The short position

  • Business
  • Saturday, 31 Jan 2015

A long wait

FORTUNE 500 companies typically prep their stakeholders about any imminent changes taking place, whether it be profit warnings or top management changes. Not doing so usually results in the company receiving flak from all quarters, be they investors, financiers or staff.

In the Malaysian context, there is room for improvement in sufficient disclosure for all listed companies, although some progress has been achieved towards this end.

Malaysia has only one Fortune 500 company, namely, Petroliam Nasional Bhd (Petronas).

And herein lies the problem: until today, it is not known if the petroleum giant will see a new head or the contract of its current president and chief executive officer Tan Sri Shamsul Azhar Abbas will be renewed when it ends on Feb 8.

While media reports have speculated that Shamsul is likely to be given an extension of his tenure, until yesterday evening, a formal announcement on the matter had yet to be made.

Reports have also highlighted that there are certain parties objecting to Shamsul’s reappointment. That, however, is only to be expected. The seat at the top of Petronas is a powerful one and clearly many parties could be eyeing it for vested interest. Shamsul, though, has led the organisation through some notable changes and achievements. One of his key themes was to get Petronas to continue to behave like an IOC (international oil company).

He has made brave remarks, sometimes offending even the policy makers. He has come under criticism from bumiputra pressure groups, but he has been able to reason why certain policies cannot be changed.

Hence, if there is any change at the top of Petronas, the country needs to be assured that the person is able to be IOC-focused and continue to fend off predators from Petronas. It’s a tough job! The last thing Malaysia needs is for its richest and most profitable company to take a back step. Scandal-hit Petrobras of Brazil is a stark reminder of how things could go wrong, if the wrong person helms Petronas.

Oh no, not a fire!

NOT often do we get listed companies making an announcement on their manufacturing plant or office being gutted down by a fire.

But when they do make such an announcement, most of the time, it is likely to be a sign of danger. The danger is that the subsequent results might be impacted by the incident. Worse still if the company says that the fire had damaged its office to the extent that it is unable to complete the accounts.

Yes, it has happened before. So, investors cannot be faulted if loss-making Eka Noodles Bhd’s latest statement to Bursa Malaysia draws some cautious response.

The noodle producer announced that a production plant in Sarawak belonging to a subsidiary had caught fire. There were no injuries and the Fire Department was still ascertaining the cause.

The plant, according to the announcement, had been leased to a third party. Initial inspection revealed that the building and some of the machinery had been destroyed.

The company estimated the damage at RM3mil but said there would not be any financial implications because the building and machinery were covered by insurance.

So, based on the announcement, there is nothing to worry about. The damage, if any, would be covered by insurance. There also would not be any hiccups to its operations because the plant was leased to a third party.

In any case, EKA Noodles cannot afford incidences such as a fire to bog its performance down. It is already loss-making, registering a net loss of RM37mil on a revenue of RM90.3mil for the financial year ended June 30, 2014. In 2013, it made a marginal profit of less than RM1mil on a turnover of RM97mil.

Obviously, the company is operating on a narrow margin. The last thing it would need is an incident such as a fire to weigh down on its results.

Securities crime?

THE Internet is full of truth, half-truths and lies. Trusting what you read online is almost a process of forensic science to ascertain what you read is believable.

In the world of business, forums on stocks and stock-picking advice have flourished as connectivity and access has grown over the years. The way information is consumed has also changed over the years.

It shouldn’t then surprise anyone that there could be ulterior motives fermenting behind the scenes when a tipster suddenly appears giving seemingly insider information as to what a company is going to do.

Often, smallish companies are targeted. That was the case with Dufu Technology Corp Bhd when it told the Bursa Malaysia that upon receiving a query from one of its investors regarding what has appeared in an online forum about what’s going to happen in the company.

The forum suggested that Dufu was a takeover target of Inari Amerton Bhd which the company duly denied. It also refuted news of a takeover attempt by a group of investors that appeared in print in another newspapers.

Information released online is uncertain in reliability. In 2001, the US Securities and Exchange Commission settled a case after a tipster known as Tokyo Joe paid US$754,630 to settle allegations that he was involved in a pump-and-dump scheme, or scalping.

Stock advice is feverishly conducted online in Malaysia where a number of online forums have sprouted discussing stock action on counters, most of the time companies that are small and are penny stocks.

Just like the denial issued by Dufu, isn’t it be time that the Securities Commission, which only this week brought charges of insider trading to previous members of top management at TH Group, start trawling the Internet forums for breaches of insider trading or promotion of false information to create a false market?

The action by Dufu to deny what was written in such online forums gives credibility to such space and also raises the question whether the monitoring of the flow of information in whatever form needs to be expanded just beyond the traditional avenues. After all, investor protection shouldn’t be confined to just a few forms of media.

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Business , short , jan 31 , petronas


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