Nextnation, Not Good

Wisdomwise wrote on Nextnation, which I had posted something a week back, and again today. Am reposting the comments for readers of this blog:

A week back:

Salvatore_Dali said...
i had highlighted this company before as the fundamentals looked solid, but the way the share has been trading for the past 2 months, esp following its bonus looks very bad... methinks something inside is rotting ala megan cos the only way the share can keep falling is insider selling all the way.... cut loss
2:39 PM

this morning:

Salvatore_Dali said...
finally out, huge jump in receivables ... after a good rebound this morning I expect the stock to slide to oblivion... when receivables jump like that, for a services based company, its not a good sign... the share price has been weakening since a few months back, only explanation is insiders are selling, they know how "good" the receivables are and how hard it is to retrieve them ... services rendered are gone, most need not reorder services if they don't pay ... not as if you are supplying cement, steel bars, etc... not good, not good at all..
10:43 AM

The company also announced to Bursa Malaysia that its wholly-owned subsidiary, Nextnation Network Sdn Bhd, had accepted a credit facility of up to RM10mil granted by Malaysia Debt Ventures Bhd for overseas expansion. That smells like teen spirit to me... gone bad! Why not a bank? A bank will gladly give you a credit facility... unless they don't want to. Why would you want a facility by MDV unless terms are better or the terms are easier to meet? Either way, not good.

Assuming RM67m in receivables taking more than 12 months to be recouped: you are already losing 4% in interest = RM2.68m a year. Plus assume a 6% cost on RM10m facility (MDV may not charge them anything but its still a cost) = RM0.6m. Add them up = RM3.28m. In 2006, the company made a net profit of RM16.714m. The "additional opportunity cost in lost profit" is almost 20% of 2006's net profit. The most important thing is the rise in receivables from RM39.6m to RM67m = RM27.4m = is 64% higher than the entire net profit for 2006.

p/s a very important posting from one of the readers:

Yew Leun has left a new comment on your post " Nextnation, Not Good":

Content/ringtone providers (i.e. nextnation) in the past makes money by spamming sms messages and downloads to mobile phones and a lot of end users have been unwillingly charged and there is nothing they can do about it. But since MCMC cracked down on spamming, these companies' profit has been greatly affected. from the business model standpoint, unless they can come out with new business plans, we are not going to see any turnaround on their bottomline and share prices.