Wednesday, August 22, 2007

Where Do You Go To, My Lovely?

I was intrigued by the timely article by The Edge back in July on the "high receivable among certain Mesdaq companies". whereiszemoola has been tearing companies to shreds over these doubtful issues. I have changed my positive view to a negative view on Nextnation based on the surge in receivables. I will be trying to go through each one of those companies highlighted by The Edge. First on the chopping board is Airocom.

From their website: Airocom is a provider of Value-Added Wireless Messaging Platform and Telecom Applications Development. Airocom develops scaleable messaging solutions and telecommunications software via smart partnerships with customers and suppliers.

Airocom provides consumers, enterprises, mobile operators, service providers, carriers, portals and ISPs a complete end-to-end solution to their present communications needs. Our homegrown and flagship product, AiroGate Wireless Messaging Gateway provides maximum performance and availability and has been deployed widely by Malaysia’s mobile communication operators, service providers and enterprises.

Airocom was only listed on Mesdaq on 27 April 2006, and things already does not look that good. Surprisingly, the revenue and net profit figures were excellent in 2005, somehow the listing did not bode well at all for the company and management. Revenue slumped by some 75% and net profits of 5.4m in 2005 became a loss of 3.1m in 2006??? The chairman of the company is Datuk Ali Kadir, the former SC's chairman, and I thought he did a good job at SC. Vellapan??? To be fair, unlike other dubious counters, Datuk Ali Kadir has been adding shares to his stake a few times in the months of April and May this year. At least he is not disposing like crazy.

The supposed CEO Jalaluddin Jaffar resigned in July 2007. In the annual report it stated that the company have a significant concentration of credit risk in the form of outstanding balances due from Mekong Communication Corp Sdn Bhd and PT Ochabawez Dinamika Persada, which together makes up 92% of receivables. Just look at the receivables. The merchant bank bringing the company to list can easily see that the receivables in 2005 was already 19.8m or more than 90% of the revenue for 2005, and nearly 4x the net profit figure. No warning bells, simple first year accounting student would have red-flagged this.

So, who actually gave permission for this company to list? Did the Bursa or SC even go through the figures and projections? Were the merchant bankers at Ambank sleeping or just signing off on the deal with their eyes closed? The company almost immediately went into losses less than 12 months after being listed. How can investors have any kind of confidence in Mesdaq listings? One or two good ones out of twenty is a terrible hit rate. You get better odds at Magnum and the horses.

We have to bring up the role of the sponsor / merchant bank bringing these companies to Mesdaq, what were they thinking of? Where is the "due diligence"? Was there a proper examination of the solidity of the business model? If it went from a profit to a loss after a few years, I can absolve much of the merchant bank's role. Guys, the company went into the red less than 12 months after listing???

2005 / 2006
Revenue 21.1m / 4.8m

Net Profit 5.4m / -3.1m

Receivables 19.8m / 23.9m

Airocom has a 52 week high low of 0.34 to 0.11 and at present has been rarely traded at 0.14. Airocom's slogan, "get unwired", ... well things are really unraveling fast! Somebody should be asking a lot of people a lot of questions.


rask3 said...

Well said. In my book, the majority, if not a large chunk
of the companies listed on Bursa are not suitable for long term investment. They are just disasters waiting to happen. The question is when?

The Bursa and merchant banks are more interested in making money out
of listings, rather than taking care of the interests of the investing public. Only the caveat emptor rule can save them.


lsblmllms said...

for ipo the consultants make sure that the shareholders make a fat profit to cement their fees by giving a robust valuation. this however does not necessary mean that the share will not rise on listing.

The Accidental Investor said...

Well looks like your article was timely. Revenues of RM167k and losses close to RM9mil announced today. Hell, my uncles Bak kut teh business has more revenues in this quarter.

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