Ramunia- a smaller ambition could be a good thing

Overall market tumbled today. The drop is especially sharp among the 2nd & 3rd liners, in particular those in the Oil & Gas sector. I believe two factors contributed to this sharp fall. Firstly, weakness in the price of crude oil. Some analysts believe that crude oil prices may drop due to lower risk premium after the demise of Osama bin Laden. I do not subscribe to this argument. Like many commodities, crude oil has risen substantially due to easy monetary policy pursued by the US Fed which led to continued weakness of the USD. The deluge of funds searching for assets to invest in, has driven up the prices for many investment assets, from Asian equity (in late 2010 to early 2011) to commodities & now back to US equity. Since Goldman Sach issued a bearish call for commodity on April 12 (here), we have seen correction for many commodities, the most notable being the selldown of silver.

The second factor is the news of the classification of Sumatec under PN17 on April 29 (last Friday). Sumatec is not an exception in the Oil & Gas sector which includes many financially weak companies. Some can barely stand on their feet while others are marginal companies that are not well-managed. A good example is Ramunia- a company that had to sell off the biggest fabrication yard in Malaysia (Teluk Ramunia yard) & its entire business to the Sime group for RM530 million in order to pay off its heavy borrowings (go here). The sale of its entire business was an admission that Ramunia had failed even after the hiring of the former head of Hyundai Heavy Engineering.

Over the past few weeks, Ramunia has been bravely talking to the media about acquiring new assets to start all over again. Bursa gave it a dateline to submit a regularization plan by March 2011 (which was later extended to July 2011). Yesterday, Ramunia announced the plan which includes par value reduction, Rights Issue & Business Rejuvenation Plan. The rejuvenation part of the plan calls for Ramunia to acquire the Pulau Indah yard for RM83.8 million. This is a case of rejuvenating by downsizing. However, the acquisition of the Pulau Indah yard was not something new. It was actually announced in January (go here). It took the company 3 months to work out the financial numbers & come out with this regularization plan. That's very slow work, indeed.

Chartwise, we can see that Ramunia has broken below its medium-term uptrend line at RM0.56. Its next support is the horizontal lines RM0.50 & RM0.46.



Chart: Ramunia's daily chart as at May 4, 2011_9.45am (Source: Quickcharts)

Based on the poor technical outlook, I would rate Ramunia a SELL.

Note: Ramunia suspended its shares from 2.30pm to 3.30pm today to announce an amendment to the proposed Regularization plan again (go here). The amendment is so insignificant that it shouldn't warrant a suspension. One can just announce the amendment after the close of trading rather than causing a disruption in the normal trading of a stock.