I can think of two. One, they are good stocks to trade when they have volume. They are cheap in absolute price, usually less than 40 sen, and minute moves will be sufficient volatility for traders and punters to move in and out.
Two, some of the PN17 companies will go through a genuine restructuring. Once clean, or relatively clean, they will be attractive to private companies wanting to inject assets in exchange for new shares, thus reviving the fortunes of the company.
At the end, I will try to classify these PN17 companies, and point out what to look for. Some are salvageable, some are not.
The number of public-listed companies falling under Bursa Malaysia's Practice Note 17/2005 (PN17) classification has increased this year.
As at August 25, there were 34 companies under PN17, or 3.53 per cent of the 964 companies listed on Bursa Malaysia Securities. PN17 is a category assigned by Bursa Malaysia to companies in financial distress.
Such companies need to tell the approving authority of restructuring measures they intend to undertake to maintain their listing status.
Among those categorised under PN17 this year were Hock Sin Leong Group Bhd, Transmile Group Bhd, VTI Vintage Bhd, Kenmark Industrial Co (M) Bhd, Linear Corp Bhd, Malaysian Merchant Marine Bhd and Tracoma Holdings Bhd.
..... whenever a company announces some bad news to the public, such as defaulting on their loan repayments, some accounting issues or a delay in releasing their financial results, there could be more bad news yet to be revealed.
To ascertain whether a PN17 company is worth betting on, one needs to look at their financials. The first has to be their debts relative to their assets. Then you have to look at how realisable those assets are, mainly, you can basically forget about receivables. If its land or factory, then we can take that into the asset category.
How big are the accumulated losses relative to share premium account? Whats the paid up? What is the likelihood of a capital reduction? Yes, its not easy to bet on PN17.
The following classifications are not definitive but only my opinion. Take with a huge ladle of salt.
VERY TOXIC (will find it tough even with capital reduction)
M'sia Merchant Marine
TOXIC (likely to have capital reduction)
Hock Sin Leong