OilCorp and Its Trade Receivables

Received the following comments from Jasonred79 on Regarding The Plunge Of OilCorp Shares Today!

• Dude, let's be more "conservative" and "fair" in judging oilcorp...
  
  Let's give the various scenarios for 10%, 20%, 30% default. (personally, I think you are definitely right about the super high receivables meaning that they will NOT manage to collect most of that money)
  
  Every 10% default means... RM50 million loss. Which is 5 years of earnings if you are kind to them and assign them an average annual profit of RM 10million a year.
  
  (if you assign them an annual loss, they're screwed regardless of anything else)
  
  CURRENT liabilities of 450 million is quite bad!
  Their cash in hand totals RM30 million!
  
  In other words, if they have to pay back 10% of their current liabilities immediately... THEY ARE INSOLVENT!!!
  
  Moo, we don't even need to talk large numbers like 50% default on debts...
  
  A mere 10% (which is a reasonable accounting number) in certain everyday areas, would be enough to wipe them out.
  
  Oh yes... I notice that RM62 million of their asset shiit is "property development costs".
  
  Wonder what happens if they have to write that off over time?

Jason,

Many thanks for your comments.

Here is the snapshot of OilCorp's Receivables again.


If you compare the 498 million in receivables for OilCorp's most recent reported quarterly earnings to the same corresponding period a year ago, OilCorp had 465 million in receivables. An increase of some 33 million in receivables in 'one' fiscal year.

Now look at OilCorp sales revenue. It's only a paltry 76 million and its previous quarter was some 81 million.

Now to have only sales revenue of less than 100 million, don't you think it's rather incredible to have trade receivables amounting to 498 million?

I do think so. Very much in fact.

And if I have to truly valuate this company, I do think to assume that half of these receivables could go bad is but a fair assumption. In fact, I do think it's rather generous.

However, do understand that this is my own personal opinion, which obviously could be flawed, as usual.

Now since the quarterly earnings I looked at was OilCorp 2008 Q3 earnings, let's look for OilCorp 2006 Q3 earnings.

Here it is: Quarterly rpt on consolidated results for the financial period ended 30/9/2006

Look at the size of the sales revenue then. It was only around 56+ million!

Let's think about it for a minute.

Sales of around 56+ million, how could OilCorp's receivables be at some 498+ million?

And this was only some 8 quarters ago!

Ok, now let's open that link: Quarterly rpt on consolidated results for the financial period ended 30/9/2006

Now there you have it.

'Two' fiscal years ago or 8 quarters ago, OilCorp's trade receivables were at 224 million.

It's receivables this very day is at 498 million.

An increase of some 274 million!!

Now in my earlier posting, Regarding The Plunge Of OilCorp Shares Today!, I mentioned the following:

• What if due to 'unknown' circumstances, OilCorp could not collect half, yes just half, of these debt owing to them and needs to write it off as bad debts? (Is this not possible? Check past earnings. If these receivables could be collected, the amount should never be so much! Yes?).
  
  Well half of that 498.257 million is some 249+ million!

Do you still think it's unfair?

Sorry I do not.

And yes I have blogged on this stock before back in 2007: OilCorp

And if you are interested, this stock even tried to do the nonsensical 1 for 10 stock split when the stock was trading at 1.30 (see forum posting: here at sahamas )

Well now the stock is now around 40 sen.

Pretty soon it 'might' get its wishes to trade around 13 sen!

LOL!

Ok, that was nasty on my behalf!

Cheers!