Move Over Who?: Part IX

I received some new comments in the following blog posting Move Over Who?: Part VIII

• I just downloaded the Q1/2006 report and noted that Karensoft had actually reported a Q1/2006 profit. Perhaps their strategy of focussing on ERP4Auto is paying off ?
  
  
• However, I am puzzled why you did not mention that Karensoft reported a Q1/2006 profit ?
  
  I downloaded the Q1/2006 and the 2005 accounts and running through the GN3 Guidelines, I cannot understand why Karensoft was clasified as a GN 3 company as they pass all the tests as a Group and should not be classified GN 3.
  
  The only thing that could hit them would be 2.1 (b) & (c) where the accounts of the listed company alone are considered. I noticed that there was an impairment loss of about 9 Million charged to the P/L of the holding company and not the group. As far as I know, FRS 136 on Impairment of Investments should only be efffective 1/1/06
  
  Could it be that Karensoft has been penalsied for early compliance with FRS 136 ?

Yes, by not posting a new follow-up article on Karensoft probably might leave some readers thinking that I am truly biased against some stocks and more so biased against Karensoft since it did report a profit recently.

Anyway, I do hope very much that you do understand that this is a mere personal blog of mine, mumblings of my opinions and views on stocks from an investing point of view. It's really a general blog, hence unless there is an request, I do not feel I have the need and the obligation to follow-up on every issue of every stock I have mumbled on before. Some has even posted ugly comments that I sound like a broken tape recorder when I have kept repeating blog postings on a same stock.

Firstly, for some strange reason, I could not open the pdf file attachment from their latest quarterly earnings posted on Bursa website.

Could someone confirm if they can open the above pdf file attachment link?

Anyway, I will have to rely on Karensfot's Investion Relation (IR) website: here

Now Karensoft was listed back in 2003. Karensoft has been losing money each single year since it was listed. ( see here )

• FY 2003: Loss 0.595.17 million
• FY 2004: Loss 3.930 million
• FY 2005: Loss 10.809 million

The latest earnings, 2006 Q1 saw Karensoft reported a profit. A new year, a new beginning. So how did Karensoft do?

• A sales revenue of 0.593 million.
• A net profit of 0.101 million.

A profit of 101 thousand from sales revenue of 593 thousand???

Hardly impressive at all!

Considering its past torrid history and also the incredible chain of events when Karensoft was proudly proclaimed by a local brokerage house that its Execsuite software could rival the mighty M'soft's Office Suite software and how the stock tumbled dramatically a couple of months after that recommendation, its performance wasn't too impressive, yes?

And the following issue is even more mind-boggling. Have a look at the following screen-shot of this webpage, http://ir.wallstraits.net/karenSoft/page.php?id=profit_loss

Simple exercise.

Add Karensoft total sales revenue since listing in 2003.

Add Karensoft's sales revenue since listing in 2003 and you will get total sales of 12.627 million.
Add Karensoft's total losses since listing in 2003 and you will get total losses of 15.334 million!!

And consider the fact that Karensoft stated that these losses were derived from provision of doubtful debts.

So how does a business accumulate so much doubtful debts?

Now I do reckon that this is one really interesting issue for all. Any conspiracy theories?

How?

Anyway, had you not request commentary on this stock, perhaps some might even accuse me for promoting the stock and making insinuation that perhaps Karensoft is on its way in turning around its business.

But of course, one can argue Karensoft has made a profit and no matter how small that profit is, a profit is still a profit. And since it has made a profit, there is a chance that this could very well be the start of a brand new Karensoft.

True, very true but surely one of question how sustainable is such earnings. A profit of 101 thousand from a sales revenue of 593 thousand is really peanuts and such performance is really shockingly poor considering the fact that Karensoft is a listed company!

And from its IR website, Karensoft's current balance sheet shows a cash balance of 2.943, while its total borrowing totals some 5.453 million (net debt 2.510 million) with accumulated losses of 15.371 million!

Isn't Karensoft in such an appalling state?

And consider this issue. Based on a quarterly profit of 101 thousand, it would require 152 quarters of similar earnings to erase that accumulated losses of 15.371 million in its balance sheet!!! And 152 quarters equates to some 38 years!!!!!!!

See why I had not made an effort in making a blog posting stating the fact that Karensoft reported a profit for its latest quarterly earnings? Should I make a positive blog posting? Or should I make yet another cynical posting on Karensoft? Well if I had made a positive posting on Karensoft based on these facts, perhaps some might get some wrong idea that perhaps I am trying to pull a funky stunt here and promote Karensoft based on some personal vested reason!! And on the other hand, if I was cynical again, some might even accuse that I have some real serious personal hatred against Karensoft!

How?

Regarding the GN3 thingy. Does it even matter? Say Karensoft has been wrongly classified as argued. Does Karensoft even have any investment merits at all?

* past blog postings can be found here:

Karensoft
Karensoft: Part II
Karensoft: Part III
Karensoft: Part IV
Karensoft: Part V
Karensoft: Part VI
Karensoft: Part VII
Karensoft: Part VIII

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Regarding Success Transformer

• Could you share some opinion on Success Transformer

To be honest, when Success Transformer was listed early last year, I was rather biased against this company, for I felt that perhaps the name of this company was perhaps a bit goofy. It was like if the company was a success, why did it need to transform? That was my initial reaction and perhaps I should have taken a little time to research the story behind the company. Star Biz carried a wonderful story on the company background: Tan tansforms from fruit seller to factory owner . And the following article, Transformer maker charges abroad , describes what Success Transformer does.

• Its products include transformers, automatic voltage stabilisers, power line conditioners, high-intensity discharged ballasts and industrial lighting products like floodlights, high-bay and street lightings.
  
  Success Transformer exports to 18 countries including Singapore, Cambodia, Brunei, Bangladesh, Thailand, Japan, the United Arab Emirates, Australia, New Zealand, Indonesia and Thailand.

An electrical products industry player. This is an industry which I am not too familiar with.

Since it was listed only in Jan 2005, there is simply enough data to pass judgement on this stock and the best I can offer is a compilation of what the company has done since listing.

The initial numbers do look decent and what impresses me is how the company has maintained its cash balances. I would assume that this is due to the owner's humble beginning.

Current earning is around 10.536 million and its current share base is 80 million shares.

Oh, I note also that OSK coverage on it. And the following is a snippet of what it wrote.

• No too bad. STC reported a 5.5% y-o-y increase in sales, from RM16.1m in 1Q05 to RM17.0m as a result of higher volume in the domestic market during the period (refer Figure 5 for comparison between 1Q05 and 1Q06). PBT on the other hand, grew by a surprising 15.7% y-o-y with EBIT margins improved by 1.6 percentage point y-o-y to 18.6%.
• ... Just a tad lower. Annualizing 1Q, top line of RM67.84m was 17.0% lower than our estimates. Our FY06 sales estimates are based on management guidance of a 10% organic growth rate. Although revenue did decline 3.4% q-o-q, we foresee this to pick up by mid-2006. We observed there to be a mild cyclical trend that dips towards the end of the year, and peaks in the middle of the year (refer Figure 4). The lower sales trend in 4Q is a result of shorter operation periods throughout festive seasons. Therefore, we anticipate a better performing 2Q, bringing STC's performance closer to our estimates.
• Growth plans going forward. STC intends to expand its business geographically (target markets include Bahrain, Qatar, UK and Uzbekistan), widen its product range and venture into upstream supporting activities in the coming years to boost profitability. Also, STC's RM3.3m investment in solar related products and equipment upgrades last year is expected to boost its industrial lighting segment, which takes up about a third of its sales (refer Figure 2) by an additional 5%.
• Mini treats to mark 1 st year listing. STC distributed 15.5% of its net profits as dividends in FY05, equivalent to a 2.3% yield based on its current share price. For our projection, we have tagged a payout ratio of 30% translating to a potential yield of 4.2-4.6%.
• Good Catch. Based on a guided revenue growth and sustainable margins, STC is trading at an attractive FY06 PE of 6.2x . We believe the stock is attractively priced compared to the industry average of 8.25x. We also like STC for its edge over industry competitors due to economies of scale in production, as well as its extensive product distribution. Pegging our valuations to the industry average, we arrive at a target price of RM1.17 , equivalent to a 33% upside .

Hope all this helps. Just for your information, OSK fy 2006 net earnings for Success is based on a projected earnings of 11.3 million.

Cheers

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TITANic Bull Again?

Titan Chemicals announced its earnings yesterday. And this is how Titan has performed since listing.

2005 Q1 net profit 159.3 million (not listed yet)
2005 Q2 net profit 111.326 million.
2005 Q3 net profit 71.924 million.
2005 Q4 net profit 19.282 million.
2006 Q1 net profit 378.070 million.

The earnings look rather decent and it got some of the local news all excited. The Business Times has this header: Titan Chemicals Q1 net more than doubles ; while the Star Business has this header: Titan first quarter profit up 149% to RM378m

Now the issue is 'the inclusion of a RM341mil non-recurring income from consolidation of its acquisition of PT Titan' which is nothing but mere accounting profit.

And if you minus this 341 million out, this is how Titan did since listing.

2005 Q1 net profit 159.3 million (not listed yet)
2005 Q2 net profit 111.326 million.
2005 Q3 net profit 71.924 million.
2005 Q4 net profit 19.282 million.
2006 Q1 net profit 37.070 million.

Which isn't all that bad but what irks me the most was mentioned in my initial blog onTitan.

Now this is a company which sold itself to the investing public based on a repeated promise that it would earn some 604 million for its fiscal year 2005!

And how is Titan doing?

Oh, for those who like figures, let me be really cynical. Say we give Titan a helping hand, yeah spot the bugger a handicap of one extra quarter earnings. Guess what? If we add up these 5 quarterly earnings, Titan only earned 398.902 million. How? Can you imagine that with one extra quarterly earnings, Titan earnings is still no where close to the 604 million it promised during its IPO!!!!!!

Oh and the trailing earnings is a mere 239.602 million!

Yes, it is not easy making an earnings projection but when the projected earnings is so way off as in the example of Titan, it really makes you wonder. And worse still, those poor ipo investors bought Titan based on these incredibly optimistic earnings projections!

So how about the SC coming down really hard on buggers who make such incredibly optimistic earnings projections?

How brown cow?

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Chat on Opcom Holdings

Here are some opinions which I hope are useful as some second opinion (my comments is in black).

Hi Moola,

Here are my opinions on OPCOM.

1. Management

• Very "heavy" political background.
• I don't like those types of companies. But from Opcom's operating history since it's listing, everything looks still promising.
• If the management is honest as such, with it's "heavy" political background, should give positive impact to Opcom'' future growth.

a. Stocks with strong political background do have some risk. When they are politically in favour, then it bodes well for the stock. But do remember, this works both ways.

b. Opcom Holdings operating history. Opcom Holdings was listed in Dec 2003. Perhaps it is more prudent to look at what Opcom Holdings has done since listing.

fy 2004: Sales 58.084 million. Net profit 10.574 million.
fy 2005: Sales 78.291 million. Net profit 17.198 million.

The numbers looks impressive so far but remember Opcom is still relatively new and for some, they do reckon that it is way too early to pass judgement on Opcom with such few data.

And what do their current/trailing earnings suggest?

Sales 73.424 million. Net profit 13.599 million.

This is suggesting that Opcom current fiscal year won't be as happening as its 2005 fiscal year and it also suggest that perhaps Opcom's business is rather volatile.

c. Management? Some like to use how the management commentary after each quarterly earnings as an indicator to gauge their integrity, while some like to use interviews in the papers as an indicator. There is no real right or wrong since this issue represents one own perception.

Anyway, let's look at the early days for Opcom. Let's go back to May 2004.

Reporting Quarter: 2004 Q4 Earnings

On a Q-Q basis: sales went from 13.946 to 6.507 million.
On a Q-Q basis: net profit went from 2.958 million to 1.469 million.

Hardly impressive and in fact it is perhaps rather worrying. No?

here is what the company said in its earning notes...

• For the current quarter, the Group achieved revenue of RM 6.5m and a profit before tax of RM 1.9m. On the year to date basis, the Group achieved a revenue of RM 58.1m representing a growth of 26% as compared to RM 46.0m in the preceding year. As a result of the higher revenue, the profit before taxation has also increased by 40% to RM 17.4m as compared to the preceding year of RM 12.4m. The growth was mainly due to the increase in demand and economies of scale.
  
  There was a decrease of 53% in the Group's revenue i.e. from RM 13.9m to RM 6.5m in the current quarter. The decrease was mainly due to the decrease in demand in the current quarter as compared with the significantly high demand in last quarter.
  
  However, the Group's profit before taxation has only decreased by 34% i.e. from RM 2.9m to RM 1.9m in the current quarter. The steady profit before taxation despite low revenue was mainly due to decrease in administrative expenses.

Decent explainations but there is a slight problem here. Now each Mess-daq company are required to write a research note describing the company's performance and prospect.

Take a look at the following: Opcom Holdings Berhad Research Report. In that link there's a pdf file attachment. Have a read.

How? Do you see how the management totally ignored the current reported quarterly earnings? And it made NO effort in describing the POOR QUARTERLY EARNINGS. Instead, the company posted its nice track record which is really irrelevant since it represented a period when Opcom was NOT listed in the exchange. Everything was presented in a nice table, and it showed off its growth thingy and talked about irrelevant yardsticks such as EBITDA, its EBITDA margin, its EBITDA growth....

So how? How would u rate such a company management?

2. Product portfolio

• It's core biz is producing fiber optics as the backbone for broandband, 3G, mainly on ICT.
• In Malaysia, this biz future looks bright as the penetration rate still low and has big room to growth. But, I have no idea how many fiber optics players are they in Malaysia, and what are the competitive advantages of Opcom.

Way back in 2003, there was this commentary from this independant advisor, Surf 88.

• More than 60% domestic market share. On the back of the indirect contract with Telekom, Opcom has emerged as the major supplier of Telekom’s fibre optic cables requirement, so much so that it is estimated to have supplied 65%-75% of domestic telecommunication needs in the past five years. To some extent, this has ‘crowded out’ the other two major players, Leader Optic Fibre Cable Sdn Bhd, a subsidiary of Leader Universal (RM0.61, stock code 4529) and Fujikura Federal Cables Sdn Bhd. In turn, Telekom accounted for 98.3% of Opcom’s revenue in the latest six months to Sep 2003.

Two issues from that paragraph.

1. There are two competitors. Leader Optic Fibre cables and Fujikura Federal Cables..
2. Opcom's (who controls 60% market share) main source of revenue is Telekom.

How would you rate such a business economics?

Opcom has to challenge two other players in the market for its bread and butter.

Customer Based

• Secured RM171.4mil contract from TM, last until 1Q 2007. Est. yearly revenue = RM 60mil.
• New contract from TM, 3 years from 9/11/05 – 8/11/08, worth RM 17.3 mil, or RM 5.8mil/year.
• RM 2.5mil from TNB, dated 28/2/06, end supply by end 2006.
• 18/4/06, RM16mil contract from Multinet Pakistan, supply end 2006.
• Agreement with Erricson & Maxis, but no commitment on revenue.
• Others overseas customers, which Opcom claims.

Ys, Opcom is making an effort to correct its single customer business structure.

Financial aspects

• Strong earning & growth since listed until 2005.
• Net cash position, FY2005 Net Asset Cash Value (NACV) at RM0.35 per share.
• High profit margin & improving (until FY2005)
• Good DY to reward shareholders

Opcom reported its 2006 Q4 quarterly earnings and it was a pretty horror showing, which paints a totally new picture on how Opcom has done since its listing.

• fy 2004: Sales 58.084 million. Net profit 10.574 million.
• fy 2005: Sales 78.291 million. Net profit 17.198 million.
• fy 2006: Sales 67.795 million. Net profit 10.866 million.

Which seriously questions the issue of strong earning & growth since listed until 2005!

And this is what the company had to say.

• For the quarter under review, the Group registered a revenue of RM6.8m and profit before taxation of RM1.2m as compared to RM12.4m and RM2.6m respectively in the preceding year's corresponding quarter. The lower revenue and profit before taxation recorded by the Group were mainly due to lower sales of fiber optic cables compared to the preceding year's corresponding quarter.

Satisfactory answer for the poor result? If no, remember the issue of management integrity?

Doubts:

• Why Opcom still owing it's director since it can actually pay off the debts at any time?
• What is Minority Shareholders' Interest? Why keep on increasing? Will this give negetive impact to Opcom?
• Director's remuneration & fees increased from RM 235,500 to RM 766,094. What will it be in FY2006? Especially for the two key persons…

Minority interest is quite simple actually. Say Opcom owns quite substantial shares in a company called PoPo. And Opcom shareholding in it is only 70%. 30% belongs to someone else. Now if PoPo directly contributes to Opcom's business earnings, for accounting purposes, Opcom has to account for that 30% interest in PoPo which doesn't belong to it. So, Opcom has to minus the amount from the profits. So why does this amount keep increasing? Simple reason is PoPo is adding more earnings to Opcom's bottomline.

Concerns

• Opcom currently too depends on TM.
• Decreased in EPS, profit margin for cumulative 3Q 2006. How far will this goes…??
• Engage with Erricson to provide Opcom technology transfer. How much will it cost and how much profit can it contribute to Opcom..???

The decrease in EPS is a serious issue isn't it? And yesterday's quarterly earnings confirms the issue.

Buying points:

Relatively low PE. Based on annualized EPS FY06, it is trading at 6.7 times.

Estimated revenue for FY07:

• TM contract on 7/2/04, ended 6/2/07 = RM 60mil/year
• TM contract on 9/11/05, ended 8/11/08 = RM 5.77mil/year
• TNB contract on 28/2/06 = RM 2.5mil/year
• Multinet contract on 18/4/06 = RM 16mil/year
• Others = RM 18mil (by deducting RM60mil TM contract from FY05 revenue of RM78mil)
• Total estimated Revenue FY07: RM 102.27 mil.
• Assumed 17% net profit: RM17.38mil. > EPS: 13.47, PE: 5.4

But, after FY07, when the biggest contract from TM end…. ???

Hope these second opinions helps.

Cheers!

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What I think of MTD Capital?

• wat do u think of MTD itself....

Anon,

I have done 2 blog postings on MTD b4.

Click on this link called Map of mublings under the section called Archives on the left of the blog.

Search for the following 2 postings on it: MTD Capital and MTD Capital & ACPi

RNAV valuation is usually used when one is looking at a holding company, which own substantial shares in other listed companies.

For example, say MTD owns shares in company A and company B.

So first they calculate the value o MTD shareholding in company A. And to calculate it, you multiply the number of shares MTD has in company A x the fair price of A.

Example: If MTD has 200 million shares in company A. And assuming the fair value of A is derived to be 1.00 then the value of MTD's shareholding in A is 200 x 1 = 200 million.

And then you do the same for company B.

And then you add both values up. And then divided by the current number of shares MTD has.

So where and how such valuations could go wrong? Well, one has to safely assume the fair value of company A and company B. And assuming one is successful in navigating such a task, one is then has to make another assumption. What is the discount to this RNAV which is deemed fair? For me, I find so complex. It's one assumption over another assumption over another assumption.

And for MTD, at this moment of time, it gets even more complex as MTD warrants has just expired, which means one does not know exactly how warrants will be converted into MTD shares. Which means one does not know for sure how many shares MTD will has in the near future. And if so, what is the RNAV of MTD?.

See the fuzziness of all this?

And if that is not enough, MTD has flip-flop its construction earnings to one of its subsidiary company? Which means unless we see some earnings report from this group of companies, everything will be extremely fuzzy?

And to compound things even more, MTD Capital has been making losses dues to provisions. So what can one expect? Yes, if we treat those provisions as a one-off issue MTD is making some money but on the other hand, how sure they will be no more provisions?

So isn’t this a complicated and complex situation?

Wouldn't it be more prudent if one adopts a wait-and-see approach until we know what is happening?

Like some folks say, why take a difficult betting option when there are easier and more viable betting option?

By the way, MTD Capital's corporate governance is pretty poor. Yes, one can assign hefty discount values to account for their poor corporate governance but do realise poor corporate governance remains poor corporate governance and it makes no difference in regardless of how much discount you apply for safety precaution (say isn't it more safe to avoid it totally? ) for at the end of the day they remain poor corporate governance.

Last but not least, these are my opinions of this stock as requested. If you think my reasonings is wrong, then it is wrong ok? Please make sure your own judgement and reasoning is sound in your own investing decisions. My opinions are mere second opinions.

Cheers!

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Regarding RUB

• Could you share your opinion on RUB and explain why pe ratio so low?

First of Ranhill Utilities was listed in the exchange back in 2002 (ipo price was 2.50). And based on the reported earnings, its current 4 quarters earnings totals some 125.690 million, its current earnings per share is 42.7 sen. And based on a closing price of 1.34, it is trading at a current pe multiple of only 3.13x.

So yes, RUB is trading at a very low PE ratio.

Firstly, to understand why the PE ratio is so low, perhaps we need to understand the PE yardstick. The PE yardstick merely indicates how the stock is trading in the market when compared to its earnings. And of course it gets complicated when one uses the yardstick in an advanced manner by using a projected (forward) earnings. And some even base the earnings on a projected 2 years earnings into the future. Which of course could get pretty complicated and the accuracy of the projection is always very subjective for one is forecasting the future earnings.

Anyway, the most important thing to remember is the yardstick measures how the stock is trading on the market when compared to its earnings.

And the most important thing is that one needs to realise that the yardstick does not indicate the quality of the stock!

Meaning to say, stocks trading at a low PE multiple does not necessary mean that this is a good stock and neither does it necessary mean that it is the hidden gem. As the saying goes, never say I ass-u-me!

Before continuing, one thing I would like to point out is that perhaps you should look at how RUB has performed since listing.



How? Doesn't it appear that the stock is on a clear decline?

So what is wrong with this stock?

The company is reporting more earnings than ever and based on the current earnings of 125.690 million, the company could be on track to record its best ever earnings but yet the stock is decling even more!

Has the market got this stock really wrong or is the market correct and that this stock has some serious issues which is causing investors to avoid it like plague?

Perhaps we could get a better understanding if we take a good look at RUB earnings and its balance sheets.

The below two tables represent the compilation of RUB quarterly earnings since its listing.

1. Just for the record, did you know that RUB reported it has earned some 346.692 million since its listing? (this figure is derived if you add the total of net profit in both tables)

So for a company generating so much 'wealth' what does an investor get?

2. The last row indicates the cash position (total cash - total loans) of the company. At the first column, RUB's 02 Q4 earnings, RUB was in a net debt position of 427.393 million. Look at the latest column; it states that RUB is now in a net debt position of 1595.216 million. WOW!

3. Debts. Look at the very last column. Total loans now total some 2218.838 million. WOW!

4. Now let's put this debt into perspective. Look at the 05 Q4 quarterly earnings. See the two green boxes. The financial cost for that quarter totals more than its earnings! And if you add the most recent 4 quarters financial cost, RUB paid 97.972 in financial costs!

5. When RUB first reported its earnings, it has this entry called 'project development cost' under its current asset. This went on from 02 Q4 to 03 Q4. And the next four quarters, this project development cost disappears and my guess it is lumped under 'property and plant'. And what is even more interesting that in 05 Q1, there is now an entry called 'receivable from State Govt'. In 05 Q1, this amount was 566.638 million. The latest? 668.476 million! WOW!

So from RUB listing till now, what wealth has it generated?

Ah, this is a very important issue. Some call it gauging the quality of a company's earnings.

What kind of wealth has RUB generated since it reported earnings totaling some 346.692 million since listing?

Well, its property and plant seems to be worth more. State govt owed them more money.

But most important, the very bottom line is that it is now in a net debt of 1595.216 million!

Do you see any wealth at all?

If the answer is no, then the quality of RUB's earnings and the quality of the management is seriously in question.

And if you put all this into perspective, isn't it clear why RUB is trading at such a low PE multiple?

And if that is the case, does it make sense risking your hard earned money in this stock?

How?

Btw, if not mistaken, I have read it before that RUB will not be paying any dividends till 2012!

Last but not least, these are my opinions of this stock as requested. If you think my reasonings is wrong, then it is wrong ok? Please make sure your own judgement and reasoning is sound in your own investing decisions. My opinions are mere second opinions.

Cheers!

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Regarding WCT Land

• Would be very much appreciate if you could share your opinions, good or bad, on WCTLAND.

WCT Land is the property arm of WCT Enginerring. It was listed at end 2004 via the reverse takeover of Bescorp Industries.

And under part of the takeover exercise, some loan stocks were issued. ( see this announcement ).

The issue to note is the straight conversion (no cash involved) of 1 loan stock into 2 new ordinary shares upon expiry (do note, there's an option to convert early but the condition isn't as attractive. These loan stocks has a 5-year maturity and expires in 2009. Currently there are 120 million loan stock shares and 321.900 million ordinary shares of WCT Land. And depending on your personal investing strategy, do not discount the dilution effects caused by the loan stocks. Meaning to say, if you are a shorter term investor, then this issue is not going to effect you that much but if you believe that WCT Land has a great prospect in the future and plan to buy and hold for a couple of years, then you should be aware that your earnings could be drastically diluted when these loan stocks are converted into ordinary share.

WCT Land's main development project and its main forte is the BBT project (Bandar Bukit Tinggi) in Klang. The size of this project stated back in 2004 was around 534 ha. As you know, the Bandar Bukit Tinggi is in the Southern Klang region and is now known as the commercial hub of Klang. And for some investors, some might be concerned over this factor, for they view a developer with just one main project as risky and also they might be a bit biased over its future prospect. And perhaps this could be one of the reasons why the performance of the stock is rather lacklusture since its listing.

Which is why the need for this developer to expand beyond BBT. And recently there was an article in the Edge Daily titled: WCT Land's RM196m project in Kota Kinabalu.

This stock is extensively covered by both Affin Securities and Standard and Poors and can be viewed at Bursa eResearch website.

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Local listed companies dabbling in the share market: II

I found this nice little comment on the issue of local listed companies dabbling in the share market!

• Who care ? It is the other people money & must be fully maximised 2 obtain max. profit. 4 own benefit ????

Well I do care. Other people money? If and when one buys a share of a listed company, they are deemed as shareholders of the company. As a shareholder of the listed company, whose money is it? Is it still OPM (other people's money)??

And for whose benefit? Of course one could argue that the management is doing this for the benefit of the company and the shareholders. But then others could also argue that such practices has no transparency and it leaves the managment the possibility of abusing the company's funds to buy shares in another listed company for personal vested interests or reasoning.

Perhaps let's look at just one company, Pintaras Jaya, who has 'marketable securities' in their balance sheet.

This is a screenshot of Pintaras earnings notes reported on Feb 2006.



And this is a screenshot of their balance sheet then.



How?

1. Total 'cash' company has = 18.869 + 30.408 + 1.291 = 50.568 mil.
Amount invested in marketable securities = 18.869 mil or 37.3%.

2. Result? Market value = 18.869. Cost of securities = 22.205 million! Ahem!

Pintaras Jaya just announced its latest earnings on 11th May 2006.

This is a screenshot of Pintaras earnings notes.



And this is a screenshot of their balance sheet.

How?

1. Total 'cash' company has = 20.628 + 26.813 + 1.589 = 49.03 mil.
Amount invested in marketable securities = 20.628 mil or 42%!! (hmm.. increased a lot, eh? ).

2. Result? Market value = 20.183. Cost of securities = 22.435 million! Ahem!

How? How does one evaluate Pintaras Jaya's dabbling in the share market? Does Pintaras Jaya's current 'investment result' justify their dabbling in the share market?

And what's the alternative? Hmm.. here's a suggestion. Why couldn't Pintaras Jaya make an effort to return more cash to its shareholders?

Consider this. Pintaras Jaya has been paying a 5% less tax dividends per year, which works to some 2.88 million. Now considering the amount of excess cash utilised by the company in the share market, the dividend payout pales in comparison. So for a minority shareholder in Pintaras Jaya, does the minority shareholder has any grounds of displeasure? Why can't the company pay them more in dividends instead of the company losing money in marketable securities? And worse still, does the minority shareholder know how the money is exactly lost?

Isn't this a justification against listed company dabbling in the share market?

Oh yeah, I forgot. Who cares!

Yeah nothing wrong against your view and opinion since you do not care but for those who does care and wishes not to see their invested money used by these listed company as per their whimps and fancy, perhaps it would not hurt the investors to be very prudent if they see the listed company dabbling in the share market.

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Local listed companies dabbling in the share market!

Dedicated to boyplunger.

I do strongly agree with you that investors should be very prudent if they see the listed company dabbling in the share market.

When we see 'marketable securities' in the balance sheet, we, the minority investor is really at risk for the following reasons:

1. what types of marketable securities are we talking about?

The term marketable securities is simply so vague. So what kind of marketable securities are we talking about?

Bonds? What kind of bonds? What if it is a junk bond that is tanking?
Unit trusts? What kind?
Stocks? What kind of stocks? Investment grade stocks or speculative stocks?

2. Who is making the investing decisions?

Fund managers? Who? And what sort of investments are we talking about?
Or are the management/owners on a DIY? That's even worse. What divine skills do they have?

3. Transparency.

There is simply no transparency involved, and everything is simply based on blind faith that such investments should generate some sort of income. And there is no way the minority investor can be sure if the management/owner of the listed company is abusing the company's funds to buy shares in another listed company for personal vested interests or reasoning.

4. Management focus.

Once they dabble in the stock market, the management/owner focus is being diverted. How could the minority investor expect the management/owner to remain focus on the core business when they are burdened with the extra responsibility of ensuring good results from their investment?

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ROI on Yi-Lai: Part VI

Yi-Lai just announced its 2006 Q1 earnings. (past blog postings on it can be found here: Part I , Part II , Part III , Part IV , Part V )



Yes, the net earnings were pretty low. And some would deem this as a huge disappointment. But then given the business economics of the industry during this earnings period, wasn't it expected? Two issues mentioned before (see : part-iii ), stiffer competition and higher cost of production stood out and it kept Yi-Lai's profits down. Oh yeah, I have to note that its sales revenue did increase.

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 RM30.6 million compared to RM27.8 million for the corresponding quarter in 2005 whilst profit before tax was RM6.8 million compared to RM8.6 million for the corresponding quarter in 2005. The lower profit before tax for the current quarter despite higher sales was due mainly to lower selling price as a result of stiffer competition and higher cost of production

Now on the positive note, Yi-Lai's cash flow was extremely healthy. Cash grew by 5.415 million for the quarter, which is something like DIGI, after the adjustment for non-cash item, such as depreciation charges, the piggy bank cash grew more than the reported earnings. And in Yi-Lai's case, the positive cash flow was a huge relief because Yi-Lai's recent capital expansion saw drastic cash depletion in its piggy bank ( the depletion of piggy bank cash was mentioned in part-ii. )

Piggy bank cash is back up to 53.613 million (no debts) versus 48.198 million a quarter ago. ( Ze piggy bank cash grew 5.415 million - yeah some folks just loved to see ze piggy bank cash grow and grow and grow.).

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?

Oh, Yi-Lai's final dividend goes ex on 1st June 2006.

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eB Capital II

Boyplunger raised the following issue on eB Capital.

• I noted Redtone Technology Sdn Bhd has been accummulating EB Cap. Currently owning about 1.9m or 7% -8%.
  
  Why is Redtone buying the shares of this company? That is interesting. Did i miss out something on the company's history.

Yes, I do understand that Redtone International has been buying shares into this company.

Why is RedTone buying shares into a company that has real problem in making a profit?

I have no idea.

And yes, I do understand your thinking rational. Because the justification is if RedTone International is willing to buy shares into the company, surely there must be something in the company that RedTone sees as value. And surely no sane company would want to buy a company if there is no profit to be made. Right?

Hence, the argument is of course, perhaps one should follow and mimmick what RedTone does!

But if that is the case, isn't one implying that when one company or one individual purchases a share of another company, the buyer(s) reasoning to buy the share is always correct?

But do we or would we ever know the true motives or intentions in such share purchases? Would we ever have the privilege to evaluate their reasonings in their share purchase? If no, then aren't we making one huge assumption, which is the buyer(s) of the share(s) is always deemed correct?

Can such strategy go wrong?

Let me give some examples on what could go wrong.

Take the series of past postings on Karensoft. Well, the boss has always been constantly buying back shares in the company. So is the boss deemed correct in his actions? Well as everyone is well aware, Karensoft has just been re-classified as the first GN3 stock in the Messdaq listing. Which is rather dead serious since this classification states that Karensoft financial health is in a utter dire straits. So was there 'value' in the share purchase? Or perhaps the boss was buying for personal reasoning, which sadly is the 'value of being a listed stock'. So if one had followed Karensoft boss actions in the market, how then? See the danger?

Or how about the infamous purchase of a controlling stake in the huge congolomerate, DRB-Hiccom? How much was the share purchase back then? Wasn't it around 3.50 or so? Ahh.. I am sure that you are aware that some argued that because since the controlling stake was sold at such a high price valuation, then surely there must be value in the stock since the stock was selling around 2.00 back then. And what's the price of DRB-Hiccom today? Would a follow you, follow me strategy work in this case?

On the other hand, there were success stories in stocks like Transmile.

Ah, I am sure you understand what I am trying to say.

There's simply no gurantees in such strategy.

Sometimes it works but sometimes it can be dead wrong.

So how?

What's the best gauge?

Look at eB Capital.

eB Capital supposedly specialises in wireless broadband technology.

There'e 2 things one can gauge it on since it's listing. Look at these past compilations I had made on EB Capital .

The first news clip.

• With a current local market share of 0.54% in terms of broadband subscription, more efforts would be devoted to marketing its products and services to enlarge its share, he added.
  Meanwhile, eB Capital's historical earnings demonstrate its strong growth.
  The company registered a pre-tax profit of over RM1mil last year and an after-tax profit of RM560,000.
  Revenue increased to RM8.3mil in 2004 from RM2.5mil in the preceding year

And the next article...

• Wireless Internet broadband provider eB Capital Bhd (eBCap) expects its subscriber base to grow in multiples of 10,000 over the next two to three years as it embarks on an aggressive recruitment drive after its listing on Mesdaq.

See how b4 listing, eB Capital boasted about its great potential and its track record.

After listing, eB Capital showed it true self.

How do you value such a company?

Secondly, take a look at eB Capital last reported earnings. Do you like what you see?

If you don't then... should you be bothered with what RedTone does?

And if I have to guess, perhaps RedTone wants to go into the wireless broadband industry.

By the way, based on current price of 1.70, do you reckon that eB Capital business is worth what the market is pricing it?

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EB Capital

Firstly, I noted that this company had just received ze yellow card from the SC. Oops! Too much footie in me fried brain cellls! I meant EB Capital got ze UMA (Unusual Market Activity) from Bursa today, in which EB Capital replied in the following manner:

• There is no corporate development relating to the eB Capital Group's business and affairs that has not been previously announced that may account for the unusual market activity save for the appointment of Aseambankers Malaysia Bhd on 16 May 2006 for the Company's Proposed Bonus Issue of 12,453,500 New Ordinary Shares of RM0.10 each in eB Capital ("eB Capital Shares"), to be credited as fully paid-up, on the basis of one (1) new eB Capital Share for every two (2) existing eB Capital Shares ("Proposed Bonus Issue")

Ah... so I decided to look at how the share was doing.



WoW!!!!

My oh my!

1.70??

Looks like this bugger has been stir-fried sunny side up!!!

Know why I am saying this? This is because I do remember that I had blogged on EB Capital b4.

In the blog posting, Oh Mess-Daq, I wrote the following on EB Capital:

<<==>>

Listed 2nd Aug 2005.

Yesterday I saw this bugger's quarterly earnings.

Sales Revenue: 1.802 million
Net loss: 1.064 million!!!

First quarterly earnings (reported on Nov 2005 ) after being listed and EB Capital reports a net loss!

Imagine a horsie horse in a cup race. The bell rings and the horse stumbles, throwing the jockey off the horsie. How? Out off the gates and already no hope liao!!

Disgusting or not?

You tell me lah.

And worse still, this EB Capital losses is at operating level and the company is net debt.

And lagi worse still for EB Capital, based on yesterday's closing price, EB Capital market capital is worth some 21.4 million.

And lagi, lagi worse still.. just imagine if the bossie owns 13% of this stock. This means the bossie is worth some 2.78 million based on his shares value in the market.

You tell me lah.... how come sky NO eyes one?

So, so easy to be a million hair ar?
So, so easy to be kaya raya!!

Sigh!

And lagi, lagi, lagi worse... just how did such company got listed?

Mana tu QC?

Well, i dunno but u guys and gals but muah is certainly pleased to read that SC is aware of this issue and is enforcing stricter rules.

Comeon... SC let's kick some butt!!!!!!

But there are some who are sceptical.

Will it really help?

I dunno... but... at least the very first small step is being made to rectify this issue.

I shall keep my faith... for now.

<==>

Has my opinion changed?

Heck NO!

Came Feb 2006, EB reported its earnings. Which it had to ammend and ammend. And finally on March 2nd 2006, it announced its final ammended quarterly earnings. And needless to say EB Capital states it loss 221k for that quarterly earnings. But somehow, it states it made 109k for its first fiscal year since listing.

But wait a minute.

Come 27th April, it boldly announced that there was a variance between audited and unaidted results. To cut it short, EB Capital actually lost 342k for the fiscal year!!

How could such a rotten stock be listed in a stock exchange????

So I am sure you are wondering why I am being so harsh on this bugger.

Take a look at the stock price and ze yellow card it got from Bursa.

So EB Capital states that it is proposing a 1 for 2 bonus issue and EB Capital states that:

• To the best of our knowledge, the Board of Directors of eB Capital are not aware of any particular circumstances contributing to the unusual market activity save as disclosed herein;

So does it make logical sense that they are not aware of anything?

So I am wondering, what is there to attract buyers to buy its share?

Is EB Capital bonus issue so seductive?

But then, which sane person would one to buy a share in a company which has yet to make a profit after being listed? And I wonder if the BOD of eB Capital is aware that they have yet to make a profit since listing?

Oh, how much is the price of EB Capital now?

1.70 wor!!!!!

now check this out...



See the Market Capital of EB Capital based on a price of 1.70?

42.341 million!!

Sooooo....

You tell me lah.... how come sky NO eyes one?

So, so easy to be a million hair ar?
So, so easy to be kaya raya kah??

Am I being too cynical?

But take a look at what is happening for EB Capital. Just form a company. Knowing how to make money is not a criteria, most important is to get the company listed on the Mess-Daq. And once it is listed, heck ze stock market might make you a million hair!!!

Oh, what a wonderful world!!

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YTL Cement: II

In the earlier post, YTL Cement, I wrote it in a rush and I forgot to highlight the current financial health of the company.

The very last quarter, 2003 Q2, YTL-C balance sheet showed the following.

Cash 129.047 million
Total borrowings 48.875 million.

versus

The last reported earnings, 2005 Q2, YTL-C's balance showed the following.

Cash 292.811 million
Total borrowings 860.200 million.

How? See how much things have changed in 2 years? Totally different company yes?

And then I did not mention the dividends issue. Did the enlarged share base had any impact on the dividends? The answer is NO. YTL-C has continued rewarding its shareholders yearly with a 20% gross dividend. Yup, the management had wisely kept its shareholders happy with the generous dividend payment each year.

Btw.. look at the table above. Last year, things were not rosy at all for YTL-C. There was a cement price war and then there was the lack of construction jobs. Everything went haywire. And If look at their 2004 Q3 earnings in the table above, YTL only managed a net earnings of 5.095 million. And due to the enlarged share base, this works out to a mere 1 sen earnings per share! See how high the bar has been raised?

Anywayyyy... because of such factors in the economics of the cement industy, issues like price war and the dependance on the construction sector, which itself depends on the ruling govermental fiscal policy, for folks like UOB to project CAGR of 34.6%, I simply find it soooooooooo amusing.

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YTL Cement

Here's an example where a 'reputable' company, YTL Cement, issued new shares when it made an acquisition of another company. It's rather unique because in this example, there were several changes in the share base of the company and then there's the issue of dilutions caused by the conversion of warrants into ordinary shares.

Remember this mumbling of mine is only to highlight this issue and I am not here to lay judgement on the share or the company.. so do not simply ass-u-me hor!

Back in May 2004, I made the following table after YTL-C had made its 2004 Q3 quarterly earnings announcement.




When YTL-C announced its 2004 Q3 quarterly earnings, YTL-C had just completed its purchase of Pahang Cement and in this acquisition of Pahang Cement, it stated that it will issue some 36.8 million new shares which works out to some 23.8% increment in the share base to 191.610 million shares and these shares were priced at 3.75 per share or at some 138 million.

Now here are some interesting notes.

Besides the dilution of earnings by some 23.8%, YTL-C also inherited Pahang's Cement's balance sheet in the acquisition.

Now check this out...

B4 the inclusion of Pahang Cement, YTL-C was in a net cash position of about 80 million...

After the inclusion, YTL-C turned into a company with a net debt of around 149 million.

And as can seen in the compiled table above, YTL-C debts balloned to over 413 million!

In terms of earnings per share. B4 the acquisition, YTL-C had a share base of 154.810 million shares.

The trailing earnings at that moment of time was 78.017 million.
Trailing eps based on 154.810 million shares was 50.4 sen.

But since the share base of 191.610 million shares, the trailing eps is now diluted only to 40.7 sen as seen in the compiled table.

How? Is the purchase of Pahang Cement worth the dilution in earnings?

Perhaps it was too early to lay judgement at that moment of time. Yes?

And then there was this complication made by this share split announced earlier on March 2004. A 1 into 2 share split (this share split was also applicable for its warrants too! )

And to make it even worse complicating, the warrants were always in the money and was due to mature in Dec. ( One can cnfirm by looking at this announcement )

And on the 8th Nov 2004, my live quotes showed the following info on the stock.

• YTL-C = 386,777,248 million shares
  
  YTL-C Warrants = 92,829,508 million shares
  

So the new enlarged share base of YTL-C assuming FULL conversion of warrants = 479,606,756 million shares.

Now in Nov, YTL-C current/trailing net profit is now at 84.590 million. (yup, earnings improved )

EPS b4 full conversion of warrants = 84.590/386.777 = 21.9 sen.

EPS AFTER full conversion of warrants = 84.590/479.606 = 17.6 sen.

Now consider this issue... if one was holding 1000 shares in YTL-C in May 2004, the share split meant the investor would be holding 2000 shares of YTL-C after the share split. Which meant that the EPS AFTER full conversion of warrants is 17.6 sen x 2 or 35.2 sen per share. ( earnings per share was at 50.4 sen earlier before the purchase of Pahang Cement)

So is it wrong for one to consider the fact that their 'earnings shrank' despite the current/trailing earnings had increased from 78.017 million to 84.590 million?

Let's not pass judgement yet.

Last Sept 2005, YTL-C had a ICUL rights issue exercis. Pretty complicated (I had the whole exercise done b4 but to put it into this blog posting would make the posting extremely complicated) in which every YTL-C held was entitled to one ICUL and these ICUL can be converted to either 367, 490 or 549 ordinary shares depending on the time period when exercised.

Anyway, assuming full-conversion of these ICULS, YTL-C share base will potentially grow to 670 million shares or another dilution of 36%.

And it complicates matters more due to the fact that each individual investor would not think the same and probably most investors might not even hold this share for 10 years!

So perhaps it could be justifiable for some to consider that this whole ICUL exercise is a non-issue. But then some simply believe in buy and hold forever. How? Complex eh?

Anyway.. the reason I blogged this posting was because the Edge featured YTL Cement in their silly annual Top 100 exercise! ( did I say silly? Yup, I sure did. I could explain in details why I deem it as such but then it defeats the purpose of this posting. )

In the posting there were these interesting comments.

• “We expect YTL Cement’s three-year earnings CAGR [compound annual growth rate] at 34.6%, on the back of recovery in cement prices, rising demand and cost savings from rationalisation of operations after… [acquiring] Perak-Hanjoong in FY2005,” states UOB-Kay Hian. The research house pegs YTL’s net profit for FY2006 at RM100 million. Results for the first six months of FY2006 show the company is well on track — net profits came in at RM72.6 million. Cement prices are also on the mend. After being bashed down in a five-month price war — RM100 per tonne (below the average cost of production) last May — prices rebounded to RM180 per tonne the following month. A foreign research house believes that local cement prices will jump to RM192 per tonne this year. UOB, meanwhile, expects prices to only hit RM192 next year and RM198 in 2008.

CAGR of 34.6%???

Wahhhhhhhhhhhhh... so highly optimistic, isn't it?

Now what is so interesting is that if YTL-Cement hits a net profit of 100 million or more this fiscal year, it would mean that this is the best ever earnings in YTL-Cement history! ( yeah.. cement buggers are showing some good fortune lately.. )

Now say assume a net earnings of 100 million as projected by UOB-Kay Hian. Based on current share base of 489.731 million shares, this would equate to an EPS of only 20.41 sen! Which means at current price of 2.39, YTL-Cement is trading at earnings multiple of 11.7x.

Would this deem as attractive enough to seduce any new investor(s)?

Would it seduce you? Record profits woh, you want to invest in it or not?

Ahh... this is where you can pass your own judgement. Has all these new acquisitions of new companies funded by issuance of new shares help improve YTL-C as a company?

Ahh... if your answer is YES... then it is YES, eh? Such strategy has helped improved YTL-Cement prospects.

Ahh... but if your answer is NO.. then it is NO. Yes? And isn't it kind of ironic that a company might be recording its highest ever fiscal year earnings in its history and yet it fails to excite anyone. If it cannot seduce new investors, then how?

Yeah, how brown cow?

Is the cup half-full or half-empty?

LOL!!.. just being ze devil here!

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When a Stock goes Bad...

When I was going through some compilation of some old articles, I came across this article written last year: When Stock Tips Go Bad, Is the Broker to Blame?

Here is an incredible article about a guy who was initially making tons of money in the stock market via the advice of his broker FRIEND. But when things started going wrong and the the stock market turned, his broker friend gave him a couple of advice, which turned out to be dead wrong. According to his broker friend, he was told not to worry about the falling market. Markets go back up he was told.

But sadly the market was not too kind on him. And the market failed to go back up. Hence, he decided to file a case. Truly incredible!

Here is a snippet from the article:

• WHO is responsible when an investor loses money in the market? In the old days, before the Internet bubble burst, the answer was pretty clear. Absent egregious fraud on the part of the broker, an investor had to accept that investing in the market involved risk.
  
  In the wake of the technology crash, it appeared as if those standards might change. The New York State attorney general's office found that analysts - those in financial firms responsible for researching the health of the companies whose stock their investors buy - routinely gave positive recommendations on companies that they disparaged in private.
  
  Often, the financial firms where the analysts worked were seeking the banking business of those same companies, and the public recommendations were seen as a way to curry favor. One Merrill analyst, for example, publicly recommended an Internet darling called InfoSpace even as he privately called the stock a "powder keg" or worse.
  
  In a settlement with the Securities and Exchange Commission in April 2003, Merrill Lynch and other big firms agreed to pay $1 billion in fines and put $433 million into a fund to compensate some of their clients.
  
  That's a tiny fraction of the trillions of dollars that investors lost in the tech crash. After the settlements, law firms rushed to file class-action suits against brokerage firms on investors' behalf. The courts, however, were less favorable to the claims than they had hoped. One federal judge, dismissing a class-action lawsuit against Merrill Lynch and other brokerage firms, denounced plaintiffs as "speculators" who were trying to "twist federal securities laws into a scheme of cost-free speculators' insurance."
  
  Far from generating a mass of class-action lawsuits, disputes between clients and their brokers - including Mr. Murdock's with Merrill Lynch - have largely been decided in securities arbitration, an independent dispute-resolution system set up by the industry to apportion responsibility in these disputes. Investors agree to submit to arbitration when they open an account.
  
  The reports of conflicts in investment bank research have turned out to be largely irrelevant in arbitration: few clients can show convincingly that they regularly read the brokerage firms' research reports, and fewer still that they actually relied on them to make their investment choices.
  
  Ultimately, however, it is the brokers' advice that arbitrations like Mr. Murdock's are really about. Mr. Murdock said that as the market was falling, his friends thought he was crazy to continue taking Mr. Harris's advice. But for Mr. Murdock, the point of having a financial adviser is that his advice should be better than his friends'.
  
  .... Advice is the essence of why clients like Mr. Murdock go to full-service brokers. But one thing that is not commonly argued in arbitration is the very question that sends people like Mr. Murdock into arbitration in the first place: whether the broker's stock-picking advice was, in fact, good or bad. Even in the post-bubble world, that can be a hard sell to arbitration panels.

And the writer states Merrill's case.

• Merrill says that this was a case of an investor who was lucky that an arbitration panel compensated him for losses that were his own fault. The firm says Mr. Murdock missed several chances to diversify into safe municipal bonds. "Mr. Murdock identified himself as an 'aggressive investor' and lived up to it," said Mark Herr, a Merrill spokesman. That Mr. Murdock got any award at all, he added, was "a case of catching lightning in a bottle."

How? The bugger was an 'aggressive investor'. And he lost money. Yet he laid the blame on the bad advice given to him by his broker FRIEND. And best of all, the bugger ' was perplexed about why, having won, he didn't get a bigger award. Not surprisingly, Mr. Murdock says his friendship with Mr. Harris is over.

But how sure are we which side of the story is correct?

Are all brokers really bad? Or perhaps we are witnessing the case of some bad customer? Customers who should be blamed for their own folly for being too reckless in the share market!

For instance in this other article, Putting stock in brokers' pasts , the article tells the tale in which a 53-year-old widow was 'seething with anger toward a Dallas stockbroker whom she blames for losing more than $700,000 that her husband left her when he died'.

• In 2001, Ms. Newfield accused Mr. Cowle of losing her money in unsuitable high-tech stocks and of making unauthorized, rapid-fire trades in her account to generate commissions and other fees that topped $600,000.
  
  “It has been a few years now, and not a day goes by that I don’t think about how this man ruined my life,” Ms. Newfield said earlier this year. “I don’t trust anyone anymore.”

That was the customer version of the story.

And this is what the broker had to say.

• Mr. Cowle, who points to his successes with thousands of clients over 20-plus years as a broker, replied in kind. He said Ms. Newfield ordered all the trading and withdrew money from the account to buy furs and Tiffany lamps.
  
  “I was a constant reminder to her that she was spending money like a drunken sailor,” he said. “She laughed and said she would make it back in the market. I warned her.”

Well, according to article, 'What she didn’t know was that in the preceding three years Mr. Cowle had been the subject of his second and third investor complaints, which alleged that he bought stocks without permission, according to records from brokerage regulator NASD.'

Ahh ... the broker had a questionable past history. Perhaps she might have done her money justice if she did some homework before trusting her money with the broker.

Which reminds me of this story last year: Angry shareholders at Fountain View AGM

• Some shareholders told reporters the board refused to comment on the arrest of substantial shareholder Datuk Chin Chan Leong who is also Yam’s spouse; or provide an explanation for the company's share price performance and why Yam had sold off a bulk of her interest in the company just before its share price plunged.
  
  “It was very tense inside (the AGM). Directors told us to limit our questions to matters regarding specified resolutions or the company’s performance last year. They left us in the dark about the fate of our investments, said one shareholder who walked out in frustration halfway into the meeting that ended in just under an hour.

Back last year, I wrote the following notes in my old forum.

• In such a situation, of course it was very clear that Fountain was simply playing some real nasty funky music from day one. And if one had taken into consideration the business fundamentals of Fountain (ps Fountain reported losses in their latest earnings) , then logically one should never had invested in it from day one. So crudely said, the shareholder needs to realise that this is the sharemarket and nobody forces you to make such a simply rotten and silly investment. And at the end of the day, it was the shareholders' own decision to buy this share and I think it is high time they pay the lesson for their folly and greed in making such a poor investment.
  
  And the most amazing thing is.... why are they STILL staying invested in a such a company? Shouldn't they have done the logical and sensible thing, admit their folly in their investment mistake and move on by dumping the share? By not admitting and continue to be invested in such a company only give such rotten owners a second or even a third chance to cheat them. Make sense?
  
  LOL!!!
  
  It's no wonder why they say, they will always exist folks who are dying to be suckered in the sharemarket!

Have I changed my view today?

Nope.

On one hand, I reckon those buggers involved in the rigging of the share price should be punished heavily. On the other hand, I do reckon that buyers of such shares should be responsible to themselves. They have no one to blame if they make any reckless investment in the sharemarket.

No one has any divine right to win money in the share market.

The share market owes no one anything!

Which brings me to dear old Iris.

Well, I do not want to say much about Iris except that I came across a good blog posting on it: An Open Letter To Securities Commission

• Some proposed rules for designating a security:
  
  1) A stock should be designated if it has hit the 30% limit up twice out of three trading sessions. In KLSE, a stock can only move up 30% in one trading session. The rule would not apply to shares whose prices are below 30 sen. The rules would also not apply to the first 3 trading days of an IPO. If a share already moves up two times in limit up, the share price effectively could be:
  1.3 x 1.3 = 69% gain.
  Anything more than that within 2 trading days is certainly excessive.
  
  2) A stock should be designated if it has risen by more than 100% in 5 trading days. This should be obvious.
  
  3) A stock should be designated if it has risen by 200% in a month. Again, pretty obvious - a stock that has tripled within a month means too much inherent speculation is still apparent.
  
  4) Above and beyond those 3 rules above, the SC would then have the liberty to step in. This is to prevent syndicates who try to "navigate around the above rules".
  
  5) To be released from designation, it is after a fixed 2 week period.
  
  Rationale:
  a) These rules will be administered strictly, hence investors can be assured of the prevailing rules and goalposts (and not have these bloody goalposts shifted every now and then, sometimes not even knowing if the goalposts even exist, not knowing how much is excessive speculation each time in the opinion of the SC).
  b) If the stock really has gained enormously in fundamentals (projects, prospects or profitability), a designation WOULD NOT and SHOULD NOT stop genuine buying. The rules are meant to rein in excessive speculation.
  c) The proposed rules have already given ample room for stocks to move up. The lifting of designation is also fixed, so again no room for hanky panky.
  d) Removes monitoring by SC, it is an automatic designation, no room for questionable practices. The SC would only step in if certain companies try to navigate above and beyond the proposed rules.
  
  If we were to implement these rules, Iris Corp would have been designated a long time back. Investors would have known the price levels to avoid entering as they know Iris would have been designated if they bought close to certain price levels. The benefits of knowing when a stock will be designated is too high, .... even to get the SC to delay designation by one trading session would yield an enormous edge for those who knew. That suspicion has to be eliminated completely.

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Ze Numbers Game: II

Back in April 2005, OSK wrote about Crest Builder. Price back then was 1.44. OSK gave it a price target of 2.59.

And I wrote that blog posting, Ze Numbers Game on Nov 2005.

Here is an extract of what I had written then.

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And this is how OSK valued Cresbld:

• However, by taking into account only the basic shares outstanding, we obtained a fair value of RM2.59 based on FY06 earnings, which provides an upside of 72.7% to its current share price.

ahem!

See onot?

And they based it on fy 2006 earnings! Earnings which went bang! bang! bang! like this below:

15.5 -> 16.2 -> 26.7 -> 41.3 -> 50.7million.

Fiyoooh... 41.3 million!!!

Incredible isn't it?

2005 FY projections is already perhaps a bit too optimistic at 26.7 million... but no... OSK did not based their valuations upon those numbers but instead they based it at an even more optimistic earnings of 41.3 million!!!!!!!!!!!!!!!

Now wouldn't u say that this is a bit too optimistic?

And when they make such optimistic projections, this simply allows them to create a stock with such a great upside potential (72.7% wor!) when they make their so-called BUY recommendation!

ps. Cresbld closed at 0.795 today. (back in Nov 2005)

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And how did Crest Builder did for its fiscal year 2005? Well have a look at its last reported quarterly earnings on Feb 2006.

Crest Builder made a net profit of only 12.198 million.

And how did OSK played ze number game?

Well the table below says it all...

OSK had projected an earnings of 26.7 million! Crest Builder only made a net profit of only 12.198 million.

Now check this out, today OSK has a brand new report on Crest Builder again.

Price of Crest Builder is now 1.12 and OSK has given it a 12-month target of 1.49.

LOL!!!... yup... just 1.49! (ps. In April 2005, Price back then was 1.44. OSK gave it a price target of 2.59!)

Wait... check this out too.

Ahem.. can you see that they have projected an earnings of 31.9 million for Crest Builder's fy 2006 earnings and an earnings of 35.2 million for its fy 2007. (last April 2005, OSK projected 41.3 million!! Does this mean they are less optimistic? LOL!)

And as stated in OSK own table, this translates to a 161.7% increase in earnings for this fiscal year!

So for a stock that had a whopping decline of 25% in fy 2005, is projected to grow 161.7% this fiscal year.

Highly incredible, isn't it?

Now check this out also...

The below is a screen-shot of their reasoning...

Did I miss a report on Crest Builder since last April 2005? This is because the writer is saying:

• CB's stock price has gained 30.2% since our last upgrade to BUY recommendation.

Ps... does someone have a copy of that report? ... cos I find it really strange since I can't even search for this report in their archives.

• Group is currently trading at a forward PER of 5.1x, which is trading at a significant discount of 44.2%

It would be good to note that it is CHEAP because their forward PER of 5.1x is based on an earnings which is projected to grow 161.7% this year!

LOL!! Any stock which can grow so much would surely be cheap. Yes or not Shirley?

:D

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