Wednesday, September 26, 2012

HWGB- a light-bulb moment?

On September 24, Ho Wah Genting Bhd ('HWGB') proposed to acquire a 51%-stake in Myled Opto Technology Sdn Bhd from three individuals, for RM1 million. Myled Opto's business principally is in the manufacturing of solid state lightings (SSL) and light-emitting diodes (LED) lightings. For more, go here.

Today & barely two days later, HWGB announced that MyLed Opto has secured contracts valued at RM800 million from Japan's Kirutorisu Tech and Atotis Co Ltd, marking the company's venture into the Japanese vending machine market. For more, go here.  

My initial thoughts/questions on the above news are:
1) What is the connection between solid state lightings (SSL) and light-emitting diodes (LED) lightings on the one hand and vending machines on the other hand? True, many electrical appliances require lightings, why not vending machines! Nevertheless, two contracts valued at RM800 million must be a coup!

2)  Why would two Japanese companies rush to give the contracts to Myled Opto? The most plausible explanation is that HWGB is very well-connected; thus, it can land these contracts (unlike the previous management of Myled Opto). However, if you look at the existing businesses of HWGB- trading, manufacturing of wires & cables and tin mining- and its financial performance todate, it is difficult to see where this skill set lies in the company.
3) Assuming Myled Opto is manufacturing the lightings to fulfill the contract, the fact that HWGB paid only RM1 million for  a 51%-stake in Myled Opto would suggest that the acquired company is in a financial weak company. Any manufacturing concern with factory & production equipment cannot be worth so little. The big question then would be how HWGB can mobilize the resources to complete these two contracts. For that. let's look at the accounts.
 Based on HWGB's financial statements for QE30/6/2012 (here), we can see that HWGB's current ratio was slightly below 1 time. Its cash reserves was quite large at RM13 million but so is its short-term borrowings which stood at RM59 million. Its gearing ratio stood at 0.75 time. 

For the 6-month ended 30/6/2012, HWGB incurred a net loss of RM7 million on a revenue of RM106 million. Of its three divisions, two (Manufacturing & Mining) lost money while the last one (Trading) made a small profit of RM304,000 for QE30/6/2012.

Based on the above, I have serious doubt as to the above news items. I am glad to note that the market shares my sentiment on these news & reacted appropriately. HWGB rose to a high of RM0.34 in early trading, has since retreated back to RM0.33 (a gain of only RM0.005). I feel strongly that HWGB should be AVOIDED.

Chart: HWGB's monthly chart as at Sep 25, 2012 (Source: Quickcharts)

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, HWGB.


Anonymous said...

hi alex.I tend to share your observation on this news by hwgb.bursa should raise a query and seek further clarification B4 investors go to holland !Really Alex thank you for your insight.i nearly was tempted 2 jump in!

Unknown said...

Good to have a clear picture from you. There are too many incident like this, and will probably be more. I will the story from OldTown is the same of nature.