Back to basics and the future

MARKETS around the world regained stability in the middle of last week after having swooned a week earlier.  

Many punters lost heavily in that short period of market weakness, according to brokers. These were punters who may have profited in the earlier two months in highly speculative stocks.  

Even so, the recent spell of shock must have cured some of the punters from their habit of chasing stocks with a “story.” In some cases, stocks surged even without a story; they caught the attention of punters solely by being “actively traded.”  

Bursa Malaysia may have lost many retail traders this month. It would hope that some of these punters would stay in the market by investing in well-managed companies. They need not get into a zero-sum game in which someone must lose in order for someone else to win.  

Naturally, share prices of good companies fell during the period of market weakness too, but serious investors would have bought their stocks at lower levels. Furthermore, these stocks quickly recovered when the market stabilised.  


Some sound results 


The results season displayed some pleasant surprises last week. However, while a number of companies had a good quarter, it is not assured their firm earnings will be sustained into subsequent quarters or years. A perspective of such sustainability will depend on the views of each investor.  

Maxtral Industry Bhd had a strong start in its current financial year. The exceptional earnings growth in Q1 could be due to a low base early last year before timber prices started rising steadily.  

The company, engaged in the manufacture of plywood and trading of logs, was profitable through the whole of last year. It is controlled by a Taiwanese and his Malaysian spouse.  

Bonia Corp Bhd, a home-grown branded leather goods company, turned in a good set of results for the January to March quarter.  

It is, however, noted that it has fairly large net borrowings of over RM60mil, which is about 70% of its shareholders' funds. This could be due to its business model of opening boutiques and consignment counters overseas, as well as having a large retail presence in this country. The borrowings may have been taken to fund this expansion.  

Ahmad Zaki Resources Bhd is known in the construction industry as one of the best-managed bumiputra contractors. It showed its mettle in its Q1 results, which received a higher contribution from its Middle Eastern contracts than before.  

Mamee-Double Decker Bhd is a more matured company than Bonia and as it does not operate its own retail stores, it is cash-rich. It held about RM34mil cash and quoted investments with a book value of RM16.4mil, which had a market value of RM17.0mil.  

The company produces a range of snack food and nutritional fruit juices, and it attributed its latest improvement partly to a new instant noodle product, Mamee Sllrrrp. 

While instant noodles are universally a low margin commodity type of product, Mamee has introduced premium packages that provide it with higher profit margins. Hence, it expanded its net profit margin to 8.2% in Q1 from 5.0% in the same quarter last year.  

Like Ahmad Zaki, FIMA Corp Bhd is similarly making a move into plantations in Indonesia on a small scale. The latter is similarly cash-rich.  

Fima is in the process of doubling the production capacity of an associate company that prints bank notes for governments here and throughout Asia.  

FSBM Holdings Bhd is a little-known technology company listed on Bursa's second board. Engaged in the distribution of computer hardware and software services, it secured sizeable projects.  

In addition, it had made a nifty investment overseas at a cost of RM2.7mil that was worth RM44.1mil based on the last placement price. This is a very significant value, considering FSBM's current total market value of RM65mil.  

Mah Sing Group Bhd has proved it is able to identify viable parcels of land in matured areas for development.  

It posted a strong set of Q1 earnings, which surprised because this was usually the slowest quarter for developers. Workers take a long break during Chinese New Year, and as construction slows, so does billing to customers. Subsequent quarters are therefore likely to show even stronger earnings.  

Interestingly, when Mah Sing's management team went on a roadshow earlier this month, the itinerary included the usual places like London but also Dubai, where the oil money is.  

Boon Koon Group Bhd's first quarter is also usually its weakest. Even so, there was good growth in both sales and net profits. In addition, it has just stepped into high gear in its re-building of Mercedes commercial vehicles and exports of re-conditioned vehicles to Indonesia.  

I-Power Bhd is a Mesdaq-listed company that may be able to join the RM10mil club on that market. It reported a net profit of RM2.8mil for Q1, and if this can be sustained, it'll get there.  

The company's earnings have been expanding rapidly, with a net profit of RM5.4mil in its financial year ended June 30, 2005, and RM2.1mil in 2004. 

RCE Capital Bhd is still a little-known company controlled by well-known banker Tan Sri Azman Hashim. The company may be better known as the former Rediffusion Bhd that sold off its radio stations and changed its core business to that of providing personal loans and consumer financing for civil servants.  

As RCE can't collect deposits, it raises funds through bonds, which it lends to civil servants at higher rates. Loan default rates are low as repayment is made through salary deductions. 

Hence, it enjoyed a net profit margin of 34% and a high return on equity of 26% for the year ended March 31, 2006. 

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For the latest global market news news from AP-Wire click here

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