More On KNM

So we have the 'stunning' story of KNM's boss disposing his shares for a whopping 64 million. Refer blog posting Regarding KNM's MD Disposal Of Shares For A Cool RM64 Million

And if one takes a little bit of time compiling some data from Bursa Malaysia's website, one could come up with a table like this below. (do verify data compiled - I could always make an error!) (see also Getting Information From Bursa Malaysia Website )

Now this is a solid looking growth company yes?

Surely you would wonder why the boss is disposing the shares like plague! :p

One of the issue, in my opinion, was that the company, KNM, had given analysts a much higher earnings guidance. Meaning to say, the market's expectation for KNM to perform is much higher and lately KNM (despite its impressive growth in earnings) had always disappointed.

More than a year ago,March 18, 2008 Some Musings on KNM Reports.

• Management is giving guidance that FY08-09 net earnings to be around rm450million and rm700 million respectively

And I paste again RHB's earnings table for KNM back in March 2008.

Now if you compare the first table, although KNM reported an impressive 330+ million for fiscal year 2008, it simply pales in comparison to the earnings guidance given by KNM itself and it also pales in comparison to analysts expectations and in this case, it pales in comparison to RHB's expectation earnings for KNM of 445 million!!!

How about KNM's balance sheet?

It's actually a horror story - no joke!!!!

Now if you are one of the investors who takes great concern over increasing account receivables and increasing debt, KNM's balance sheet is one of great concern!

Now if you take away the 'impressive' earnings growth table and just focused on KNM's key balance sheet issue such as receivables, cash and debts, would one rate KNM as an investment grade stock?

Would you?

In 2004, receivables were a mere 117.182 million. Now it's at a shocking 577.481 million!
In 2004, debts were a mere 167.153 million. Now it's at a shocking 1.428 billion!

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

Receivables has now ballooned to 679.588 million!!!!!!!!!!!
Total debts increased slightly to 1.456 billion!

Now take a step back.

If this was your own business, would you want to run a business where you owe the bank more and more money each year, while at the very same time, your customers owe you more and more money???

Doesn't make much sense yes?

In a nutshell, aren't you 'like borrowing more from the bank to finance your customers'!

And then there is the issue of the size of Goodwill that KNM carries in its books.

Here's KNM quarterly notes reported back in November 2008.. Quarterly rpt on consolidated results for the financial period ended 30/9/2008

Here is the screen shot.


KNM decided to reclassify the INTANGIBLE ASSETS in Feb. Instead of looking at Feb's quarterly earnings, here is KNM's quarterly earnings last month. Quarterly rpt on consolidated results for the financial period ended 31/3/2009


Look at the size of the GOODWILL. It's a whopping 914.055 million. oO.

So despite KNM's 'impressive' earnings records, there are many issues. The balance sheet issues. The boss disposal of shares for a cool RM64 Million. The boss shares being forced sell by his bankers last year. The company's share buybacks at the same time the bankers were selling down the shares.

How?

You still reckon KNM is investment grade stock?