Thursday, March 22, 2012

Harison has just broken below its 40-week SMA line

Earlier, I have noted that Harison had received a letter of demand dated February 15, 2012 from the Custom demanding payment of RM91.75 million for purported unpaid:

  1. Import Duty amounting to RM31,452,344.00
  2. Excise Duty amounting to RM54,805,709.42
  3. Sales Tax amounting to RM5,492,365.50

When it released its latest financial results for QE31/12/2011, Harison merely referred to the above demand & made the following comments:

i) It does not admit being liable to pay RM91,750,418.99.

ii) It is seeking legal advice on the demand.

iii) It has on 27 February 2012 written to the Custom to request for a two months extension to reply to their letter.

The above comment is a standard comment which is to be expected since the matter is still pending. If this claim is not successfully challenged by Harison, it could lead to two things:

a) A full payment would reduce its Shareholders' Funds from RM268.9 million to RM177.2 million or its NTA per share from RM3.93 to RM2.59 (based on its Balance Sheet as at 31/12/2011).

b) Its future sales volume & operating margin will be affected due to higher duties and/or sales tax payable.

In my opinion, it is probable that Harison will not succeed in disputing the claim by the Custom. As such, the prudent approach is to reduce one's position in this stock. From the chart below, we can see that Harison has broken its 40-week SMA line at RM3.22 (which you may consider its uptrend line).

Chart: Harison's daily chart as at March 22, 2012_12.15pm (source: Quickcharts)


Heng said...

Hi Alex,
Good day!

Thank you ur head up!!

Sunny said...

1) I do not believe that the management or the board of directors are under extreme pressure to get anything to do with illegal trades to make the company stay in profitability.

2) I do not believe that the major shareholders and controlling shareholders are willing to take any risk of making extra earnings through illegal trades.

3) I don't think that the profit from illegal trades, if there is any, would be reported or contributed to the company's earning.

4) If there is any illegal trades, it must be out from selfish thoughts that is against the company's interest. And all the profit intended to be made through the illegal trades are to benefit only the offenders, not the company's shareholder.

5) It is the offenders (could be the executives of the company) who are solely responsible to the outcome of such illegal and dishonest act, and therefore should be the only party facing the charge of law and regulation, and the outcome of the jurisdiction. Otherwise I do not see the fairness of the law and regulation which should be put in place to protect the innocent people (non-controlling interest shareholders in this case)and punish the offenders who have persued their own interest that is against the company's and the shareholders'.

Alex Lu said...

Hi Sunny,

I was very shocked when I first read this news. For your information, I worked for a few months as an audit clerk in the early 1980s and one of the firms that my team was sent to audit was Harison. I did only the small portion of the work. Back then, the Finance Director was a Englishman and the company operated like any MNC.

Today, Harison's major shareholder is an Indonesian. I don't know whether the controls are still as rigid as in the old days.

In the commercial world, one cannot be too sure about this kind of things. If you say Harison's management did not do it, then why does Customs want to pursue the case? It would have checked with higher authority and they too feel that they have a strong case.

We will have to wait & see.

Sunny said...

I just feel that if major shareholders really have something planned behind the scene, they should have formed a subsidiary for the operation just to firewall the parent holding company from such crisis. And this subsidiary should pay huge dividend to parents company and then followed by hefty dividend payout by the parent holding company to the shareholders. If it is the non-shareholding directors who have committed the crime, then they are the ones accounted for losses of government, not the shareholders. That is because, such profit would not possibly be reported and very likely goes into the pocket of the offenders. My reasoning is that they are not under pressure to do this just to make the financial report good enough for them to stay in job, but could have been tempted to do that out of greed.