Some Thoughts On LCL

Got some comments on Update On LCL

stormillionaire said...

• So what's your view on this Moola?. TA's call or CIMB's outlook? They're night and day.

Hello,

Do understand I am not an investment advisor. Ok?

And I have no idea whether a stock price would go up or down.

What I can do is, I can chat and offer you some flawed views on certain issues.

As it is, for LCL.

Fact it, it's last quarterly earnings it reported massive losses. That is a fact.

It reported its audited earnings late. That is a fact.

It's main cash cow is Dubai. That is a fact.

Dubai home prices has crashed some 41% for the first 3 months of the year. That is a fact. (see Dubai's House Prices Drop 41% In Q1!! )

Would the property crash in Dubai have a huge impact on LCL? Take a look at CIMB's own report (second picture) and figure out how much Dubai means to LCL.

Why is Dubai important?

This is LCL's last reported quarterly earnings: Quarterly rpt on consolidated results for the financial period ended 31/12/2008

It reported net quarterly losses of 17.389 million.

It's main customers, from Dubai, is being hit by a property crash. Needless to say, this would be bad for LCL's business.

Here is a screen shot of their balance sheet taken from the quarterly earnings notes.

Have a look at where I had inserted arrows.

1. Inventory is blown up compared to a year ago.
2. Trade receivables is blown up too.
3. Amount due from customers for contracts work is up.
4. Their own cash - depleting.
5. Their borrowings had sky rocketed.

Now, I would wonder.

I always do wonder.

Since their main customers from Dubai is having a property crash, isn't this exactly why the amount due from their customers is sky rocketing? Well I would ass-u-me and guess that LCL's customers is having problem with payment.

And then look at the trade receivables.

Huge amount.

Concern always is if the trade receivables goes bad, the company would have to declare them as bad debts, which means it would have to end up as losses.

Inventory build up is no good either.

Assumption, if the inventory is for renovation work for their customers, then there is a possibility these inventory might not be ok for other customers. Dubai 'used' (can I use this word?) to be a city of extremely high luxury. So there is always a chance that other customers might not want these inventory. (This is called assessing the business risk, yes?)

The last two issues.

Massive concerns.

Depleting cash and the fact that LCL has massive borrowings. Total cash of only 14.3 million versus total group borrowings of 379 million does not sound like a healthy company at all. And when you consider that their main business model (renovation work in Dubai) has a huge question mark hanging over it, then the risk multiplies.

ps: another issue for consideration. LCL had a rights issue proposal all drawn up. But according to an announcement in March, see here, LCL managed to get an extension of this proposal to Aug 2009. I would perhaps ask why the rights issue was postponed. No one interested?

These would be my flawed concerns on this company. Hope this help as a second opinion.