That ain't no way to Bio-Treat investors
If there is one thing investors hate more than uncertainty, it’s negative surprises. And Bio-Treat Technology is guilty of creating both. At issue is the surprise fourth quarter loss the company announced yesterday, which caused the stock to plummet 31.1% to a 10-month low in the Wednesday session. The loss was caused by, among other things, a RMB 36 mln cost overrun at its RMB 288 mln Xianyang waste water treatment project. That’s a blowout of 12.5%. The cost overrun contributed to a 42.3% drop in FY2006 net profit to RMB 189 mln. Other factors were higher finance costs, taxes and operating expenses. But already at the operating level, where you subtract the cost of sales from revenue, Bio-Treat registered a decline in eanings.
The Xianyang project was unveiled in October 2004, and was divided into two stages. The 200,000 cubic metre build-operate-transfer wastewater treatment project was going to be half completed by the end of 2005 and the other half by the end of 2006. It was Bio-Treat’s first, and marked the start of a long list of contract announcements. It is difficult to believe that the RMB 36 mln cost blow-out was itself a surprise to the company. Whether it was or not, the company should have warned investors before releasing its results. Instead, these were the announcements posted on the SGXNet website since the end of the financial year:
Jul 26 2006 MISCELLANEOUS :: BIO-TREAT SECURES NEW TURNKEY PROJECT IN SHENZHEN CITY WITH CONTRACT VALUE OF RMB270,000,000
Jul 25 2006 MISCELLANEOUS :: BIO-TREAT SECURES TWO TRANSFER-OPERATE-TRANSFER ("TOT") PROJECTS WITH CONTRACT VALUES TOTALLING RMB376,000,000
Jul 10 2006 MISCELLANEOUS :: BIO-TREAT CLINCHES FIRST LARGE-SCALE UNDERGROUND WASTEWATER TREATMENT PROJECT IN BEIJING
No mention of any problems with the accounts here. Building up investors’ expectations before letting them down so badly is, at best, poor form. Are we now to believe that its other projects are going to cost more than budgeted? And we are still no closer to understanding what caused the cost overrun in the first place.
Bio-Treat has a lot going for it. It has an orderbook of more than RMB 1 bln and its services are in demand from the increasingly environmentally-aware Chinese authorities. The business generated RMB 114.4 mln in cash from operations. Trading at three times book value, investors are placing a lot of confidence in it, confidence which has been damaged by this affair.
Execution risk is now the name of the game, and management will have to work specially hard to convince investors once more that they can pull this off.
The Xianyang project was unveiled in October 2004, and was divided into two stages. The 200,000 cubic metre build-operate-transfer wastewater treatment project was going to be half completed by the end of 2005 and the other half by the end of 2006. It was Bio-Treat’s first, and marked the start of a long list of contract announcements. It is difficult to believe that the RMB 36 mln cost blow-out was itself a surprise to the company. Whether it was or not, the company should have warned investors before releasing its results. Instead, these were the announcements posted on the SGXNet website since the end of the financial year:
Jul 26 2006 MISCELLANEOUS :: BIO-TREAT SECURES NEW TURNKEY PROJECT IN SHENZHEN CITY WITH CONTRACT VALUE OF RMB270,000,000
Jul 25 2006 MISCELLANEOUS :: BIO-TREAT SECURES TWO TRANSFER-OPERATE-TRANSFER ("TOT") PROJECTS WITH CONTRACT VALUES TOTALLING RMB376,000,000
Jul 10 2006 MISCELLANEOUS :: BIO-TREAT CLINCHES FIRST LARGE-SCALE UNDERGROUND WASTEWATER TREATMENT PROJECT IN BEIJING
No mention of any problems with the accounts here. Building up investors’ expectations before letting them down so badly is, at best, poor form. Are we now to believe that its other projects are going to cost more than budgeted? And we are still no closer to understanding what caused the cost overrun in the first place.
Bio-Treat has a lot going for it. It has an orderbook of more than RMB 1 bln and its services are in demand from the increasingly environmentally-aware Chinese authorities. The business generated RMB 114.4 mln in cash from operations. Trading at three times book value, investors are placing a lot of confidence in it, confidence which has been damaged by this affair.
Execution risk is now the name of the game, and management will have to work specially hard to convince investors once more that they can pull this off.
Poor Parkway, poor PM Badawi
I'm not sure who to feel more sorry for: Parkway Holdings or Malaysian Prime Minister Abdullah Badawi. Both are in a bit of a spot over the planned purchase of Pantai Holdings. Parkway bought a 31% stake in the Malaysian hospital operator almost a year ago. But in a twist all too familiar to Singaporeans and Malaysians, the matter has become caught up in the political quagmire. The Malaysians might be retaining their prized hospitals, but they are showing the world that Malaysia boleh. That is, Malaysia can do whatever it wants. Even if it is to their own disadvantage. Instead of retaining control of their hospitals, they are actually giving more of it away.
Consider the facts: Parkway bought a 31% stake in Pantai Holdings from CEO Lim Tong Yong and on the open market in September last year for RM 311.58 mln. Lim had bought his shares from Mokhzani Mahathir, son of the former prime minister. The deal boosted Parkway's hospitals in Malaysia from two to nine, and the company was applauded for its expansion beyond Singapore. Plus, we all felt warm and fuzzy about the fact that Singapore/Malaysia relations were improving and we could all be friends again.
The fact that the Malaysians went back on their word for political rather than economic or, alas, common sense reasons is clearly illustrated by this report from Bernama. It says:
Govt Studying Action To Be Taken On Sale Of Pantai Stake
KEPALA BATAS, Aug 13 (Bernama) -- Prime Minister Datuk Seri Abdullah Ahmad Badawi said the government was studying the necessary action to be taken pertaining to the disposal of a 31 per cent stake in Pantai Holdings Bhd to Singapore-based Parkway Holdings Ltd.
He said the matter was being looked into by the Treasury after realising that it had become a problem as it was related to the concession for the supply of hospital requirements.
"The share sale has become a problem, as it involves several matters related to the concession given to Pantai Holdings, that is a contract to supply hospital requirements," he told reporters after launching the Yayasan Budi Penyayang Foundation Day and opening of the Bank Muamalat Malaysia Bhd's Kepala Batas branch at the Budi Penyayang Complex here Sunday.
So, what about the share sale has become a problem?
For that, we turn to the next illuminating paragraph:
He said the government had always hoped that the equity would remain with Malaysians but unfortunately it had gone into the hands of foreigners.
Ah, the true motivation has been revealed. The Malaysians are jealous. Again.
As a result, Parkway is instead selling its stake to a joint venture of which it will own 49% and Temasek-equivalent Khazana Nasional 51%. Parkway will then aim for a hospital management contract. In essence, it will get the economic benefit of running the hospitals without the capital requirements to buy them. A pretty good deal, actually. One wonders whether this will actually make the Malaysians happy.
I feel for PM Badawi. He can see where the country needs to go. But too many self-absorbed critics stand in his way.
In a remarkable irony, the same Bernama report goes on to quote the prime minister about another hot topic at the opening of the Bank Muamalat Malaysia Bhd's Kepala Batas branch at the Budi Penyayang Complex:
On the rising cases of snatch thefts, Abdullah said the government had no plans to impose heavier sentences on the offenders.
Now, there is a real case of theft the critics ought to be pursuing.
Consider the facts: Parkway bought a 31% stake in Pantai Holdings from CEO Lim Tong Yong and on the open market in September last year for RM 311.58 mln. Lim had bought his shares from Mokhzani Mahathir, son of the former prime minister. The deal boosted Parkway's hospitals in Malaysia from two to nine, and the company was applauded for its expansion beyond Singapore. Plus, we all felt warm and fuzzy about the fact that Singapore/Malaysia relations were improving and we could all be friends again.
The fact that the Malaysians went back on their word for political rather than economic or, alas, common sense reasons is clearly illustrated by this report from Bernama. It says:
Govt Studying Action To Be Taken On Sale Of Pantai Stake
KEPALA BATAS, Aug 13 (Bernama) -- Prime Minister Datuk Seri Abdullah Ahmad Badawi said the government was studying the necessary action to be taken pertaining to the disposal of a 31 per cent stake in Pantai Holdings Bhd to Singapore-based Parkway Holdings Ltd.
He said the matter was being looked into by the Treasury after realising that it had become a problem as it was related to the concession for the supply of hospital requirements.
"The share sale has become a problem, as it involves several matters related to the concession given to Pantai Holdings, that is a contract to supply hospital requirements," he told reporters after launching the Yayasan Budi Penyayang Foundation Day and opening of the Bank Muamalat Malaysia Bhd's Kepala Batas branch at the Budi Penyayang Complex here Sunday.
So, what about the share sale has become a problem?
For that, we turn to the next illuminating paragraph:
He said the government had always hoped that the equity would remain with Malaysians but unfortunately it had gone into the hands of foreigners.
Ah, the true motivation has been revealed. The Malaysians are jealous. Again.
As a result, Parkway is instead selling its stake to a joint venture of which it will own 49% and Temasek-equivalent Khazana Nasional 51%. Parkway will then aim for a hospital management contract. In essence, it will get the economic benefit of running the hospitals without the capital requirements to buy them. A pretty good deal, actually. One wonders whether this will actually make the Malaysians happy.
I feel for PM Badawi. He can see where the country needs to go. But too many self-absorbed critics stand in his way.
In a remarkable irony, the same Bernama report goes on to quote the prime minister about another hot topic at the opening of the Bank Muamalat Malaysia Bhd's Kepala Batas branch at the Budi Penyayang Complex:
On the rising cases of snatch thefts, Abdullah said the government had no plans to impose heavier sentences on the offenders.
Now, there is a real case of theft the critics ought to be pursuing.
Creative vs Apple - Who’s the real winner?
On the face of it, it’s fantastic news for Creative: this morning it announced jointly with Apple that they had settled their patent dispute out of court, with Apple paying US$100 mln to Creative for a paid-up license to use technology patented by Creative, with a chance to earn some of it back when other companies license Creative’s patented technology.
In addition, they’re going to be working closer together. Creative is joining Apple’s “Made for iPod” program, whereby third party suppliers make products for the iPod. In this case, Creative is going to supply speakers, earphones, headphones and audio enhancement products.
Apple’s CEO Steve Jobs nailed it when he said the deal “removes the uncertainty and distraction of prolonged litigation”. But where does this leave the two companies’ competitive position in the longer term?
My view is that Apple is the winner. The reason for this is illustrated most poignantly by the fact that Creative is going to create products for the iPod. Not the other way around. Apple is not going to create products for Creative’s Zen, Nomad and MuVo brands of MP3 players, even though they may be better in some respects than the iPod, such as the fact that Creative’s players come with built-in radio. As Sim Wong Hoo admits in the same statement: “Apple has built up a huge ecosystem for its iPod”. And Creative has not. That’s the difference. Not product specs.
Creative has won the battle. But Apple has won the war. Creative’s participation in the “Made for iPod” program means that the only real challenger to the iPod has become a supplier to the iPod. Sure, Creative is now able to take part in the growth of its competitor, but before long they will have to ask themselves for how long they will continue to be competition. When will Creative realise the futility of making its own MP3 players? All of this leaves Creative back to where it started: in the absence of the soundcard market which made it famous, it is looking for a new product to excel in. If Creative is smart it will use the US$100 mln to develop such products, and after that let its MP3 players disappear slowly from the scene.
In addition, they’re going to be working closer together. Creative is joining Apple’s “Made for iPod” program, whereby third party suppliers make products for the iPod. In this case, Creative is going to supply speakers, earphones, headphones and audio enhancement products.
Apple’s CEO Steve Jobs nailed it when he said the deal “removes the uncertainty and distraction of prolonged litigation”. But where does this leave the two companies’ competitive position in the longer term?
My view is that Apple is the winner. The reason for this is illustrated most poignantly by the fact that Creative is going to create products for the iPod. Not the other way around. Apple is not going to create products for Creative’s Zen, Nomad and MuVo brands of MP3 players, even though they may be better in some respects than the iPod, such as the fact that Creative’s players come with built-in radio. As Sim Wong Hoo admits in the same statement: “Apple has built up a huge ecosystem for its iPod”. And Creative has not. That’s the difference. Not product specs.
Creative has won the battle. But Apple has won the war. Creative’s participation in the “Made for iPod” program means that the only real challenger to the iPod has become a supplier to the iPod. Sure, Creative is now able to take part in the growth of its competitor, but before long they will have to ask themselves for how long they will continue to be competition. When will Creative realise the futility of making its own MP3 players? All of this leaves Creative back to where it started: in the absence of the soundcard market which made it famous, it is looking for a new product to excel in. If Creative is smart it will use the US$100 mln to develop such products, and after that let its MP3 players disappear slowly from the scene.
SGX trading hours – it’s a non-issue
It is clearly in the interest of an efficient market for investors to be well-informed, and for information to be equally accessible to everyone. But I am not certain Mr G N Setty’s suggestion in the Business Times late last week of a later start to trading on the Singapore Exchange is the answer.
Writing his letter from Sydney, Mr Setty would know the Australian Stock Exchange only opens from 10am to 4pm Eastern time, but companies often post their announcements during the session. If the news is going to move the market, they ask for a trading halt.
The problem with the current arrangement on the Singapore Exchange is not the trading hours, but the tendency of many companies to disclose market moving information after the market closes.
First, many analysts already work long hours into the evening in order to advise their clients by the following morning.
Second, journalists have a tough time meeting editorial deadlines when they have to attend press conferences in the evening.
Third, during earnings season the sheer volume of corporate announcements means it is virtually impossible for analysts and journalists to cover all the important stories well, and for the investing public to digest all the news. Public relations firms regularly resort to distributing press releases and presentation materials on SGXNet over the course of a few days, in the hope their story will be picked up by the media even several days after the statutory financial statements were posted.
The irony is that the SGX advocates this. They want companies to post their crucial announcements after the market has closed, to allow as much time as possible for investors to catch up with it. The problem is, while there are many hours between the 5pm close and the 9am open the following morning, few people are actually awake for all of them. Plus there are many companies, such as SingTel, STATS ChipPAC, Chartered Semiconductor and Creative Technologies, which tend to report early in the morning, with only one or two hours before the market opens.
In my view, companies should avail themselves of a trading halt more frequently and post their announcements during the session. They would have the market’s attention to themselves. Their shares might also see more interest once they resume trade. It would make for a far more interesting trading session if there was lots of news breaking and lots of action going on, rather than the day’s trade only bouncing off the previous night’s news, or the smattering of announcements at lunchtime.
Having more time to digest news is only half the equation. A more important question is how far investors are willing to go to stay informed. The days when the press was the only disseminator of information, and investors had to wait to read announcements in the newspaper the following morning, are long over.
Writing his letter from Sydney, Mr Setty would know the Australian Stock Exchange only opens from 10am to 4pm Eastern time, but companies often post their announcements during the session. If the news is going to move the market, they ask for a trading halt.
The problem with the current arrangement on the Singapore Exchange is not the trading hours, but the tendency of many companies to disclose market moving information after the market closes.
First, many analysts already work long hours into the evening in order to advise their clients by the following morning.
Second, journalists have a tough time meeting editorial deadlines when they have to attend press conferences in the evening.
Third, during earnings season the sheer volume of corporate announcements means it is virtually impossible for analysts and journalists to cover all the important stories well, and for the investing public to digest all the news. Public relations firms regularly resort to distributing press releases and presentation materials on SGXNet over the course of a few days, in the hope their story will be picked up by the media even several days after the statutory financial statements were posted.
The irony is that the SGX advocates this. They want companies to post their crucial announcements after the market has closed, to allow as much time as possible for investors to catch up with it. The problem is, while there are many hours between the 5pm close and the 9am open the following morning, few people are actually awake for all of them. Plus there are many companies, such as SingTel, STATS ChipPAC, Chartered Semiconductor and Creative Technologies, which tend to report early in the morning, with only one or two hours before the market opens.
In my view, companies should avail themselves of a trading halt more frequently and post their announcements during the session. They would have the market’s attention to themselves. Their shares might also see more interest once they resume trade. It would make for a far more interesting trading session if there was lots of news breaking and lots of action going on, rather than the day’s trade only bouncing off the previous night’s news, or the smattering of announcements at lunchtime.
Having more time to digest news is only half the equation. A more important question is how far investors are willing to go to stay informed. The days when the press was the only disseminator of information, and investors had to wait to read announcements in the newspaper the following morning, are long over.
Keppel Tele & Trans - Bluffing?
If I was a shareholder in MobileOne, I would be watching very carefully what Keppel Telecommunications & Transportation is doing, and I would believe only half of their statement this evening about their recent share purchases.
Keppel T&T said this evening it bought 15.68 mln shares between July 24 and August 15 at an average of S$1.98 per share worth S$31.1 mln. Keppel T&T now owns 16.25% of M1.
The official reason:
1. M1 is a well-managed company with good long-term prospects and KTPL can participate in its growth; and
2. the purchase of the Shares will have a positive impact on the earnings of the Company.
C’mon, give me a break!
Yes, these things are probably all true (leaving aside the fact that Keppel T&T is almost alone in thinking that M1 has good long-term prospects).
But consider these points:
1. The statement reads almost exactly the same as their statement on July 22. It’s a little too obvious to be putting out these statements so regularly. It’s as though they are signalling that they are not going to launch a takeover bid, without saying as much. Who are they signaling to? Possibly the market, so it doesn’t get too excited. But more so probably: Telekom Malaysia.
2. On July 25 it announced interim earnings. Revenue was down 11.5% for the first half and 18.8% for the second quarter. But profit rose around 3.5% in each case. Why? Because of 20% growth in its share of results of associated companies such as MobileOne. In other words: Keppel T&T needs MobileOne (and its other investments) to boost profits even as revenue falls.
3. On June 12, Keppel T&T announced it was making a strategic acquisition in China by buying a 25% stake in Wuhu Annto Logistics Company. The price tag: S$9.9 mln in cash. If this acquisition is being called ‘strategic’, what then please is the S$31.1 mln acquisition of M1 shares in the short space of three weeks?!
4. Keppel T&T used to own 35% of MobileOne before M1 was publicly listed. I can well imagine that there is a sense that M1 was “the one that got away”.
5. Given the importance of MobileOne to Keppel T&T’s earnings, it can’t afford to let Telekom Malaysia buy the telco over. Sure, it would make a lot of money by selling its stake into a bid but after the party the hangover and search for fresh cashflows will be greater. Looking at how Vantage Corp has been fighting tooth and nail to retain its investment in Pacific Internet, the hangover might be very ugly indeed.
Here’s what I think:
Keppel T&T is bluffing. It is purposely putting out press statements highlighting its purchases. They’re purposely trying to make people think they are preparing for a full bid so that the price rises. This means Keppel T&T is not interested in raising its stake to 30%, but wants its existing shares to be worth more.
Keppel T&T has a market cap of S$890 mln. M1 is worth S$1.9 bln. It can’t afford to buy M1. Plus Keppel has a debt to equity ratio of 0.51. It could certainly afford more debt, but to find out whether this would be nearly enough to buy out M1 we would need to ask Keppel T&T’s wealthy parent.
Still, I have my doubts that Keppel T&T won’t make a full bid for M1. If they weren’t, why not just say what Fraser & Neave keeps saying about its purchases in Asia Pacific Breweries: we intend to keep APB as a listed company.
The jury’s still out, but the message clearly being sent across the causway is: watch out.
Keppel T&T said this evening it bought 15.68 mln shares between July 24 and August 15 at an average of S$1.98 per share worth S$31.1 mln. Keppel T&T now owns 16.25% of M1.
The official reason:
1. M1 is a well-managed company with good long-term prospects and KTPL can participate in its growth; and
2. the purchase of the Shares will have a positive impact on the earnings of the Company.
C’mon, give me a break!
Yes, these things are probably all true (leaving aside the fact that Keppel T&T is almost alone in thinking that M1 has good long-term prospects).
But consider these points:
1. The statement reads almost exactly the same as their statement on July 22. It’s a little too obvious to be putting out these statements so regularly. It’s as though they are signalling that they are not going to launch a takeover bid, without saying as much. Who are they signaling to? Possibly the market, so it doesn’t get too excited. But more so probably: Telekom Malaysia.
2. On July 25 it announced interim earnings. Revenue was down 11.5% for the first half and 18.8% for the second quarter. But profit rose around 3.5% in each case. Why? Because of 20% growth in its share of results of associated companies such as MobileOne. In other words: Keppel T&T needs MobileOne (and its other investments) to boost profits even as revenue falls.
3. On June 12, Keppel T&T announced it was making a strategic acquisition in China by buying a 25% stake in Wuhu Annto Logistics Company. The price tag: S$9.9 mln in cash. If this acquisition is being called ‘strategic’, what then please is the S$31.1 mln acquisition of M1 shares in the short space of three weeks?!
4. Keppel T&T used to own 35% of MobileOne before M1 was publicly listed. I can well imagine that there is a sense that M1 was “the one that got away”.
5. Given the importance of MobileOne to Keppel T&T’s earnings, it can’t afford to let Telekom Malaysia buy the telco over. Sure, it would make a lot of money by selling its stake into a bid but after the party the hangover and search for fresh cashflows will be greater. Looking at how Vantage Corp has been fighting tooth and nail to retain its investment in Pacific Internet, the hangover might be very ugly indeed.
Here’s what I think:
Keppel T&T is bluffing. It is purposely putting out press statements highlighting its purchases. They’re purposely trying to make people think they are preparing for a full bid so that the price rises. This means Keppel T&T is not interested in raising its stake to 30%, but wants its existing shares to be worth more.
Keppel T&T has a market cap of S$890 mln. M1 is worth S$1.9 bln. It can’t afford to buy M1. Plus Keppel has a debt to equity ratio of 0.51. It could certainly afford more debt, but to find out whether this would be nearly enough to buy out M1 we would need to ask Keppel T&T’s wealthy parent.
Still, I have my doubts that Keppel T&T won’t make a full bid for M1. If they weren’t, why not just say what Fraser & Neave keeps saying about its purchases in Asia Pacific Breweries: we intend to keep APB as a listed company.
The jury’s still out, but the message clearly being sent across the causway is: watch out.
Jardine Cycle & Carriage – Why is it taking so long?
I am not making allegations of accounting malfeasance at Astra International or its majority shareholder Jardine Cycle & Carriage. I have no evidence that anything untoward has happened at either company. I have no intimate knowledge of any problems with their books. But when Jardine Cycle & Carriage announced this evening that it had asked for and received yet another extension to file its financial statement, the red flags went up in my head.
The reason they have deferred announcing their financial statements is because they are trying to consolidate the earnings of Astra with their own. That’s normal procedure when a company becomes a subsidiary of a parent company. What’s unusual is that it’s taking so long.
Tonight it said:
Jardine Cycle & Carriage Limited ("JC&C" or the "Company") had previously announced that due to the magnitude of work involved and complexities in consolidating PT Astra International Tbk ("Astra") as a subsidiary, it might not be able to meet the financial results reporting deadlines under the Listing Manual for the next few financial periods.
Jardine Cycle & Carriage has received extensions before, as it announced on February 15 and May 15. In that second announcement, it clarified how it was progressing on that integration.
1. The computerised consolidation system to prepare the consolidated accounts under the Indonesian accounting standards and under the International Financial Reporting Standards ("IFRS") was implemented by Astra and the year end consolidation of the Astra group was prepared using the system.
2. Steps are being taken to improve the system and to computerise more areas of the consolidation process and generate additional reports in order to reduce the amount of manual checks and work required.
3. Training needs have been identified and workshops are being conducted to familiarise Astra staff in the use of the computerised consolidation system.
4. Training seminars and workshops are also being conducted to promote a better understanding of existing IFRS which are complex and different from Indonesian practices and to update staff on any new standards, amendments and interpretations that have become effective in this financial year.
The Company and Astra group continue to work towards timely completion of the streamlining of the consolidation and financial reporting process and improving the accounting software system.
All that sounds above board, and I certainly hope it is. I tried to ring their corporate office this evening to find out more but everyone had already gone home.
Remember China Aviation Oil, which so innocuously announced in 2004 that it was getting out of the oil derivatives trading business? I remember that announcement coming through. I presented the story on CNBC at the time, and remember remarking on air that “I didn’t even know they were into oil derivatives”. Of course, we all know how much of a disaster CAO’s oil derivatives business turned out to be. Or when Accord Customer Care announced similarly innocuously (but arguably more forebodingly) that Nokia had cancelled its contracts with them in 11 countries (except, strangely, in New Zealand). In light of these two events investors would do well not to ignore innocuous statements.
The reason they have deferred announcing their financial statements is because they are trying to consolidate the earnings of Astra with their own. That’s normal procedure when a company becomes a subsidiary of a parent company. What’s unusual is that it’s taking so long.
Tonight it said:
Jardine Cycle & Carriage Limited ("JC&C" or the "Company") had previously announced that due to the magnitude of work involved and complexities in consolidating PT Astra International Tbk ("Astra") as a subsidiary, it might not be able to meet the financial results reporting deadlines under the Listing Manual for the next few financial periods.
Jardine Cycle & Carriage has received extensions before, as it announced on February 15 and May 15. In that second announcement, it clarified how it was progressing on that integration.
1. The computerised consolidation system to prepare the consolidated accounts under the Indonesian accounting standards and under the International Financial Reporting Standards ("IFRS") was implemented by Astra and the year end consolidation of the Astra group was prepared using the system.
2. Steps are being taken to improve the system and to computerise more areas of the consolidation process and generate additional reports in order to reduce the amount of manual checks and work required.
3. Training needs have been identified and workshops are being conducted to familiarise Astra staff in the use of the computerised consolidation system.
4. Training seminars and workshops are also being conducted to promote a better understanding of existing IFRS which are complex and different from Indonesian practices and to update staff on any new standards, amendments and interpretations that have become effective in this financial year.
The Company and Astra group continue to work towards timely completion of the streamlining of the consolidation and financial reporting process and improving the accounting software system.
All that sounds above board, and I certainly hope it is. I tried to ring their corporate office this evening to find out more but everyone had already gone home.
Remember China Aviation Oil, which so innocuously announced in 2004 that it was getting out of the oil derivatives trading business? I remember that announcement coming through. I presented the story on CNBC at the time, and remember remarking on air that “I didn’t even know they were into oil derivatives”. Of course, we all know how much of a disaster CAO’s oil derivatives business turned out to be. Or when Accord Customer Care announced similarly innocuously (but arguably more forebodingly) that Nokia had cancelled its contracts with them in 11 countries (except, strangely, in New Zealand). In light of these two events investors would do well not to ignore innocuous statements.
Nothing Like A Positive Research Report
Proof today that Singapore traders and investors are still suckers for research reports. This time, Jonathan Koh fom UOB KayHian set the cat among the pigeons when he recommended that investors go “overweight” on shares in the regional semiconductor industry because it’s “doing much better at managing inventories compared to previous cycles”.
And the pigeons promptly took off.
UTAC was up 5.2% to S$70.5.
Chartered Semiconductor rose 5.4% to S$1.17.
Global Test up 12.2% to S$0.275.
STATS ChipPAC up 3.8% to S$0.95.
Koh is a respected analyst, and I haven’t seen the research report in which he said this – only the Reuters story that reported on it. He probably has thought his recommendation through thoroughly. But let’s put this story to the test, according to the ratios that really matter: cashflow and valuations.
STATS ChipPAC didn’t generate cash in the last twelve months, yet trades at around 2x book value. It generates a return of 4% and pays no dividend.
Chartered Semi is trading at 1.14x book value. Last financial year, it had cashflow of 22 cents per share. But return on equity was negative 11.4%. And it paid no dividend.
UTAC had cashflow per share of 16 cents last financial year and is trading at around 1.4x book value. It’s not paying dividends either, but at least return on equity hovers around 12%.
Global Test generates cash of about 7 cents per share and is trading at 1.1x book value. No dividend here either but it generates a return on equity of around 16 times.
Here are my thoughts:
First, the sector does not seem to be as overpriced as one might think. We’re certainly not seeing any “irrational exuberance”, with stockprices at 2-3 times earnings.
Second, they’re all dogs where free cashflow – the ultimate measure of a company’s financial health – is concerned. Sure enough, it’s a tough business to be in and I don’t envy management – many of whom I have interviewed and met personally – to be trying to increase margins and make a buck. But I’m not here to sugarcoat management’s abilities. I’m here to talk about investors. And as an investor, I wouldn’t touch these stocks with a barge pole. Except maybe UTAC. JC Lee is a good operator. Experienced. Seems to know what he’s doing. But why wade into a stock that’s not paying dividend at 1.4x book value when you can pick up, say, Magnecomp (if you really wanted to be in tech), which is trading at 0.94x book value. That is, you can buy the stock for less than the company is actually worth? Magnecomp gave guidance this evening of a return to profitability. I’m not too keen on a company whose management misjudges demand so badly that not only does demand not materialise but by their own admission they ramped up staff, inventory and production in anticipation of it. But as I said, it’s a tough business to be in, and I would never claim to be able to do it any better.
And that leads me to my third point: valuations are just too high. What good is an accounting profit if the company’s not paying dividends anyway (dividends are declared based on profit, not cashflow. For that, you would have to go to the Pacific Shipping Trust).
So, I’m delighted for all the traders who made money by following Mr Koh’s advice. I’m also delighted for UOB KayHian’s sales guys, and the sales reps at other brokerages, who earnt a few dollars in commissions courtesy of Mr Koh’s report. But on behalf of the investors who like to buy and hold stocks, there wasn’t much in it for us and my guess is we’re going to see shareprices decline again over the course of the week, once US retail sales data are out.
And the pigeons promptly took off.
UTAC was up 5.2% to S$70.5.
Chartered Semiconductor rose 5.4% to S$1.17.
Global Test up 12.2% to S$0.275.
STATS ChipPAC up 3.8% to S$0.95.
Koh is a respected analyst, and I haven’t seen the research report in which he said this – only the Reuters story that reported on it. He probably has thought his recommendation through thoroughly. But let’s put this story to the test, according to the ratios that really matter: cashflow and valuations.
STATS ChipPAC didn’t generate cash in the last twelve months, yet trades at around 2x book value. It generates a return of 4% and pays no dividend.
Chartered Semi is trading at 1.14x book value. Last financial year, it had cashflow of 22 cents per share. But return on equity was negative 11.4%. And it paid no dividend.
UTAC had cashflow per share of 16 cents last financial year and is trading at around 1.4x book value. It’s not paying dividends either, but at least return on equity hovers around 12%.
Global Test generates cash of about 7 cents per share and is trading at 1.1x book value. No dividend here either but it generates a return on equity of around 16 times.
Here are my thoughts:
First, the sector does not seem to be as overpriced as one might think. We’re certainly not seeing any “irrational exuberance”, with stockprices at 2-3 times earnings.
Second, they’re all dogs where free cashflow – the ultimate measure of a company’s financial health – is concerned. Sure enough, it’s a tough business to be in and I don’t envy management – many of whom I have interviewed and met personally – to be trying to increase margins and make a buck. But I’m not here to sugarcoat management’s abilities. I’m here to talk about investors. And as an investor, I wouldn’t touch these stocks with a barge pole. Except maybe UTAC. JC Lee is a good operator. Experienced. Seems to know what he’s doing. But why wade into a stock that’s not paying dividend at 1.4x book value when you can pick up, say, Magnecomp (if you really wanted to be in tech), which is trading at 0.94x book value. That is, you can buy the stock for less than the company is actually worth? Magnecomp gave guidance this evening of a return to profitability. I’m not too keen on a company whose management misjudges demand so badly that not only does demand not materialise but by their own admission they ramped up staff, inventory and production in anticipation of it. But as I said, it’s a tough business to be in, and I would never claim to be able to do it any better.
And that leads me to my third point: valuations are just too high. What good is an accounting profit if the company’s not paying dividends anyway (dividends are declared based on profit, not cashflow. For that, you would have to go to the Pacific Shipping Trust).
So, I’m delighted for all the traders who made money by following Mr Koh’s advice. I’m also delighted for UOB KayHian’s sales guys, and the sales reps at other brokerages, who earnt a few dollars in commissions courtesy of Mr Koh’s report. But on behalf of the investors who like to buy and hold stocks, there wasn’t much in it for us and my guess is we’re going to see shareprices decline again over the course of the week, once US retail sales data are out.
Wasted opportunity: SGX drops ASX trading link
Wasted opportunity: SGX drops ASX trading link
I remember when the Singapore Exchange and the Australian Stock Exchange announced with great fanfare the launch of WorldLink in 2001. It was supposed to allow retail investors in each country to buy shares in companies listed on the other market. Initially, just a handful of companies were included, but it was a virtual treasure trove. All of a sudden Singapore investors had access to Australian bluechips such as BHP Billiton, Rio Tinto, the major banks, Qantas, Telstra, and so on. Likewise, Australian investors had immediate retail access to Singapore-listed banks, as well as Singapore Airlines and a host of other bluechips.
But this was not the strongest selling point. Afterall, why should Australian investors buy shares in Singapore banks when they can buy shares in Australian banks. But critically, it gave investors in each market the opportunity to get exposure to sectors not available to them in their home markets. For example, Singapore investors could gain easy access to the mining sector. And Australian investors, who wanted to gain exposure to the electronics and manufacturing sector could buy a host of stocks that fitted the bill.
It was also easy to assume that the strong ties between the governments of the two countries would filter down to investors. Afterall, many Singaporeans have a strong affinity to Australia, and thousands of Australians flock to or pass through Singapore during their holidays.
But the link failed miserably. Trading volumes were tiny by most accounts (although never formally disclosed), and mostly coming from Singapore investors chasing Australian stocks. In February this year, the ASX closed its part of the link, and today the SGX announced formally what had been known to shareholders for a few weeks, that the SGX-to-ASX link would also be closed down.
The SGX is putting on a brave face. It has learnt a lot from the experience, it says, and could apply that to other proposed links, such as to Bursa Malaysia.
There is certainly some truth to that, but why couldn’t they make the Australian link work?
There are four very easy answers to this.
First, marketing. I don’t recall seeing a lot of promotion of the link. And anyway, promoting the link alone was not enough. The companies that investors had access to should have been pushed more, and in a more concerted effort. Sure enough, Singaporeans and Australians know a little about the companies in each market. But there certainly isn’t the sort of familiarity which is so important to make investors feel they can trust the companies in the other market. Familiarity with companies and their products and services is critical in every market, for the stocks of those companies to be liquid.
Second, cost. When the link was first launched in 2001 I spoke to my broker in Melbourne about buying shares and was told it would cost A$180 per trade. A normal trade with the same broker cost A$110 (it’s a full-service broker). Anyway, forget it. Way too expensive.
Third, access. Internet trades cost A$24.95, but SGX-listed counters were not available for trade through the Australian web-based trading platforms. Similarly, it wasn’t possible to buy ASX-listed shares through POEMS and other Singaporean online platforms. In theory the idea was to give retail investors equal access, but it certainly didn’t happen in practice.
And fourth, depth of retail investor base. Australia has a large but parochial retail shareholder base. That may sound unkind, and I’m certain there are those who are not parochial. But for the masses, there is no doubt about it. Go and ask them. They’ll tell you. And Singaporeans are by their nature not as parochial, which would explain why they did use WorldLink to buy Australian shares, but there are far fewer of them.
I regret very much that the link didn’t work. I don’t have a financial stake in it, or any other interest for that matter. But I thought it was a fantastic idea that was extremely poorly executed. I just hope that the folks at the SGX and Bursa Malaysia learnt from the experience when they get their (long-delayed) trading link up and running.
I remember when the Singapore Exchange and the Australian Stock Exchange announced with great fanfare the launch of WorldLink in 2001. It was supposed to allow retail investors in each country to buy shares in companies listed on the other market. Initially, just a handful of companies were included, but it was a virtual treasure trove. All of a sudden Singapore investors had access to Australian bluechips such as BHP Billiton, Rio Tinto, the major banks, Qantas, Telstra, and so on. Likewise, Australian investors had immediate retail access to Singapore-listed banks, as well as Singapore Airlines and a host of other bluechips.
But this was not the strongest selling point. Afterall, why should Australian investors buy shares in Singapore banks when they can buy shares in Australian banks. But critically, it gave investors in each market the opportunity to get exposure to sectors not available to them in their home markets. For example, Singapore investors could gain easy access to the mining sector. And Australian investors, who wanted to gain exposure to the electronics and manufacturing sector could buy a host of stocks that fitted the bill.
It was also easy to assume that the strong ties between the governments of the two countries would filter down to investors. Afterall, many Singaporeans have a strong affinity to Australia, and thousands of Australians flock to or pass through Singapore during their holidays.
But the link failed miserably. Trading volumes were tiny by most accounts (although never formally disclosed), and mostly coming from Singapore investors chasing Australian stocks. In February this year, the ASX closed its part of the link, and today the SGX announced formally what had been known to shareholders for a few weeks, that the SGX-to-ASX link would also be closed down.
The SGX is putting on a brave face. It has learnt a lot from the experience, it says, and could apply that to other proposed links, such as to Bursa Malaysia.
There is certainly some truth to that, but why couldn’t they make the Australian link work?
There are four very easy answers to this.
First, marketing. I don’t recall seeing a lot of promotion of the link. And anyway, promoting the link alone was not enough. The companies that investors had access to should have been pushed more, and in a more concerted effort. Sure enough, Singaporeans and Australians know a little about the companies in each market. But there certainly isn’t the sort of familiarity which is so important to make investors feel they can trust the companies in the other market. Familiarity with companies and their products and services is critical in every market, for the stocks of those companies to be liquid.
Second, cost. When the link was first launched in 2001 I spoke to my broker in Melbourne about buying shares and was told it would cost A$180 per trade. A normal trade with the same broker cost A$110 (it’s a full-service broker). Anyway, forget it. Way too expensive.
Third, access. Internet trades cost A$24.95, but SGX-listed counters were not available for trade through the Australian web-based trading platforms. Similarly, it wasn’t possible to buy ASX-listed shares through POEMS and other Singaporean online platforms. In theory the idea was to give retail investors equal access, but it certainly didn’t happen in practice.
And fourth, depth of retail investor base. Australia has a large but parochial retail shareholder base. That may sound unkind, and I’m certain there are those who are not parochial. But for the masses, there is no doubt about it. Go and ask them. They’ll tell you. And Singaporeans are by their nature not as parochial, which would explain why they did use WorldLink to buy Australian shares, but there are far fewer of them.
I regret very much that the link didn’t work. I don’t have a financial stake in it, or any other interest for that matter. But I thought it was a fantastic idea that was extremely poorly executed. I just hope that the folks at the SGX and Bursa Malaysia learnt from the experience when they get their (long-delayed) trading link up and running.
Dr Lim Seck Yeow: The man at the centre
Dr Lim Seck Yeow is the man of the moment. He may not be as well known as Oei Hong Leong or Kwek Leng Beng, but he is shaping up to be quite a dealmaker.
Dr Lim is Chairman of chainsaw and leaf blower maker Zhongguo Powerplus. Today, the company confirmed a Reuters report that its controlling shareholders Hoggeston Ltd (which owns 24%) and Alpha China Enterprises Ltd are in exclusive talks with an unnamed “reputable private equity firm”. These talks could lead to a general takeover, but it cautions there is no guarantee a deal will happen.
Rewind four weeks. Fabchem China announced July 5, that its controlling shareholders Fortsmith Investments and Fivestar Limited are also in separate talks with unnamed parties.
Dr Lim part owns these two companies, and is also the Non-Executive Chairman of Fabchem China.
Dr Lim is also Chairman of peanut oil maker Zhongguo Jilong, which has not made any announcements about a share sale by its controlling shareholders.
Until the end of March, he was also Group Managing Director of China Food Industries. He remains a non-executive director.
According to the China Food Industries’ website, his biography reads as follows:
Dr. Lim has more than 40 years of experience in the food related business. He started as an assistant stock keeper with Cold Storage Singapore Ltd, a supermarket group, in 1954. In 1965, Dr. Lim was promoted to Sales Manager, and in 1969, he became Cold Storage’s Asia Regional Sales Manager.
In 1972, Dr. Lim joined Chop Thye Seng as its General Manager. Chop Thye Seng was a sole proprietorship food distribution business started by his father. Dr. Lim subsequently founded and established Thye Seng Trading Company Pte Ltd, a company engaged in the business of food distribution in Singapore.
Dr. Lim holds an honorary Doctorate of Philosophy in Entrepreneurship from Wisconsin International University in the United States of America.
Zhongguo Powerplus shares traded for 15 minutes after lunch, before a trading halt was called. Why the stock would even restart trading after lunch is beyond me. More than 8.1 mln were traded in the morning session plus this 15 minute window, compared to average volume of 3.1 million. The stock was last traded down 1 cent at 30 cents.
It seems like a big coincidence that four of the companies through which Dr Lim controls two listed firms are in talks to sell their shareholdings.
But Dr Lim told Investor Central over the telephone this evening that the talks are separate, and with different parties.
He wouldn’t be drawn on their identity, except that the potential buyers are foreign companies who initiated the talks because they want to get exposure to China.
If the holding companies sell the shares they own in the listed companies, Dr Lim and his co-shareholders will make a lot of money.
Who knows what Dr Entrepreneurship will do that money?
Watch this space.
ArchivesDr Lim is Chairman of chainsaw and leaf blower maker Zhongguo Powerplus. Today, the company confirmed a Reuters report that its controlling shareholders Hoggeston Ltd (which owns 24%) and Alpha China Enterprises Ltd are in exclusive talks with an unnamed “reputable private equity firm”. These talks could lead to a general takeover, but it cautions there is no guarantee a deal will happen.
Rewind four weeks. Fabchem China announced July 5, that its controlling shareholders Fortsmith Investments and Fivestar Limited are also in separate talks with unnamed parties.
Dr Lim part owns these two companies, and is also the Non-Executive Chairman of Fabchem China.
Dr Lim is also Chairman of peanut oil maker Zhongguo Jilong, which has not made any announcements about a share sale by its controlling shareholders.
Until the end of March, he was also Group Managing Director of China Food Industries. He remains a non-executive director.
According to the China Food Industries’ website, his biography reads as follows:
Dr. Lim has more than 40 years of experience in the food related business. He started as an assistant stock keeper with Cold Storage Singapore Ltd, a supermarket group, in 1954. In 1965, Dr. Lim was promoted to Sales Manager, and in 1969, he became Cold Storage’s Asia Regional Sales Manager.
In 1972, Dr. Lim joined Chop Thye Seng as its General Manager. Chop Thye Seng was a sole proprietorship food distribution business started by his father. Dr. Lim subsequently founded and established Thye Seng Trading Company Pte Ltd, a company engaged in the business of food distribution in Singapore.
Dr. Lim holds an honorary Doctorate of Philosophy in Entrepreneurship from Wisconsin International University in the United States of America.
Zhongguo Powerplus shares traded for 15 minutes after lunch, before a trading halt was called. Why the stock would even restart trading after lunch is beyond me. More than 8.1 mln were traded in the morning session plus this 15 minute window, compared to average volume of 3.1 million. The stock was last traded down 1 cent at 30 cents.
It seems like a big coincidence that four of the companies through which Dr Lim controls two listed firms are in talks to sell their shareholdings.
But Dr Lim told Investor Central over the telephone this evening that the talks are separate, and with different parties.
He wouldn’t be drawn on their identity, except that the potential buyers are foreign companies who initiated the talks because they want to get exposure to China.
If the holding companies sell the shares they own in the listed companies, Dr Lim and his co-shareholders will make a lot of money.
Who knows what Dr Entrepreneurship will do that money?
Watch this space.
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