Monday, May 31, 2010

Kenmark plunged into the abyss

Kenmark dropped 45 sen to 33 sen on May 27. This morning, it dropped 16 sen to 10.5 sen before the trading in the stock was suspended as at 10.09am . What could cause the sharp selldown for this quiet stock?


Chart 1: Kenmark's 5-min chart as at May 31, 2010_10.10am (Source: Quickcharts)

There are two things to note:

1. The company is due to file its results for QE31/3/2010 today. Could there be a failure to file in its financial statement?

2. Looking at the last reported results for QE31/12/2009, we can note a few issues that are plaguing Kenmark. They are:
i) An outstanding legal judgment obtained by O-stable Sdn Bhd against the company in September 2009. The judgment sum payable was RM1.58 million. The company has filed an appeal against the court decision.
ii) The company has high bank borrowings, comprising short-term debts of RM88.8 million and long-term debts of RM53.4 million. While bank borrowings looks high, as a percentage of shareholders' funds, it stood at 0.4 times only.
iii) The company's trade receivables stood at RM248.7 million, representing 71% of Total Assets. Debtors turnover period stood at 350 days (based on annualized revenue of RM258.7 million). The debtors increased alarmingly over the past 3 years- by RM52.4 million in FY2008; RM36.6 million in FY2009; and RM87.4 million in 9-month ended 31/12/2009.
iv) For the 9-month ended 31/12/2009, Kenmark purchased Fixed Assets of RM45.2 million. This plus the increase in Debtors of RM87.4 million was financed by Trade Creditors of RM77 million, which increased by 306% from RM34.7 million to RM106.3 million.

I believe that Kenmark is now wrestling with the issue of the quality of its debtors. If half of the debtors are not collectible, Kenmark's shareholders' funds would drop to RM230 million. Its bankers & trade creditors- with amount owing of RM142.2 million & RM106.3 million respectively- may be feeling very uncomfortable now? For more on Kenmark's financial statement for QE31/12/2009, go here.

The above scenario raised the question on whether Kenmark can continue as a going concern. If this question was not in the investors' mind, then Kenmark appears to be trading at ridiculously cheap multiples, with Price to Book of only 5% or Price to Earning of 1.4 times (based on NTA per share of RM1.95 as at 31/12/2009 & annualized EPS of 7 sen).

Technically, Kenmark is now trading at the all-time low. It has even surpassed the low of about RM0.45 recorded during the Asian Financial Crisis. The market action is screaming of bad times ahead for this stock.


Chart 2: Kenmark's month chart as at May 27, 2010 (Source: Tradesignum)

Technical analysts would caution against catching a falling knife. At 10 sen, many investors would find Kenmark to ignore. How low can it go, they may ask. That I cannot answer.

Latest Update

Kenmark Bhd was suspended this morning as news that its managing director, James Hwang, a Taiwanese, went absent without leave spread in the market. In addition, key company executives, including deputy general manager Goh Kim Chon as well as the finance and administration manager, have also resigned. For more, go here.

11 comments:

spot4value said...

hi Mr. Alex,

do you mind if we can do a link exchange? thanks!

http://spot4value.com

Anonymous said...
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cheer said...

To enter or to watch stocks at this uncertainty market ? What will be your advice?

仑襁 said...

hi Mr Alex,

can you give some comments of suncity?

Thank you

East Point Trading said...

Hi Alex

Today Kenmark dip about 50% and I saw a lot of buyer buy in at price RM0.040 to 0.045.

I a bit not understand why they are still a lot of buyer on this share, it is some one buying cheap share to made profit from the bad news?

Kenmark situation are a bit same with OilCorp and this share dip from 10 sen to 5sen only a week than been suspended but after re-open for trading the share price short up 150% with also a lot of buyer.

Alex Lu said...

Hi spot4value,

Thank you for the suggestion. I will look into it later. I have not started a link exchange with any blog before. I need to give it some thoughts.

BTW, I have visited your blog. I see a lot of similarity between our blogs. I like your call on the breakdown in JCY on May 6. [Your link- http://spot4value.com/?p=350]

You have also touched on Kenmark, where you've suggested that Fundamental Analysis ('FA') had somehow failed to forewarn investors about the impending problem. [Your link- http://spot4value.com/?p=393]. I think that is rather harsh on FA. Fraud cases can be so well hidden that even auditors may not be aware. Of course, some auditors may choose not to know, but they would have to live with the prospect of heavy fines when the problem surfaces. In the case of Kenmark, there were tell-tale signs of problem but not necessarily fraud. For every case that ended up as a fraud case, there are 5 more than just hobble along & maybe classified as PN17 cases. Even then, players still buy these stocks for a punt.

How do we prevent fraud cases? This is where Security Commission comes in. We must hold the directors & senior management team accountable for their failure in the discharging their duties & responsibilities. See how fast the deputy GM and the Finance & Admin Manager resigned from Kenmark when the shit hit the fan. I would be very surprised if they didn't know about the problem.

Alex Lu said...
This comment has been removed by the author.
Alex Lu said...

Hi cheer,

I still feel uncomfortable about the market. The current recovery may be a technical rebound which could fizzle out after a few weeks. I like to see the FBM-KLCI break above the 50-day SMA line resistance at 1324 before revising my bearish outlook.

Alex Lu said...

Hi 仑襁,

Suncity tested its horizontal support at RM3.40 a few days ago. It rebounded sharply & tested its strong resistance at RM3.80-85.

It is a thinly traded stock which is capable to fairly sharp move, either direction. It may not be a good idea to buy Suncity after its recent sharp rebound. Instead wait for it to drift lower. A good entry level to this stock is at RM3.60-70.

Alex Lu said...

Hi Durian Edge,

Buy low and sell high. That's what's motivating the buyers of any stock that had dropped as sharply as Kenmark. Sometime it works. Sometime it doesn't. In a market where many things don't work out, people tends to try almost anything to make money.

spot4value said...

hi Alex,

thank you for your reply, i like your blog a lot, you always post good analysis on both FA and TA.

For your information, i have added your blog in my blogroll.

regards