Thursday, November 29, 2007

Comintel's Information Flow - Somebody Call 999

Share price of Cominetel Corporation Bhd plunged in early trade on Nov 29, falling 29.66% or 43 sen to RM1.02 on extended heavy selling pressure. It opened at RM1.45 unchanged. At 9.03am, it plunged to RM1.02. Within the first hour, there were 5.77 million shares done at prices ranging from RM1.02 to RM1.49. At 10am, it was trading at RM1.02, the lowest since May 10. There were 1.08 million sellers at RM1.02 but no buyers. Yesterday, the share price hit limit down. Falling 65 sen to RM1.45, wiping out six weeks worth of gains. The company was queried by Bursa Malaysia over the sharp fall in the share price.

The Edge reported this back in June 2007:
Telecommunication solutions provider Comintel Corp Bhd is focusing on securing value-added projects for its manufacturing services and communication and system integration divisions to help address its thin margins and loss-making position. "In a way, we are moving away from our traditional contracts to value-added projects, where margins are better but risks are higher," its managing director Lim Keng Hock tells The Edge.
One such project that the company hopes to secure is the nationwide implementation of the C4i system for the police force, which is worth some RM1.5 billion over five years. The C4i system, developed and patented by Comintel, involves the integration of all base operations for command and control purposes. It provides the police with improved command, control, communication computing and information capability to enhance the force's ability to respond quickly to emergencies.
The rollout of the system's pilot phase was commissioned in 2005 and it has become fully operational in the Klang Valley. According to Lim, the system has improved the force's response to emergencies. The missing link in the overall effectiveness of the system is the "999" number connectivity because Telekom Malaysia Bhd is reluctant to give it up to the police force, he adds. This is despite a government directive in 2005 to route all calls made to the police and ambulance and fire services to police headquarters at Bukit Aman or any other centre set up for the purpose, he says. At present, Telekom operators handle "999" emergency calls, of which about 90% are crank calls. With the C4i system, Lim says, crank calls will drop substantially and the police force will be able to respond and take action swiftly.
Last December, Comintel's subsidiary Comlenia Sdn Bhd was awarded a RM115 million turnkey contract by MiTV Corp Sdn Bhd for the rollout of a new broadcast network and infrastructure over three years. MiTV is migrating its broadcast technology network from the existing video codec standard to the MPEG4/H.264 advanced digital video codec standard.
Also, Comlenia, which provides system integration services, has recurring revenue of about RM20 million annually from the Royal Malaysian Navy for the maintenance and system upgrades of four Corvettes. In terms of manufacturing contracts, Comintel recently secured a three-year deal from Motorola Inc to design, develop and supply various categories of products to the latter. "The new contract with Motorola enables us to participate in the design on portable radio. Also, Comintel is able to command better pricing, with no more discounts given," Lim says. He adds that the company is also looking at value-added contracts in its manufacturing division. "We are developing our own products, such as dual-band phones. From now till 2010, people will be moving into IT phones. In the interim, there is a gap for migration. We plan for mass production of dual-band phones sometime in September. Already, British Telecom, Google and MSN are interested in our products." "We will either manufacture the phone under our own brand or we might brand it for our clients. The intellectual property for this phone belongs to the group," Lim says. He adds that Comintel plans to sell the dual-band phones, which support WiFi (wireless fidelity) and GSM bandwidths, at about US$399 (about RM1,363) each. "We are only commercialising in September, so we are looking to sell between 50,000 and 100,000 phones this year." Lim says based on research, demand for such phones is estimated at 50 million units worldwide next year. "We are going to be the first one to launch the phone. If we can capture 10% of the market, it will be good," he adds. Moving forward, Comintel executive director Loh Hock Chiang says the company is eyeing contracts worth RM500 million to RM1 billion related to IT and telecommunication solutions this year. These contracts, which will provide better margins to the company, will help turn around Comintel for the financial year ending Jan 31, 2008.
"This year, based on what we are looking at now, we should be profitable. We are looking at a 10 sen earnings per share target. We anticipate that the manufacturing division will grow but at the same time, our system integration will more than double. Margins from system integration projects can give the company better margins," Loh says.
In FY2007, Comintel went into the red with a net loss of RM3.03 million from a net profit of RM1.43 million last year. This is despite a higher revenue of RM324.3 million against RM297.9 million in the previous year. "Revenue for FY2007, mainly from the manufacturing division, has gone up while margins are thin. Furthermore, with the appreciation of the ringgit, we convert less from our billings, which is denominated in US dollars," Loh explains.
He adds that losses were incurred due to lower government spending as a result of the Eighth Malaysia Plan being in its tail end and huge investment in research and development.

K&N Kenanga has a research report dated October 1st 2007, which recommended a HOLD on the counter. The stock was 92 sen then. The report's recommendation:

We are maintaining our hold recommendation on Comintel with a revised 12 month target price of 88 sen (up by 58.6% from 55 sen previously) based on a FY08 PER of 10.5x. While we expect Comintel to stage an impressive earnings turnaround in FY08 mainly on the back of strong performance by the CSI division, we remain cautious and would want to see consistent q-q improvement before upgrading our recommendation. The Management has also indicated that a dividend policy could be introduced from FY08 onwards, which lends a view of confidence on future profitability.

My Comments:

What is galling, and the SC should really take note were the comments made by the CEO and director of the company on the company's prospects. If the reasons for their share price dive was fundamentals to their operations, and known by them during that time - that is tantamount to misleading investors and readers. Hence it is imperative that the SC gets to the root of the rot which caused the sell down.

Naturally, the most probable answer to all this is that the stock was under syndicate play, and the distribution was complete, I guess. This goes on all the time, everyone close one eye on this, but when it goes yo-yo up and down based on pure manipulation and not fundamentals driven or even rumoured better prospects, it makes a total mockery of the exchange and the administrators. SC, if failing to find fundmanetal fault with the company, should check closely on substantial shareholder movements over the last 6 months to get a clearer picture. If the insiders were "in", then those statements given in the interview to The Edge has a very different slant.


doraiddd said...

999: hello wats yur emergency?

caller: this is coper aul....

Salvatore_Dali said...

no la... read the edge interview, the ceo was mentioning the 999 number issue, making a mock reference

Yuen said...

you are very right,it is a syndicate play for sure...that same very powerful/"legalised"/untouchable syndicate in town..we have seen the same pattern once too often already eg.tanamas,fountain,iris,mobif,welli...the amusing thing is this act is being condoned,the small fish die is ok,but this big shark must not be punished as it is very important for our if without him, couple with no foreign participation,there is no interest can be generated. Well,my heart sank for the small fish each time the shark has finished distribution and "herd" it down to ground zero, buy back and return to owner.

solomon said...

If you look at all these counters like Yuen said (except for tanamas), their fundamentals are rather weak, if you agree?

You cann't blame the enforcement in real life...but the greed in the heart. The current structure in local market, Bursa is a PLC and have to be the enforcer in the same house, how do you balance them? One need to show the profit at year end and struggle with strong enforcement. Forget about this. You need to have the syndicate at the end...unless they change their role, these syndicate will still have their roles.

I am more "amused" why it happened before SD listing. Could it mean that the next possible rally could be from the Govt related investment arm?

However, I am uneasy over the US market. Currently, US Market could sustain because of their Presidential election (like our General Election). If we don't a systematic reflection of actual situation (should be 12,000pts now), it could also signal that some big players are unloading their portfolio with the mkt pushed up 500 pts last few days.

I think after SD today, if there is no theme play, the local market is posed for at least 5% consolidation. It is better now or risk for further heavy correction after 11DEC, the FEd meeting. US market had factored in the rate cut, if the rate cut happened now or not (unless bigger than 25 basis point), the market after the date could be due for correction because I expect the Dollar to trade at 100 yen by year end(a crazy but could be assumption).

paul said...

Mr. Low on the job again. Why he is never caught. I just wonder?

hellthy correction said...

lets just named the syndicated one by one....repco lau, kopiseng, kennyong, ah ee wat else have u?... how else would u reason a newly listed company falling below its par value not to mention its ipo price... something is happenning in the high places....

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