Cinema-Blend-whereiszemoola

On Star Biz: Beware the highly priced IPO sometimes

• Saturday May 26, 2012
  Beware the highly priced IPO sometimes A Question of Business
  By P. GUNASEGARAM
  
  Malaysians should take heed that IPOs don't always make money as the Facebook fiasco has amply demonstrated.
  IF you think an initial public offering (IPO) is a sure way of making money, think again things can go seriously wrong and companies can open a lot lower than their IPO price.
  If anyone has delusions about an IPO automatically making money for those fortunate enough to have obtained the shares at that stage, the recent episode with Facebook should dispel any such notion.
  
  Barely a week into trading, Facebook is trading at an 18% discount to its IPO price at the time of writing, hardly something that inspires confidence in IPOs in this current poor market.
  
  Facebook was offered at US$38 per share to raise US$16bil for the vendors that included founder Mark Zuckerberg, who became a cash billionaire after the deal and whose company was valued at US$104bil based on the IPO price.
  
  And this for a company that had earnings of less than US$1bil and revenue of US$3.7bil, giving a historical price earnings ratio (market value divided by earnings) of over 100.
  
  But still investment bankers felt they had a deal, secured the IPO investors and then listed the stock on May 17, only to see a steep fall from the very first day of trading, which eventually saw a cut in value of almost a fifth.
  
  That's amazing for a stock pushed by some of the top investment firms in the US including Morgan Stanley and Goldman Sachs and a company with such a strong brand recognition too.
  
  Now disgruntled investors are crying foul and amidst reports of selective information given to some banks by Facebook, shareholders have started suing Facebook and Zuckerberg in an embarrassing development that threatens to overturn yet again how Wall Street does business.
  
  The entire Facebook fiasco underlines one key important lesson ignore fundamental valuation at your own risk. True, markets have their own madness and sometimes stocks trade way above what can be considered their intrinsic value.
  
  But they don't stay there for long if they ever do especially if the earnings stream does not start kicking in soon. And if there are any indications of problem, one can expect no less than a collapse in share prices if valuations were excessively high in the first place.
  
  As the Facebook saga unfolds in the US, the applications closed yesterday for Gas Malaysia's IPO here. Those who follow the situation here closely may realise that disclosure in IPOs, while it may seem better than before, need not necessarily be so.
  
  Try as I might I could not find a forecast for earnings for Gas Malaysia in its prospectus, a company with a blue chip reputation owned by amongst others, an MMC Holdings-Shahpadu joint venture, Petronas Gas and Tokyo Gas-Mitsui. The Petronas name attached to it gives it a certain mystic and pedigree, no doubt.
  
  But still I could not find forecast earnings per share or dividends for this year in the thick prospectus of over 300 pages. If it was in there and I doubt that should it not have been highlighted? And how does one value the company without such figures?
  
  There was a time when every IPO had forecast earnings and dividends, sometimes for more than a year. That gave retail investors a good feel for the company they were buying but apparently that's no more the requirement. In the light of the Facebook fiasco, that's a retrograde step.
  
  Whether it's in the US or here, there is a clear need to tighten up IPO procedures and disclosures so that all investors have equal access to information and are not discriminated against. That helps in the creation of a fair, orderly and clean capital market, which people can generally rely upon.
  
  In Gas Malaysia's case, some analysts put the forward price earnings ratio at the issue price of RM2.20 a share at 18 times and the dividend yield at 4.4%. It is academic now since applications have closed but those don't look particularly attractive.
  
  At 18 times, the price earnings ratio is above that of many Malaysian blue chips. The dividend yield at 4.4% look respectable but is based on 100% of earnings being paid out as dividends, which makes it equivalent to the earnings yield and also implies very little or no future growth because nothing is being retained in the business for expansion.
  
  In that context it looks less than attractive. But the Malaysian public, perceiving IPOs as a means to make money and attracted by Gas Malaysia's affiliations, including that with national oil corporation Petronas, might think otherwise.
  
  One hopes not, but if the valuations turn out to be expensive, then there could be nasty surprises. To reduce the possibility of that, regulatory authorities should probably revert to older, more stringent standards for IPOs which require profit and dividend forecasts to be clearly stated and verified, subject to the usual conditions, by the merchant bankers and accountants.
  
  That will go some way to reassure investors, and especially retail investors who are the last to know things, that there is substance in the company that supports the issue price.
  
  We certainly don't want a Facebook-style fiasco in Malaysia.
  
  Independent consultant and writer P Gunasegaram (t.p.guna@gmail.com) is not a fan of Facebook, the service or Facebook, the company.

Gas Malaysia's IPO prospectus, which is more than 300 pages, includes no earnings forecasts?

What????

Ok I have mixed feelings here.

I am not a fan of earnings forecass but despite me not being a fan, I still feel all companies should include their earnings forecasts in their IPO. Yes, these earnings forecasts tends to be over the top but for some, how theses company make their earnings forecast and how they actually perform, they do give a fair guide on what kind of a company it is.

For instance ( or shall I say let the the broken recorder repeat once more), let's use AirAsia.

Before they list, they made the following remarks:

• AirAsia expects profit to soar
  By ALICE CHIA
  
  BUDGET carrier AirAsia Bhd expects net profit for the financial year ending June 30 2005 to more than triple to RM159.9 million compared with RM49.1 million before. Revenue is also expected to jump 90.1 per cent to RM746.6 million from RM392.7 million, according to its prospectus.

AirAsia expects its net profit to triple the very year its stock will be listed!

I kid you not!

And that's how AirAsia sold its IPO to the market.

Yeah, jack up the earnings forecast and the sold could be then sold to the market at a 'fairly cheap' price for its IPO. Sweet simple strategy eh?

And how did AirAsia do? Here's the snippet the next year,

• Monday August 29, 4:09 PM
  Malaysia's Airasia Misses Yr Net Profit Forecast
  
  ]KUALA LUMPUR, Aug 29 Asia Pulse - AirAsia Berhad (KLSE:5099) has reported group profit after tax and minority interest of RM111.635 million (US$29.6 million) for its financial year ended 30 June 2005, up 127.5 per cent year-on-year.
  
  However, the net profit was 30.2 per cent below the RM159.9 million forecast for the year in the prospectus issued in relation to its initial public offering [IPO] last year, the budget airline said in a filing to Bursa Malaysia on Friday.

Anyone remember how did AirAsia IPO fared?

From the posting http://whereiszemoola.blogspot.com/2011/07/bumi-armada-today-is-different-from.html

• brotherlone said...
  
  c'mon... give mr AK a break
  
  bumi armada had to leverage up to more than 3.0 times D/E to acquire those assets.
  
  what will investors if it goes up to 3.0 times, it will be sold down immediately.
  
  
  a fast growing company needs to gear up.. and it needs patient capital.

brotherlone:


C'mon.... bro.... so who's EVER gonna give the poor minority shareholder a break?

Ever think about it this way?

Why should we look from that side of the.... grass?

Me?

I know where I moo from.

I am of ONE of the small minority investor in the Bursa Malaysia.

Just a small cow in the grassland.
A small cow who asks who's gonna speak for the minority shareholders who weren't given a chance to see their investment in this company 'morphed from a small, domestically focused company into a major international offshore service player'?

That's all I interested.

Sadly I know that is past history.

And I am just a tormented lost cow speaking of past injustice.

And again I stress I am not the least bothered to know how this IPO will perform. Will it go up? Will it go down? Sorry I am not bothered.  And I am not writing to ask anyone who wants to try their luck to buy into this IPO. Please, buy if you want to. It's your money and don't let me stop you..

And seriously, I own no vodoo stick that can put a curse on a stock. Serious lah. Curses don't work lah.

All I know is what had happened before.

I know.

There... I have spoken yet again on Barmada.

Good luck with you on this IPO.

Tons of shares being offered.
May you make your money.
 
Peace with you.

I did not feel like making another posting on Bumi Armada or Barmada until I read that very last passage of Star Biz article on Barmada today: Bumi Armada plans to raise RM2.8bil from IPO

• “Bumi Armada morphed from a small, domestically focused company with RM250mil revenues and RM50mil net profit company pre-2005, into a major international offshore service player with total revenues of RM1.2bil and net income of RM351mil last year,” said Hassan. For 2010, the company saw an earnings before interest, taxes, depreciation and amortisation (EBITDA) of RM714mil and has achieved a compounded annual growth rate of over 50% for its EBITDA since 2008.

Yes... Barmada today is different from Barmada yesteryear.

Barmada yesteryear had sales revenue of 444 million and earnings of 63 million. ( ahem.. i have no idea where he got the 250 mil revenue and 50 mil net profit from) (you can verify my data from the earnings reported back in 2003 here: Quarterly rpt on consolidated results for the financial period ended 31/12/2002 and for your info, Barmada was suspended from trading the following month on 21 March 2003)

Barmada currently is now different. Of course it is. As per Star article, Barmada had morphed into a major international offshore service player with total revenues of RM1.2bil and net income of RM351mil last year.

And the growth prospect according to the IPO prospectus is there too!

But here's something NOT MENTIONED!!

Back in 2003, Barmada too had an incredible growth prospect!!

How good a growth prospect?

Well... just a 25% growth per annum growth prospect.

So think about it.... if Barmada was not forcefully taken private back in 2003.... why shouldn't it continue to grow like how it had grown today?

What is there to stop Barmada from morphing from a small, domestically focused company into a major international offshore service player????

Not possible?

Remember it had a 25% per annum growth rate back then!

So if Barmada was not forcefully taken private back in 2003... won't these minority shareholder gotten their true compensation, their true reward for taking the investment risk in being a minority shareholder??

See the point here?

How do you want to quantify such lost of investment profit?

Yeah  How Will Previous Shareholders Feel About Bumi Armada's Re-Listing?

How would these minority shareholders feel?

I tell you how they would feel. I would assume that they would feel robbed!

That's my flawed opinion.

What's the point to being a minority shareholder if the minority shareholder cannot get their due rewards from their investments?

And yeah.. I still don't get it.

This is a new Barmada is being listed.

Barmada or Bumi Armada is different TODAY when compared to 2003. YES. Of course it's different. No doubt.

Bumi Armada's current future looks promising. It has an incredible growth prospect! YES. ( but don't forget.. the old Barmada too had a very promising future back in 2003 too! )

Bumi Armada should be treated as a new ipo - stop deluding yourself with the past. There's a very good chance that one can profit from the ipo. YES... ( key word 'good chance' hor... and you know very well.. in the stock market.. a chance is a chance. It's not 100%. )

Of course it's a new stock. It's a new IPO. It's a whole new day. It's a whole new ball game. TRUE!

And of course... there's a CHANCE that one can PROFIT from the IPO. YES! A new IPO. Chances is there to make money. Hey, don't let this posting or my past postings on Barmada stop you from buying the share. Don't let this posting deter your chance to make money. Hey your money, your decision. Nothing to do with me.

Don't blame me if you fail to make money!
Don't thank me if you make money too!


So............... there.

I have said my piece for today.



Time to go laze around.... :)

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?

So much talks about bad apples of the ACE stock market.

Yesterday the Edge Financial had this write-up: Perils of investing in ACE Market

• Perils of investing in ACE Market Written by Commentary by Max Koh
  Monday, 20 June 2011 11:39
  
  The recent slew of listings on the ACE Market has dampened the already moderate sentiment for stocks listed in that category of Bursa Malaysia.
  
  Who would blame investors for shying away considering that the debuts of recent listings — XOX Bhd and MClean Technologies Bhd — were accompanied by announcements of losses and plunging share prices. In the case of MClean, a substantial shareholder exited the company by selling a 12.8% stake on the maiden trading day.
  
  But should it deter investors from the ACE Market?
  
  To recap, XOX pulled a stunner when it reported a loss of RM1.66 million for 1QFY11 just a day before its debut. The company forecast an annual net profit of RM19.8 million for the full year. The loss sent its share price downhill. As at last Friday, XOX slipped to 44 sen, down 45% from its offer price of 80 sen.
  
  MClean also raised more than a few eyebrows. Just three weeks after its listing, MClean announced a quarterly net loss of RM190,000 blaming the teething problems at its Chinese operations.
  While the company has since assured that it will be profitable for the year as a whole and could still exceed FY10’s net profit of RM5.9 million, investors are likely to remain cautious. Last Friday, the company’s share price closed at 23 sen, down 56% from its IPO price of 52 sen.
  
  These events make it no surprise that investors are becoming wary of getting caught with the wrong companies.
  
  To be fair, however, investors should be aware of the perils of investing in the ACE Market.
  
  The whole purpose of the ACE Market is to allow new start-ups and companies with growth potential but no track record to access the capital markets.
  
  While ACE Market-listed companies have less of a track record than their Main Market counterparts, investors are actually taking a higher risk on these companies.
  
  And, as in any game of chance, there are bound to be winners and losers. Picking winners isn’t an easy feat.
  
  So, how can investors avoid being caught with a bad hand?
  The ACE Market is a high risk-high return game — but it still offers better odds than a game of pure chance at the casino. There are numerous things that investors can do.
  
  It is important for interested investors to do their due diligence and study the company’s prospectus before investing their money.
  The company would state its historical earnings (or losses) and its plans for the monies raised from the IPO.
  What was the financial track record like? Were there unusual swings in profitability or revenue, especially in the year just prior to listing? If there were, what were the reasons?
  
  Are most of the monies raised in the IPO meant for the company’s expansion, or do they accrue to a company’s major shareholders?
  That alone should tell the intention of the IPO — whether it is a “cashing out” exercise, or a chance to tap capital for growth.
  
  For instance, the listing of JCY International Bhd last year saw all its proceeds accrue to the major shareholder. JCY’s shares have since slumped to 59.5 sen from an IPO price of RM1.60 last February, dampened by a slowdown in the hard disk drive industry.
  
  For cyclical industries, one should ask if the cycle has peaked, or is nearing a peak.
  
  Some companies, though not all, provide an earnings forecast for the year, as well as the strategies to be used to achieve it.
  
  For example, XOX has projected its revenue to rise to RM249.5 million this year, which is more than a 10-fold jump from RM20.1 million a year earlier. In addition, it plans to increase the number of subscribers from 391,000 to 1.5 million in just one year. Whether these goals are attainable remain to be seen.
  
  It is interesting to note that XOX’s losses expanded from RM239,000 in FY07 to RM15.9 million in FY10. It expects a net profit of RM19.8 million for this year.
  
  XOX rides on Celcom Bhd’s network and has to pay the latter a “minimum commitment” amount annually for these services. If one peruses its prospectus, one would notice that the amount is set to more than triple this year to RM61.5 million from RM17.3 million last year.
  
  And this “minimum commitment” is set to escalate to RM109 million in FY12 unless there is a mutual agreement reached with Celcom to change it.
  
  However, it is important to remember that one or two examples should not represent all ACE Market-listed companies.
  
  Some loss-making companies could be going through a temporary rough patch, and these should be given a chance to prove themselves.
  
  ACE Market-listed companies that have proved successful include EA Holdings Bhd and Genetec Technology Bhd.
  EA Holdings had seen its net profit rise from RM200,000 in FY07 to RM4.1 million in FY10. Genetec’s net profit rose to RM12.4 million for FY11 from RM5.5 million three years earlier.
  
  Others such as Notion VTec Bhd and MyEG Services Bhd have since migrated from the old Mesdaq to the Main Market and are widely held by institutional funds.
  There were also companies that were caught in circumstances beyond their control.
  
  Green Packet Bhd, for example, which migrated from the former Mesdaq to the Main Market has seen numerous broadband licences going to other companies since its listing.
  
  While its target to break even earnings before interest, tax, depreciation and amortisation remains elusive as ever, the company continues to draw good faith from investors. Last year, South Korea’s SK Telecom bought a 25.8% stake in Green Packet’s subsidiary for US$100 million (RM304 million).
  
  In a nutshell, would these former small firms have grown to their current size without the Mesdaq or ACE Market?
  
  This article appeared in The Edge Financial Daily, June 20, 2011.

Ok, to my best recollection, there have been six newly stocks in the ACE Market this year.

Now, I am going to discard the IPO prices. Is that a stunner? Why? Well, the IPO is a silly game of lottery for the investing public and since the stocks have been listed, it's pointless to talk about their IPO pricing now. It's history.

Instead, I would look at how these six stocks have performed since listing and the best way to highlight them is via simple charts.

Ok, you don't need to be a technical expert to read and interpret the charts but I strongly believe all these six charts speaks for themselves and the story line or rather the chart line is so clear at this moment of time. (Note the keyword here is 'at this moment of time'. Yeah, stocks are traded 5 days a week and prices changes all the time. )









How?

What do you see?

.

Back in 2005, I blogged the following: http://whereiszemoola.blogspot.com/2005/12/oh-messdaq.html

Oh yeah.

M'sia to unveil tougher rules for Mesdaq listing.

Finally something is being done over the clear lack of quality of the newly listed stocks, especially those being listed on the MessDaq.

Here is a snippet from the article which clearly highlights the appalling lack of quality control on stocks being listed on the MessDaq.

Litespeed's showing so far typifies that of many a Mesdaq company. Listed only last Thursday on Malaysia's tech index, the counter is trading at 31.5 sen - 15.5 sen lower than its offer price of 47 sen.

On its debut it opened one sen higher but closed the day at 39 sen, the second most-actively traded counter. A total of 11.4 million shares were traded, more than double the public IPO portion of five million shares.

Litespeed raised RM16 million (S$7.2 million) from its public issue of 32.5 million 10-sen shares, and its public portion was subscribed almost six times.

Unfortunately for those subscribers, only a few days into its listing, Lite-speed announced a net loss of RM1.9 million for its quarter ended July 31.

Aiyoh! Only a few days into its listing, Lites-speed announced a net loss of rm1.9 million for its quarter ended July 31!!!!!

This is simply NOT ACCEPTABLE.

Truly appalling!

A waste of market capital.

Only this Lite-speed like this? or is there more?

Ok... how about EB Capital ??

Listed 2nd Aug 2005.

Yesterday I saw this bugger's quarterly earnings.

Sales Revenue: 1.802 million
Net loss: 1.064 million!!!

First quarterly earnings after listing and it reports a net loss!

Imagine a horsie horse in a cup race. The bell rings and the horse stumbles, throwing the jockey off the horsie. How? Out off the gates and already no hope liao!!

Disgusting or not?

You tell me lah.

And worse still, this EB Capital losses is at operating level and the company is net debt.

And lagi worse still for EB Capital, based on yesterday's closing price, EB Capital market capital is worth some 21.4 million.

And lagi, lagi worse still.. just imagine if the bossie owns 13% of this stock. This means the bossie is worth some 2.78 million based on his shares value in the market.

You tell me lah.... how come sky NO eyes one?

So, so easy to be a million hair ar?
So, so easy to be kaya raya!!

Sigh!

And lagi, lagi, lagi worse... just how did such company got listed?

Mana tu QC?

Well, i dunno but u guys and gals but muah is certainly pleased to read that SC is aware of this issue and is enforcing stricter rules.

Comeon... SC let's kick some butt!!!!!!
But there are some who are sceptical.

Will it really help?

I dunno... but... at least the very first small step is being made to rectify this issue.

I shall keep my faith... for now.

--------------

See? Mclean and XOX aren't the only ones. This very issue of the company announces that it is losing money shortly after listing is not new.

It had been happening long, long time before!!!!

There were talks about tougher rules back in 2005.... but.....

sigh.

Here's another posting made on 27 Dec 2005.

http://whereiszemoola.blogspot.com/2005/12/impressive-year-for-messdaq-ipos.html

Given the issues mentioned and highlighted in the following two posts:

1. Oh MessDaq
2. Comments on IPO

My fingers were itching when i found out that Star Business today had an article: Impressive year for Mesdaq IPOs


From a business-perspective, it would definately make sense for Bursa Malaysia to highlight these issues. As a business-entity, Bursa is now focused on the Moola itself. This is its responsibility to its shareholders. To make Moola.

However, making moola at all costs?

Is it wise and feasible?

Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?

Anyway, as mentioned in the article, there were simply more new listings in the Messdaq than in the main board or the second board. And the article does shed some light on why is it so.

“For many companies, a listing via Mesdaq was less cumbersome because there were fewer requirements to fulfil,” an analyst with a research house said.. ( EASIER!)

In the case of Mesdaq, companies do not need to show a profit track record. (Lousy company can also list wor!)

“The listing on Mesdaq allows young companies and less-established ones to focus on growth and improving earnings in the early years of listing without having to worry too much about meeting the exchange's stringent rules and regulations, especially on earnings,” he said.

“The cost of entry into Mesdaq is lower (including listing exercise) while allowing companies flexibility to grow globally,” he said.
Those were some of the reasons why the Messdaq seduced more listing...

Now consider some of the following issues mentioned in this blog.

Isn't there one too many companies which lost money after being listed on the Messdaq? (see Oh MessDaq ). For example, Litespeed accounced losses a few days after being listed!! Or companies like EB Capital and DVM.

Now, why is it such a big deal?

Yeah, yeah, yeah... the Messdaq is a good hunting ground for speculators and punters. A lot of fortune has been made.

What about the losers?

Yeah, they deserve to pay the price for their foolishness... but take the following issue mentioned in Karensoft "Move over who: Part Vii"

When Kenanga first wrote on Karensoft, Kenanga stated that Karensoft some 69.2 million shares then.

Get this... at 0.96 sen, Karensoft then had a market capital of rm65.8 million

Today?

Karensoft (which had a 1-for-2 bonus issue in June 2005) now has some 115.015 million shares.

Now at 0.065 sen, Karensoft market value (market cap) is only some 7.475 million.

Soooooooooooo ...... from 2nd Dec 2004 to 20th Dec 2005, some 58.35 million in market value has simply vanished!
This for me is the huge issue. Huge Issue. Cos most of the messdaq stocks have been trading at a rather high price before crashing. Look at Karensoft, one of them Messdaq stocks had a market value was much as 65.8 million on Dec 2nd 2004. Now, almost a year later some 58.35 million has vanished!!

Think about it.
For a stock like Karensoft, this stock had the means to erase some 58.35 million in market capital from our stock exchange. And this is only one of them troubled Messdaq stock. Aren't the numbers mind boggling?

Do such listings create or ultimately destroy value?

How?

If an investor bought and hold such a share, what would happen to their value of their shareholding?
See the importance of creating value in the market and not quantity?

Yes, yes, yes in this incident, the investor was probably wrong and silly to buy and hold a poor quality stock but let's think in regard to the market itself. Yes, Mr.Market.

Can the market survive without these 'investors'?

Can the market exist without any minority shareholders?

Can the market survive if all there exists is rather poor quality stocks?

Who would want to invest in a poor business?

Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?
Is bigger neccessary better?
Think about it.

------------------------

How?

It's now June 2011.

Look at Mclean. Look at XOX.

Aren't we talking about the same old issue, over and over and over again?

Sigh.
And I ask once more:

Shouldn't due consideration be made on improving the quality of the newly listed stocks rather than the issue of churning out more business for the exchange?

 Some simple facts when Bumi Armada was TAKEN PRIVATE back in 2003. 

1. Bumi Armada had an eps of RM 1.01 per share
2. Bumi Armada had a growth rate of 25% per annum.
3. Bumi Armada was delisted at rm 7.00.
4. That's an PE multiple of 7x based on CURRENT earnings.
5. With a growth rate of 25% per annum, Bumi Armada's eps would hit RM 1.97 per share within 3 years.
6. And the EPS would double to RM 2.46 per share by the 4th year.
7. Using a price of 7.00, the stock WAS TAKEN private with a pe of 3.55x using a 3 year forward earning.

Shocking?

Yes, that was how CHEAP Bumi Armada was delisted via a privatisation exercise.

Many felt robbed!

But now Bumi Armada is GOING to be relisted on the stock exchange again.

Incredible isn't it?

Companies can easily list and delist and list again in Bursa Malaysia.

Doesn't this make a total mockery of the stock exchange?

Why our stock exchange so no class? Why allow stocks to list, delist and list again? Main masak-masak ah?

Mentioned in the blog posting: How Will Previous Shareholders Feel About Bumi Armada's Re-Listing?

• It is a US$1 billion IPO, which values the company at about 20 times price-earnings for its 2011 earnings, and 16 times for 2012," a banking source said yesterday.

Think about it.

If you are a long term investor, how?

Think about it once again. Stock moves up and down. What if, in the future,  when the stock moves down, the company decides to pull off the same stunt all over again? Not possible?

Yes, what if, in the future, the company decides to take the company private at a cheap price, as we had witnessed back in 2003?

Is that not possible?

Would you want to take such a risk?

Do you want to give the company a chance to make a fool out of your money again?

Ok. I, understand, many 'IPO investors' are merely speculators who subscribes to the IPO hoping the stock would jump on listing day.

It's an open strategy - which I would not criticise at all. It's not for me to comment on how one attempts to make money from the market.

However, recently, the past few IPOs aren't hot!

IPO investors and speculators are hit badly with plunging IPOs. For example? XOX Plunged 35% On Listing Day! And what was most annoying was that despite the stock opening significantly lower than its IPO price and continued to plunge after that. the major shareholders Of XOX were photographed laughing happily while pointing at a screen which was displaying the stock trading at a loss and of course, this triggered the usual Blame Game on the local press.

Some comments stood out.

• New listings on Bursa Malaysia are failing to gain premium in the market because their valuations are overstretched in the first place, merchant bankers who spoke on condition of anonimity said yesterday.
  
  Recent IPOs such as XOX Bhd, UOA Development Bhd, MCLean Technologies Bhd and Ideal Jacobs (Malaysia) Corp Bhd struggled to gain premiums on their debut or struggled to maintain their momentum.
  
  "For most of the initial public offers (IPOs) coming out in the market now, the valuations were done at least three or four months ago, when the appetite for risk was much greater," said a merchant banker who has worked directly on a couple of IPOs earlier in the year.

Yeah, they admitted it.

That because the demand was there or the appetite for risk, IPOs were priced at a premium with overstretched valuations.

And would this not best reflect the Bumi Armada relisting?

The company, which had a 25% per annum growth, was taken private using a CURRENT earnings valuation.

And how does the stock wants to be relisted? Let me quote again:

• It is a US$1 billion IPO, which values the company at about 20 times price-earnings for its 2011 earnings, and 16 times for 2012," a banking source said yesterday.

Won't you say that stock is priced at a premium?

Won't you?

ps: Again this reminds me of this one statement made: 'When stocks are taken private, the minority shareholders are offered the cheapest possible valuation but when stocks are listed, they WILL be sold to the prospective investors at a premium price!'

And on yesterday, the CEO made an incredible statement on Business Times:  Buoyant outlook for Bumi Armada

• We are going to the capital market to have a good dose of equity. We believe this exercise will help to grow the company further," said director and chief executive officer Hassan Basma in Singapore.
  
  
  

WOW!

That's very nice of the CEO to tell the investing public that they are going to the stock market to be listed so that they can get a good DOSE of liquidity (Money!!!!)

And Bumi Armada's preliminary prospectus is already loaded on SC website.

The following pdf file is interesting: http://www.sc.com.my/eng/html/Prospectus/pdf/Armada/Pg11_Financial_info.pdf

Page 9 of the pdf file:

• We have and will continue to have a significant amount of borrowings. As at 31 December 2010, our total borrowings stood at RM3,418.9 million (including RM1.2 million of hire purchase). Our ability to service our debts and other contractual obligations will depend on our future performance and cash flow generation, which in turn will be affected by various factors, many of which are beyond our control.
  
  
  As a result of our indebtedness, we are exposed to interest rate risk, primarily from borrowings bearing variable interest rates to the extent that our exposure to floating interest rates remains unhedged by interest rate swaps.

And isn't this great?
 
When Bumi Armada was delisted back in 2003, it was only carrying some 148 million in debts. (you can verify that fact by clicking Barmada's quarterly earnings report here - data from word file attached)
 
Now it's carrying some 3.4 BILLION in debts, it wants to get a good dose of liquidity, a good dose of money by relisting!
 
Now, isn't the stock market a great place to get money?
 
So how?
 
Do you want Bumi Armada's IPO?
 
ps: I have no idea how the stock will trade on its relisting but I certainty DO NOT want to be an investor of this company. The stock can double or triple in the next years but such opportunity is NOT an opportunity at all for me. Yes, it won't bother me a single bit if I miss out and neither would I jump for joy if the stock tanks! I am just NOT interested. :)

Oh dearie me!

Many thanks to peng01 for the following pix.

Do read peng01 post here: http://peng01.blogspot.com/2011/06/xox-d.html

Sigh!

I understand that their average cost per share is so low ( see posting here ) but how could they be laughing so happily when their share created IPO Hall Of Shame when it plunged 35% on its listing day?

I just saw  the following Business Times article: Overstretched valuations to blame

• Overstretched valuations to blame
  
  By Francis Fernandez Published: 2011/06/13
  
  KUALA LUMPUR: New listings on Bursa Malaysia are failing to gain premium in the market because their valuations are overstretched in the first place, merchant bankers who spoke on condition of anonimity said yesterday.
  
  Recent IPOs such as XOX Bhd, UOA Development Bhd, MCLean Technologies Bhd and Ideal Jacobs (Malaysia) Corp Bhd struggled to gain premiums on their debut or struggled to maintain their momentum.
  
  "For most of the initial public offers (IPOs) coming out in the market now, the valuations were done at least three or four months ago, when the appetite for risk was much greater," said a merchant banker who has worked directly on a couple of IPOs earlier in the year.
  
  He added that the trend of new listings not doing well on their debut are not confined to Malaysia alone, as even some of the IPOs in Hong Kong and Singapore have fallen flat in recent weeks.
  
  "You look at the Samsonite IPO in Hong Kong, it has jolted the valuations ... not only of the company, but also of its rivals. The ripples are everywhere as the June swoon sweeps the market," said another merchant banker........................

So overstretched valuations are to blame? Such a kind set of words to use. Some would rather prefer a much cruder and perhaps in the case of XOX,  'Bullshit Valuations Caused Stock To Crash!' Could anyone blame such harsh set of words?

More so since hXOX had plunged 35% on listing day. ( Stock is currently down another 8.75%  or 4.5 sen at 0.475! Remember the stock was IPOed to the investing public at 0.80 sen! WTH??? )

So why are these merchant bankers speaking on the condition of anomity?

Isn't this such a grave and serious situation here?

Wouldn't it be much nicer and transparent if we, the reader of the news, know who and who is talking what?

Anyway, who are the ones packaging and advising these **** IPOs? Aren't the merchant bankers and investment bankers the advisors of the IPOs?

And now these unknown merhcant bankers are blaming overstretched valuations?

I wonder who is blaming who now?

And so how badly overstretched are these valuations?

Take the XOX case. Company business model was questionable. It had literally no asset (NTA is valued at 11 sen per share!) since it was a leeching business model, piggy backing on Celcom's Axiata. It  was CLEARLY not making any profit and losing much money! But yet the IPO was priced at 80 sen?

How can?

Why? Was it based on the fact that the company states it would produce an incredible profit turnaround of 19.8 million this fiscal year? Yeah, wasn't it stretched way beyond belief?


Well for the case of XOX, AmInvestment bank was the advisor, sponsor, managing underwriter and sole placement agent and SJ Securities is the co-underwriter.

Now I wonder if AmInvestment understand and realise how badly stretched the valuation is for XOX?

Did XOX gave those overly optimistic earnings projections themselves?

Or were they advised by their bankers?

How?

How did THESE OVERSTRETCHED VALUATIONS arrived?

And then I cannot believe the next sentence.

• "For most of the initial public offers (IPOs) coming out in the market now, the valuations were done at least three or four months ago, when the appetite for risk was much greater," said a merchant banker who has worked directly on a couple of IPOs earlier in the year.

Wah! Can talk like this meh? Does it mean that because the APPETITE for risk is greater that the IPOs are priced with much stretched valuations?

Wah! I hope my understanding is not wrong here.

And the last highlighted sentence...

• He added that the trend of new listings not doing well on their debut are not confined to Malaysia alone, as even some of the IPOs in Hong Kong and Singapore have fallen flat in recent weeks.

Err... I seriously do no like such comments. Comeon. Just because it happened in other countries is not an EXCUSE!

Seriously!

Comeon!

Just because other countries IPOs collapsed and kaput-ed, does this give our IPO the same bloody excuse to crash and plunge like XOX!

Can we have seriously better mentality here?

Sigh.