Economic Transformation Programme breathes life into penny stocks

PETALING JAYA: The rollout of Economic Transformation Programme (ETP) projects in the last six to seven months has put the spotlight on some penny stocks that otherwise would have been largely ignored by market watchers.

Some of these companies Karambunai Corp Bhd, Petaling Tin Bhd, Tricubes Bhd and Pensonic Holdings Bhd are direct beneficiaries from the ETP and have seen their share prices more than double or quadrupled in some cases.

But while shareholders are undoubtedly happy, some analysts are wondering if these companies' share prices have run ahead of themselves and whether the interest in these companies are based on fundamentals.

An analyst, who declined to be named, said: “Some of these companies have merely come up with proposals that have been accepted under plans laid out in the ETP. That seems to have given these projects a public relations platform'. But whether these companies are able to execute these projects successfully and profitably remains to be seen.”

Consider loss-making property developers Karambunai and Petaling Tin, which will be developing the RM9.6bil Karambunai Integrated Resort City with the help of Prism Crystal Enterprises Ltd, whose shareholder is Cambodian-based China Central Asia Group Co Ltd. Both Karambunai and Petaling Tin have a common shareholder tycoon Tan Sri Dr Chen Lip Keong.

Chen also owns Hong Kong-listed NagaCorp Ltd, the largest hotel, gaming and leisure operator in Cambodia.

Rumours of Karambunai Corp spearheading the development of an integrated resort, which was said to possibly include a casino, first emerged late September last year. That drove up its share price by more than three times, in a span of four days, from 5.5 sen on Sept 21 to 18 sen on Sept 24. It saw a massive 392.3 million shares change hands on Sept 24, making it the most actively traded stock for the day.

The company then denied rumours that it had plans to build a casino. Karambunai's share price then soared again, once Budget 2011 (announced on Oct 15) stated that there was a proposal for Karambunai to build an integrated eco-nature resort. Karambunai's share price jumped from 12 sen on Oct 14 to 25 sen on Oct 19, with a total of 633.26 million shares collectively changing hands on Oct 18 and Oct 19.

Meanwhile, Petaling Tin saw its share price rise steadily from 26 sen on Oct 27 and closed at a high of 53 sen on Nov 3 with a daily turnover of 33.6 million share. However, official word of the company's participation in the integrated resort city only came in January after the Sabah state cabinet gave its nod on the project.

Once again, both companies' share prices were up on April 19, during an update on the ETP by the Government, in which both companies' names were mentioned as those who are part of the consortium involved in the Karambunai Integrated Resort City. Petaling Tin ended at 48.5 sen on April 19 against its previous day's close of 36 sen while Karambunai's share started climbing from 20.5 sen on April 15 to close at 25.5 sen on April 19 with a daily turnover of 160.25 million shares.

Another case in point is Guidance Note 3 (GN3) company, Tricubes Bhd, which will be undertaking the RM50mil 1Malaysia e-mail project. The company has been in the red for a number of years, with the exception of 2009 when it made a net profit due to gains from disposing a subsidiary.

Its share price has largely trended under 10 sen over the last two years but saw an “irrational exuberance”, as one analyst described it, in light of the 1Malaysia e-mail project.

Although the company announced to the stock exchange in early April that it had accepted a letter of award from Malaysian Administrative Modernisation and Management Planning Unit (Mampu) to implement this project, market watchers and the public only took notice of this company when the Government announced the project on April 19 under the ETP.

The main reason for this could be the RM50mil figure mentioned in relation to the 1Malaysia email project. While some may have interpreted that to mean Tricubes had secured a RM50mil project from the Government, the company has since clarified that the figure represents the investment Tricubes will make for this project.

Tricubes' share price started trending upwards on April 14 from 5.5 sen and closed at 32.5 sen by April 22. However, its share price has since come down to 23.5 sen as of April 29, following questions as to the choice of this seemingly financially-distressed outfit in carrying out the 1Malaysia e-mail project.

One of the questions is whether loss-making Tricubes will be able to raise funding from banks for the project. Tricubes has since said that it may use a combination of debt and equity (the latter possibly through a rights issue) to fund the project.

Meanwhile, home-appliance maker Pensonic Holdings is also another small-market capitalisation firm that will seemingly benefit under the ETP, as it will establish a manufacturing hub and international distribution network of electrical home appliances.

According to Pensonic, the hub aims to build manufacturing facilities “to consolidate the entire supply chain in order to ensure sufficient output capacity to support current and future growth, while the international distribution network aims at building a strong Malaysian presence in the Asean and Middle East markets on a multi-brand marketing platform”.

The profit-making Pensonic saw its share price hit a new high in nine years, ending at 90.5 sen on April 18, a day before the official announcement by the Government on its ETP manufacturing hub project.

While the ETP seems to have given a breath of life to these mainly small-cap stocks, time will tell if these companies can execute these projects successfully.

Related Stories: Penny stocks rise on Bursa - Could it be irrational exuberance?

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