Smartag: I Am Wrong Because The Stock Moved Higher?

From the posting Is Smartag Worth A Bet?:

• ST said..
  
  SMARTAG shoots up yesterday. Stop being jealous and stop writing nonsense on SMARTAG!

Ok. Smartag moved higher yesterday. So I am wrong because the stock moved higher.

But the jealousy part? The nonsense part?

Err... sorry if I am stupid but I just don't get it.

When I wrote the posting, Is Smartag Worth A Bet?, Smartag was looking like this.

Hmm.... if you take the effort to look at it, at the time of the posting - yesterday morning (started writing at 9.04am) , Smartag was trading at its lowest ever since listing, at 28 sen. So what's there to be jealous about?

Could I be jealous that Smartag is trading at its lowest ever?

If that's a good reason to be jealous, heck I am guilty .... forever. Lock me up dude/dudess!

And so I am writing nonsense. Ok, I will not use the meaning of blog reasoning and neither will I use the fact that I have stated out clearly that I am nobody's friendly investment advisor (heck, maybe I am just plain jealous and unfriendly!) but let's be a bit mature about it.

I have stated out many times that I do welcome all criticism. Yes, if I have the guts to write it out, then I should be more prepared to take all sarcasm and criticism openly.

Meaning to say, if you think what I wrote was all nonsense in the posting Is Smartag Worth A Bet?, I openly invite you to give me the exact reasoning why and what that I wrote was non agreeable - hence a nonsense to you. Seriously? That's an open invitation and I do hope you take what I am writing here with good faith.

So the stock moved up. I am wrong because of that?

Now in the posting ACE Market: Same Old, Same Old Issue, I highlighted the charts of the six newly listed ACE stocks.

Now I am not sure if you are aware but the main culprits, the stocks that were giving the ACE IPO stocks a bad name moved up strongly. Yes, have you considered the fact that perhaps there's a chance that Smartag moved up and rebounded strongly because of this issue?

The badest of these newly listed ACE stocks was of course XOX.

And how did XOX do yesterday? It surged 8.5 sen or 24.29% yesterday.

And its side kick IJacobs soared 12% or up 3 sen too!

Smartag was up a nice 2 sen or 7.14%.

And that Mclean was up 1 sen or 4%.

I am leaving out MPay ( up 1 sen or 6% ) and BoilerM (unchanged) .

But how? Look at those 4 charts of XOX, IJacobs, Smartag and Mclean. These were all newly listed ACE stocks and they all traded below their IPO prices and with a very similar looking charts, they all moved up yesterday.

How?

Is there not a chance that these stocks moved in tandem via association (newly listed ACE stocks trading below IPO pricing) ?

Ah... that's my interpretation.

And I openly say now that I could be wrong about it.

But that's my flawed opinion and I stick to it.

So let's talk about the writing nonsense part. ( Aiyoh - I leave out the jealous part lah. Pointless lah. But if you think I am jealous, so be it. That's your right of opinion lah )

I hope you would indulge in me for a couple of moments longer. Thanks.

Now here is Smartag public info.

Smartag have some 227,000,000 shares.

Ok. let's look at some facts.

On 13th April 2011, Smartag reported 2 set of quarterly earnings.

1. Q1 -  Quarterly rpt on consolidated results for the financial period ended 31/12/2010
2. Q2 - Quarterly rpt on consolidated results for the financial period ended 31/3/2011

Q1 - a loss of 386 thousand

Q2 - made 653 thousand.
Current ytd earnings - 267 thousand!
Now the current half year earnings from Smartag is only 267 thousand, my friend.

Smartag have 227 million shares, which means the current half year eps is only 0.16 sen. 0.16 sen only.

Want to calculate the possible PER?

KN 'forecasted' Smartag could be earning some 10.4 million for this current fiscal year and KN is basing it's target price on this year's earnings.

The table again.

Now this is all facts. Not nonsense. I am not twisting anything but merely highlighting this fact.

If you disagree so far, let me know.

Ok.. past earnings does not represent the stock price. Stock price are all based on its future potential. Do you agree? Or is this nonsense too?

And everyone who follows the stock market, knows Smartag potential is in their RFID solution. And Smartag was indeed mentioned to be part of the ETP project.

Yes. That's a fact.

But it's also a fact, that currently, this is still a MOU only and that according to Smartag own announcement, this MOU is terminatable by both parties.

And currently "Smartag, together with the Royal Malaysian Customs Department, will undertake a trial run of the RFID system at the latter's checkpoints from June 1."

This is the trial run. Smartag as per their own announcement will bear all costs for the trial runs.

Any twisting of facts so far?

And according to the Chairman, let me requote that BTimes report "KUALA LUMPUR: Smartag Solutions Bhd stands to make a minimum RM70 million a year once its Radio Frequency Identification (RFID) solution to track container movements is made compulsory. "

So what do we have?

Once the RFID solution is made compulsory, Smartag stands to make a minimum of 70 million.

And so that's the potential, yes?

Agree?

Oh dearie me, I hope I am not writing any nonsense so far.

So the potential of Smartag all hinges on one statement from Smartag's chairman, which is Smartag stands to make 70 million a year if the RFID solution is passed and made compulsory.

Now let's do some simple maths.

Let's do some very basic understanding of what kind of potential we are talking about here.

Let's see.. Smartag have 227 million shares. An earnings of 70 million per year would equates to an eps of 30.8 sen!

And eps of 30.8 sen!

Which means Smartag based on a 9x PE ( 9x PE too low? Maybe. But right or wrong, I use 9x to follow KN's valuation method) , Smartag should be worth at least 2.77.

Do you agree so far that potentially Smartag could be worth some 2.77 if the Smartag's Chairman estimate holds true?

Mind you, that Chairman stressed clearly 'a minimum of 70 million'.

Now if this holds true, then the logical and sensible focus should be on Smartag's disposal of shares recently!

Yes?

Or am I writing nonsense because I am highlighting this fact?

Think about it. "On the 19th April, Smartag was announced that it will be getting a slice of the ETP projects. On the 9th May, the CEO shows his confidence in his own company by selling 6,800,000 shares? Average price of disposal was 35.2sen."

And on 20 June 2011, The wife's company also sold shares. Some 4,250,000 were disposed at a price of 32 sen.

How?

Isn't there the disconnect?

Chairman says a potential minimum of 70 million per year. This equals to an eps of 30.8 sen. So why did the CEO himself dumped some 6,800,000 shares at 35.2 sen. Wife's company dumped it for 32 sen.

Now is this not a serious issue to consider?


I could be wrong but I reckon this issue should be carefully examined.

Why? Because we are not talking about small change, yes? Potentially, based on a simple 9x PE and based on Chairman's 70 million estimate, Smartag should be easily worth some 2.77. Why did the CEO and his wife think otherwise?

Think about it..... that's all I would say.

And yeah.... Smartag is up again. It currently last traded at 0.305.

Oooopsy daisy me... I must be wrong again...and I am also jealous...... since I am writing ... err... nonsense again.

ST, no matter what, good luck lah. But again.. if you could afford your precious time, do share with me, why you consider what I wrote on Smartag as nonsense.

ps: ST, if you really believe that Smartag RFID solution could bring a potential earnings of 70 million per year, seriously, just buy all of Smartag. Yes, buy it all the way. Sapu everything! 50 sen, 60 sen, 70 sen, 80 sen, 90 sen.... just buy! Why? At 70 million per year, Smartag should be worth easily above 2.70 lah. Ok ma?

Read more...

Is Smartag Worth A Bet?

Posted on Tuesday: ACE Market: Same Old, Same Old Issue. In that posting, I highlighted six of the new ACEs in the ACE Market.

We all know and read about McLean and THAT

Let's look at Smartag. This one is rather very interesting because it was mentioned as a company getting a slice of the ETP projects.

The retail IPO price for Smartag was 31 sen. Stock closed yesterday at 28 sen - down close to 10% from its IPO price.

With the stock getting a slice of the ETP, what gives? Look at the chart above. One does not have to be a rocket scientist but that's clearly a chart of a stock in a strong downtrend at this moment of time.

** Ah... at this moment of time... is crucial. Stock charts changes all the time. And mind you, stock fundamentals changes too! Some very slow but some stock fundamentals could really change overnight! Anyway... at this moment of time.. that's a stock with a serious downtrend but needless to say the downtrend might not be permanent and it could change for the better - yes let's be mature about it and acknowledge this fact first. **

So why the stock like this one?

Is the investing public missing out on something?

Or is there a reason why the stock is trading so badly?

Yes, could this be a hidden gem, the ACE in the ACE market or could this just be a potential bad apple?

Now of the things that is useful is the IPO coverage of the stock.

And for the case of Smartag, KN covered this stock.

Here's the copy.

Quote:

• Smartag is a provider of total Radio Frequency Identification (RFID) based solutions for potential clients that seek to optimise their business process and data flow using RFID technology. We like the company’s impressive net margin of more than 40% and expect such level to be maintained for the next 3 years. We expect earnings to grow marginally for the next 2 years and the impact of its Land Checkpoint Project shall arrive in FY13. We value Smartag at RM0.42 and recommend investors to subscribe the IPO.

And their basis of that 0.42 sen price tag.

This is important. Do we just want to take the target price based on face value (ie if KN says 42 sen then 42 it is?) or do we want to know the basis on how they got to such valuation?

• Valuation. The IPO price of RM0.31 is undemanding at 6.8x PER based on FY10 earnings compared to its peer CBS Tech’s average PE Band of 9x. We value Smartag at RM0.42 based on 9x PER over CY11 core EPS of 4.7 sen.

Ok 9x PER based on CY11 eps of 4.7 sen.

Let's look at the earnings table from KN.

Look at the core net profit numbers highlighted by the arrows.
It earned 8.4 million for fy 2008.
The next year, fy 2009 earnings fell to 6.4 million.
 But the following year, the year before Smartag is listed earnings soared to 10.3 million.

Ok. There's two thoughts from me on this.

1. 2009 is generally a bad and messed up year for many companies worldwide. Perhaps it's understandable that we do see such a drastic dip in earnings.
2. The pessimistic side. Well, rightly or wrongly, I had been taught to be aware of companies that has a sudden surge in earnings the year before its IPO listing. Why? The reasoning is that it's a smelly and rotten world out there and there's a chance that the earnings were dressed up for the IPO. Is this the case for Smartag? I do now know for sure but if one is a pessimistic perhaps one could err by being cautious. ( ** note : this one ... very tacky point. Yes.. there is certain implications with this point. Very sensitive. DO note I am not saying that the earnings dressing happened but it's just a thought and I am certainly not implying anything and it's best you the reader make your own conclusion.)

 Anyway, for fy 2011, KN has estimated Smartag would earn some 10.4 million or an eps of 4.7 sen.

The earnings estimate seemed a bit flat, no indication of growth and most important, the earnings estimate is not far fetched. (not like in the case of AsiaEP mentioned in the posting And Who Is Helping The Stock Market Become A Casino? )

So the key figure now is an eps of 4.7 sen. 

If the eps is achievable, then at 28 sen, Smartag is trading at a rather low PE multiple of 5.9x based on KN's estimate of Smartag earnings in 2011.

I then checked my quick data. Sometimes, I use the quick financial tracker provided by the local trading houses.

Here's the snapshot of Smartag's current quarterly earnings.

Smartag reported a loss for it's Q1?

Time to check Bursa website.

On 13th April Smartag made 2 earnings announcements!

• Q1 - Quarterly rpt on consolidated results for the financial period ended 31/12/2010
• Q2 - Quarterly rpt on consolidated results for the financial period ended 31/3/2011

Q1 - a loss of 386 thousand
Q2 - made 653 thousand.
Current ytd earnings - 267 thousand!

Errr... two things.

1. Smartag was listed only on 18th April 2011. So these 2 quarterly earnings was before Smartag was listed and yes, I have said it many times before,  pre-IPO earnings are not too reliable and sometimes we need a financial track record of at least 2 years to make a more intelligent reasoning.

2. However... on the other hand... some reckons that the early morning cow gets to eat all the fresh grass. Yes, some feels that in order to make it big and score a multiple bagger, you need foresight, you need to spot potential and you need to take risk. You need to take a chance! No risk no gain babe. No money, no honey babe.

Well, as I have said many times before, it's pointless for me to argue which is the best stock market strategy. Honestly, if you think your way is ok, just carry on and do it your way. No joke. That's all I can say.

Now if this is the case, then all these pre-ipo earnings and projections becomes more important a yardstick.

So what we have? Smartag half year earning is only 267 THOUSAND. Yes, that's very little little but what's more important, based on this limited data,  it suggests that KN earnings forecast of 10.4 million or an eps of 4.7 sen is highly unlikely.

Think about it. Company made only 267 thousand for the first half of fy 2011. And KN expected earnings for fy 2011 is 10.4 million??????

How?

What do you think now of Smartag's fair value price of 42 sen given by KN? Is it achievable?

And when one puts this factor into perspective, then perhaps it explains why Smartag's current traded price is on a clear downtrend.

But what about the ETP?

Comeon.. a stock should be valued based on its future potential, yes?

I agree.

Let's look at the ETP project awarded to Smartag.

On 19th April 2011: OTHERS: Smartag Solutions Berhad (“Smartag” or the “Company”)Smartag named as part of The Security and Trade Facilitation System using Radio Frequency Identification (RFID) (“Project”) for the Royal Malaysian Customs Checkpoint throughout Malaysia

• Pursuant to the speech given by the Prime Minister of Malaysia, YAB Dato’ Sri Mohd Najib bin Tun Abdul Razak at the Economic Transformation Programme (“ETP”) Progress Update Conference on 19 April 2011, the Board of Directors of Smartag wishes to inform that Smartag was named to be a part of the Project to provide security and trade facilitation system for the Royal Malaysian Customs at its checkpoints throughout Malaysia.
  
  The ETP is a comprehensive effort under the Performance Management & Delivery Unit (“PEMANDU”) to spearhead growth areas in various industries with the objective of raising Malaysia’s overall gross national income. The PEMANDU’s main role and objective is to oversee the implementation, assess the progress, facilitate as well as support the delivery and drive the progress of the ETP.
  
  At this juncture, no memorandum of understanding or agreement has been signed in respect to the Project. Further announcements on the progress of the Project will be released in due course once the Company receives further details on the Project.

Two days later, the Edge carried the following article: Smartag to rely on internal funds for ETP project

• Smartag to rely on internal funds for ETP project
  Written by Kamarul Azhar
  Thursday, 21 April 2011 11:54
  
  PUTRAJAYA : Newly-listed Smartag Solutions Bhd will rely on internally generated funds to finance the implementation of radio frequency identification (RFID) infrastructure at customs checkpoints throughout Malaysia. This was one of the Entry Point Projects (EPP) announced by Prime Minister Datuk Seri Najib Razak at the Economic Transformation Programme (ETP) progress update on Tuesday.
  
  “The Customs checkpoint project enables containers transported via roads to be tracked using our RFID system, which is based on international standards. The RFID seals will be tagged to the containers and scanned by RFID readers which will be set up at land checkpoints,” CEO PK Lim told The Edge Financial Daily in a telephone interview yesterday.
  
  Smartag will provide customs checkpoints with RFID readers to read seals tagged on containers and certified products via a system called Smartrack, he said. Smartrack is a software that serves as a date repository system allowing seamless information sharing between different parties in a RFID system.
  
  The company registered RM5.7 million and RM267,000 in revenue and net profit in the first six months ended March 31. As at March 31, it had total assets of RM30.6 million while total liabilities stood at RM1.7 million. It had cash and cash equivalents of RM1.3 million.
  
  Smartag debuted on Monday on Bursa Malaysia. Its core business in is the provision of RFID solutions, including consultation, planning and implementation. RFID is an electronic system that uses radio frequency signals to identify individually tagged objects or personnel.
  
  The company has been in talks with the Customs Department to implement its RFID system to enhance the efficiency of container clearing and improve security for certified products such as timber, palm oil and halal products.
  
  According to company chairman Datuk Abdul Hamed Sepawi, the project would benefit Malaysian companies as it would pave the way for the creation of paperless customs checkpoints throughout Malaysia, reducing the hassle of paperwork to obtain clearance for containers and transport.
  
  “This project will benefit Malaysian companies, especially manufacturers, exporters, courier service providers and transporters, as it improves the security of certified products such as timber, palm oil, and halal-certified products,” he told the press conference after the announcement of new EPPs by the prime minister on Tuesday.
  
  Smartag will invest RM45 million in the project, which will be spent in tranches until 2020. The EPP will have a Gross National Income impact of RM201 million by 2020.
  
  Smartag’s stock was one of the most actively traded on Bursa yesterday with 63.7 million shares changing hands. The counter closed 3.5 sen or 8.75% higher at 43.5 sen.
  
  
  This article appeared in The Edge Financial Daily, April 21, 2011.

The stock rallied strongly on the news of the award.


On 12th May, Smartag announced the following: OTHERS

• Kenanga Investment Bank Berhad on behalf of the Board of Directors of Smartag, wishes to inform that a Memorandum of Understanding (“MOU”) between Smartag and the Jabatan Kastam Diraja Malaysia (“JKDM”) was signed on 12 May 2011 for the Security and Trade Facilitation System using Radio Frequency Identification (“RFID”) (“Project”) for JKMD throughout Malaysia.
  
  The objective of the partnership between Smartag and JKDM to undertake the Project is to reduce the traffic and waiting time at each customs checkpoint location and also further improve the information system of JKDM in deterring security threats with the use of RFID technology.
  
  The salient terms of the MOU area as follows:-
  
  (1) Scope of Work and Responsibilities
  
  - Smartag will be the main contractor in implementing the RFID system and setting up the necessary RFID hardware at the customs checkpoints throughout Malaysia. - In implementing the RFID system under the Project, both Smartag and JKDM will host seminars and courses to educate and spread awareness about the RFID system to various stakeholders in the logistics industry including members of logistics and transportation associations in Malaysia. - Smartag and JKDM will perform pilot tests on the RFID system under the Project for three (3) months from 1 June 2011.
  
  (2) Period
  
  - The MOU will be in effect until the signing of a superseding agreement between Smartag and JKDM, if any, or any termination request from either parties.
  
  (3) Cost
  
  - Smartag will bear all costs related to the implementation of the Project. The exact quantum of costs and financial impact to the Company cannot be determined at this juncture given the nascent stage of the Project and the full scope of work involved is still being assessed by the Company. Furthermore, the pilot tests have yet to begin.
  
  (4) Termination
  
  - Both parties may terminate the MOU by way of notice in writing at least ninety (90) days in advance.
  
  (5) Confidentiality
  
  - Both parties agree to ensure that all documents, information and relevant data received from each other over the period of the MOU and after the termination of the MOU are kept private and confidential unless such documents, information and relevant data are required by law to be revealed.
  
  Further announcements on the progress of the Project will be released in due course.
  
  This announcement is dated 12 May 2011.

So far, that's all there is.

At this moment of time, it's a MOU only.

On 24th May, Smartag was featured in a Business Times article.  Smartag to start RFID trial run at Customs

• KUALA LUMPUR: Smartag Solutions Bhd stands to make a minimum RM70 million a year once its Radio Frequency Identification (RFID) solution to track container movements is made compulsory.
  
  Smartag, together with the Royal Malaysian Customs Department, will undertake a trial run of the RFID system at the latter's checkpoints from June 1.
  
  Smartag chairman Datuk Abdul Hamed Sepawi said the pilot project will run for three months with major companies from the logistics and manufacturing sectors such as Western Digital, TNT, Federal Express Brokerage and Priority Cargo having signed up for the test run.
  
  Abdul Hamed said the company may charge around RM10 per trip/container for journeys within the country. Taking into this account, Smartag is set to make at least RM70 million a year once the RFID solution is made mandatory. However, this was just an indicative pricing for now, he added.....

The Chairman speaks of the rm 70 million potential.

Yes.. but note that he's saying it's only possible 'once the RFID solution to track container is made compulsory' and for what it's worth... it's just an indicative pricing now.

So how?

Do you want to bet on this potential?

Er..then I saw the following announcements:

Changes in Director's Interest (S135) - Lim Peng Keong

Lim Peng Keong? That's the CEO and according to that announcement some 6,800,000 shares were disposed on 9th May.


Macam mana ni? On the 19th April, Smartag was announced that it will be getting a slice of the ETP projects. On the 9th May, the CEO shows his confidence in his own company by selling a substantial chunk of his shares? Average price of disposal was 0.352.

What lah!

And then on the 20th June, there was another disposal of shares!

Changes in Director's Interest (S135) - Lim Peng Keong

Accordingly the CEO said that 'The disposals were transacted by Namnan Co. Ltd, which my spouse has controlling interest.'
The wife's company also sold shares. Some 4,250,000 were disposed at a price of 32 sen. ( Just one sen above the ipo price of 31 sen).

How?

Project is supposed to be big.

Big money is there to be made.

The chariman openly said that the RFID project could see Smartag making some 70 million a year. Sorry a MINIMUM of 70 million once the RFID solution is made compulsory.

70 million is a lot of money.

And surely if that's true... the shares would be worth many, many times than what it is trading now. And certainly worth much more than what the CEO sold his shares for. And also certainly worth much more than what the CEO wife sold for.

How?

I dunno... but what the CEO and wife is doing here... is clearly sending a bad signal to the market.
And perhaps the current earnings is not helping much.

Which probably explains why the stock is doing so poorly since its IPO listing.

How?

Do you really want to bet on Smartag?

Do you really think it could be an ACE in the ACE stock market?














ps: I am not Paul, Paul's gone and I do not know if Smartag will soar to the moon and neither do I know if it will crash and burn. And oh... neither am I friendly too. :P

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