iCapital Is Now Holding A 'Paper' Loss of Over 76.5% In Its Investment In Mieco Chipboard!

Posted in April 2008. A Quick Look At iCapital's Annual Report 2008

Let's look at another interesting VALUE INVESTMENT from iCapital. It's one that I had blogged many times before Mieco Chipboard.

Firstly, from the posting A Quick Look At iCapital's Annual Report 2008

• Or how about Mieco Chipboard?
  
  Why is iCapital a shareholder in this stock?
  
  From the annual report, iCapital's owns some 1,632,100 shares in Mieco worth some 2,103,832. This should works to a cost of 1.28. Mieco last traded 22 sen.
  
  As a shareholder, I would be baffled as why a fund manager who has a reputation to be good, bought a lemon stock like Mieco. The clear decline in Mieco's fundamental was clearly seen by all (see past posting Mieco Chipboard: VII and the links included)
  
  Besides asking why iCapital is holding on to this stock whose fundamental is really weak, ( Mieco's last reported earnings Quarterly rpt on consolidated results for the financial period ended 31/12/2008 - losing money and a mountain of debts!), perhaps the minority shareholder would want to know the funds current investing decision on this stock in the portfolio.
  
  Is iCapital still holding on to the stock? Did iCapital sell the stock? Or is iCapital making an even more terrible mistake by investing more into this stock?
  
  How?
  
  Wouldn't the disclosure of iCapital's stock portfolio helped?

Of course, the critics of mine, would very quickly point out the size of the investment. It's much smaller than iCapital's horror show in Axiata

Now Mieco Chipboard the stock had gone up in value a lot thanks to the current bull stampede. :D

It's now 0.30 sen compared to 0.22 sen when I mentioned it April 2009.

And what's the current 'paper' loss?

Let's see from the above data from iCapital's annual report, it's average cost for its so-called investment in Mieco Chipboard is 1.28.

Which means its paper loss is now 98 sen per share!

Or in terms of percentage, it's some 76.5%!

Oops! Many would argue that its only paper loss. ( Is Paper Loss Not A Loss? :D )

Anyway I have decided to do some simple searching. iCapital was listed near end 2005. So I decided to check out their annual reports.

Now if you open up the following report, 2006 Annual Report, you would see the following.

Hmm.. from the data, it appear that iCapital purchased Mieco Chipboard in the fund's early days.

Sidetrack for a moment.

I had always argue against the quality of Mieco as an investment grade stock for I find it extremely poor. The fundamentals of the business were deteriorating at such an unbelievable rapid pace and the collapse of the fundamentals of Mieco's balance sheet were utterly shocking! See Update On Mieco Chipboard for all the links on this stock.

On February 24, 2006, in the posting Mieco: Part V, I highlighted the recommendations iCapital had made on the stock. Do note they had publicly declared the vested interest on the stock since day one.

• In Mieco: Part II
  
  Hmmm.... and what is even more interesting is the following...
  
  1. At 2.36, a buy for the longer term.
  2. At 1.37, still a buy for the longer term.
  3. At 1.00 (yup Mieco is now trading at 1.00!!), Mieco is still a BUY!!!

Let's forget about everything that I had wrote earlier before.

Now from iCapital's 2006 Annual report, as at 16th June 2006, iCap purchased some 800,000 shares in Mieco worth some 1.063 million. This should works out to an average cost of around 1.33 per share.

Let's look at iCapital's 2007 Annual Report

And from the data, as at 4th June 2007, iCapital had doubled it's investment to 2.1 million.

Now let's DISCOUNT the deteriorating balance sheet in Mieco Chipboard and let's just look from the earnings perspective.

iCapital had purchased Mieco before June 2006.

Mieco's Q4 earnings is reported every February. So I would use February quarterly earnings as a quick and simple reference.

Feb 2006. Quarterly rpt on consolidated results for the financial period ended 31/12/2005

Mieco reported a loss of 8.178 million and from that quarterly earnings note, one can see that Mieco made some 30.488 million.

Now since iCapital declared itself to be a VALUE INVESTOR, could anyone see any justification in it buying this stock? I am sorry but from my flawed understanding, I could not understand at all. Mieco went from a company making money to one making losses.

Feb 2007 Quarterly rpt on consolidated results for the financial period ended 31/12/2006

Ah.. Mieco recovered from its losses. It made some 6.495 million. Buy based on a turnaround strategy? Perhaps there is a justification but let's consider this. Based on an earnings of 6.495 million and a share base of 210 million shares, this would equate to an earnings per share of 3.1 sen.

And from iCapital's 2007 annual report, its average cost is now 1.28. Its previous year's average cost was 1.33 sen. Some would be baffled on the reasoning to DOUBLE its investment in Mieco just to lower its cost per share from 1.33 to 1.28sen. And based on an eps of only 3.1 sen and based on an average price of 1.28, iCapital DOUBLED its investment in Mieco based on a PE multiple of over 41x! I am truly baffled.

Feb 2008. Quarterly rpt on consolidated results for the financial period ended 31/12/2007

Mieco earnings slumped to just 2.311 million. Not a warning sign to SELL?

Feb 2009. Quarterly rpt on consolidated results for the financial period ended 31/12/2008

Mieco lost a massive 22.908 million!!!

In April 2009, the losses were adjusted to a huge 27.593 million! VARIANCE BETWEEN AUDITED AND UNAUDITED RESULTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2008

• ... there was a deviation of more than 10% between the Group’s audited loss after taxation of RM27.953 million and the unaudited loss after taxation of RM22.908 million for the financial year ended 31 December 2008. The variance was due mainly to additional impairment allowances made following further review of inventories and receivables.

Last month. Quarterly rpt on consolidated results for the financial period ended 31/3/2009

Mieco reported another massive losses! Mieco lost 22.648 million!

And there you have it.

iCapital is now having paper losses of over 76.5% in its investment in Mieco Chipboard!

Yeah.. and again.. some would discount all this by saying this is just a small investment!

Yeah.. and again.. some would say all this does not matter. iCapital is still good.

Ahh... I am not saying iCapital is no good woh. iCapital is one of TOP FIVE FUND MANGERS in the WORLD! How dare I suggest it is no good.

All I am saying is I am puzzled with its investment in Mieco Chipboard.

How could a VALUE INVESTOR which is is one of the TOP FIVE FUND MANAGERS make a justifiable investment in Mieco Chipboard?

Sorry I just don't get it.