) Infrastructure Ltd (IJMII) will enable LCL to benefit from any building contracts that IJM secures in India,” it said.
  
  An analyst said LCL could leverage on IJM’s reputation in India, given the latter’s strong order book as well as knowledge of the country. The interior fit-out specialist, which is seeking a main board transfer this year, has factories in Malaysia, Hyderabad in India, and Thailand manufacturing furniture, wood panelling and stoneworks.
  
  Locally, LCL has market leadership with a share of 15% in the interior fit-out industry. Its order book is estimated at more than RM450mil, of which about 80% are overseas contracts.
  
  Analysts continue to favour LCL for its earnings growth and are upbeat on its prospects, given the steady flow of contracts it is getting.

I could understand why the interest in the stock.

It used to be a darling stock for many. And when it was below 0.60, many thought it was worth the risk to gamble on this fallen darling. Look at it now!

Would this be a perfect example that highlights the danger of buying/investing into a fallen darling?