S&P coverage on Mems

Looking at this report made on Mems Technology by S&P on Sept 30th (Mems traded price then was 0.64): Click here for the report

What catches my attention is the way they do it. The way they justify their recommendation for the stock. Sibeh geng lah.

here is a snippet from that report:

Recommendation
• We initiate coverage on MemsTech with a Buy recommendation and a 12-month target price of MYR0.73 – which is based on 10x projected FY07 (Jul.) EPS.

Profit & Loss

FY Jul./MYR mln                2004    2005   2006F     2007F
Revenue                        33.8    48.3   80.3      223.1
Net Profit                       8.2     13.7   17.9      47.6 

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??

Sibeh geng lah!

See onot? Sooooooo kleber lah. First, they jack their projections sooooooooo high. Then they justifies the cheapness in the stock by stating that Mems is trading on an earnings multiple of only 10x fy 2007. Of course, the key was ze FY 2007 earnings projection. A projection based on Mems achieving an annual compounded growth rate of 86.4%.

Hmm.... Mems Tech currently has 651,786,100 shares. Based on current earnings of 13.7 million, Mems has an earnings per share of 2.1 sen. Mems opening price today is 61 sen, which means currently Mems is trading at earnings multiple of 29x based on current earnings.

How?

Do you think it is justifiable to invest in Mems based on S&P's rosy earnings projections?

Oh... comes 2007.... i wonder if any1 will remember this rosy write-up from S&P?