Tuesday, March 22, 2011

Transmile, Once Upon A Time in Wa Wa Land .... II

May 08, 2007. The day of the beginning of Transmile ending. The day before, Transmile told Bursa that they were unable to submit its final audited account for YE 2006. Their auditors from Deloitte & Touche walked away from the audit because they could not obtain certain documents related to sales, account receivables and fixed assets.

The announcement upset many people. The stock has a huge bearish downside gap. The company lost almost 750 mln of market capitalization within minutes of opening bell. Why would people willing to buy at RM 13 on May 07 and willing to dump at RM 10 at 9.00 am May 07, 2007. It will remain as a mystery to many retail investors. Why would someone willing to give away 30% discount to flush down a big block? Why would they want to get rid of their holdings before waiting for more news?

This is what professionals trained for -- shot first, ask questions later. If you are wrong, the situation is better than what you thought, you can always bought back at lower price later. How does this works exactly. Assumming you bought 1,000 shares at 13.00 and sold it for 10.00, RM3,000 temporary realized loss but you have 10,000 cash on hand. If the stock price dipped to 8.00, your 10,000 will buy you 1,250 shares. When the stock price has a technical rebound to RM 9.50/share you can cashed it for RM11,875. So you have a realized loss of RM 1,125. This loss is much narrower compared to holding on to the stock and you loss is capped at 3,000.

I have taken the trouble to tell my readers that there is no guarantee that a well manage company will not give you negative surprise from time to time. This can happen to Public Bank, Maybank, CIMB Bank, Maxis, Nestle, BAT, etc..... shot first, ask questions later is the best protection you can have when navigating the stock market. This is extremely counter intuitive but it has served me well from time to time.

Analyst, damned analyst. Should analyst must be also responsible for minority shareholders losses even though they always has disclaimer as their immunity? Should they be punished for the wrong analysis? Here is the example.

The stock has been downgraded from buy to trading buy. The analyst believe the worst case scenario of write off would not account for more than 15% of 2006 unaudited net profit, or 30 million. Obviously they probably considered some kind of uncollectible account receivables or asset impairment. We knew there were three key words in the announcement -- sales, account receivables and fixed asset. Why were they still using the questionable numbers to do analysis? They mentioned in their previous day report that their sales has increased by 400 mln from 550 mln to 989 mln while account receivables trippled from 111 mln to 381 mln. That was equivalent prolonged credit terms from 73 days to 140 days. Why the analyst was still using normal analysis technique to advise their clients? What was their points, can't they smell fraud was going on? Can't they dissect the problem with some level of skeptisms?

Why they did not raised the possibility that at least 200 mln of sales never existed before? Can't they tell some of the assets esspecially the property, plant and equipment transactions never existed before or inflated? While 140 days terms seem to be reasonable when they are operating in good faith. WTF they still talked about P/NTA or break up value when the whole BS was questionable? I bet you know what to do when you see another announcement like this.

More WIP coming.............

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