Dancing With Wolves - PN17

What a great article in the Business Times, finally somebody looking at PN17 companies and putting things on the table. But PN17 companies are not dead, there are always a few of them on the top 10 volume list. So, why are so many investors or punters willing to trade them when they are already PN17?

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.

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As at August 25, there were 34 companies under PN17, a category assigned by Bursa Malaysia to companies in financial distress

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.

This year alone, Bursa Malaysia has recorded 15 PN17 admissions to date. Metech Group Bhd, one of the leading world-class manufacturers of steel racking systems, was the latest entry last week. According to Bursa Malaysia's website, six companies fell under PN17 last year, mainly related to financial distress.

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.

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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)
Linear
Transmile
Kenmark
Gula Perak
M'sia Merchant Marine

TOXIC (likely to have capital reduction)
Ngiu Kee
Nam Fatt
Hock Sin Leong
VTI Vintage
Haisan Resources
Tracoma

REVIVE-ABLE
Metech
Baswell
Ibraco

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.