Adventa proves that nothing succeed as well as success!

On December 24, I replied to a query from a reader about Adventa, which was then trading at RM1.92-1.93. To wit:

After the RM1.70 per share payout, ADVENTA will still have cash equivalent to RM0.40 per share and the Excluded Business consisting of Sun Healthcare (M) S.B. and Electron Beam S.B.

A brief description of these 2 companies are:
1. SUN HEALTHCARE has a long history of serving the national healthcare institutions, supplying dialysis disposables, medical equipment and devices since its incorporation in 1981.

2. ELECTRON BEAM SDN BHD is the region’s first ever commercial supplier of contract electron beam processing services.

From Wikipedia, we learned: "Electron beam processing or electron irradiation is a process which involves using electrons, usually of high energy, to treat an object for a variety of purposes. This may take place under elevated temperatures and nitrogen atmosphere. Possible uses for electron irradiation include sterilization and to cross-link polymers".

Look like Adventa will invest the balance of the sale proceed in the growing healthcare sector- not a bad idea.

Looking back, we could have said that Adventa at RM1.92-1.93 was fairly attractive as it has a cash backing of RM2.10 [from the sale of its rubber glove business] plus the Excluded Business consisting of Sun Healthcare (M) S.B. and Electron Beam S.B. After the payout of RM1.70 per share, Adventa would have a cash backing of RM0.40 per share & the Excluded Business consisting of Sun Healthcare (M) S.B. and Electron Beam S.B.

Over the past two days, Adventa rallied to above RM0.50 from the adjusted price of RM0.22. This means the market is valuing the Excluded Business at RM15 million. Is that a fair price tag to put on these businesses.

Looking at the latest Notes to the Account, we can see that for FYE30/10/2012, these businesses generated a pre-tax profit of RM3.26 million on a revenue of RM14.63 million. This compared favorably to the performance in the preceding year (FYE30/10/2011) when it recorded a net loss of RM1.58 million on a revenue of RM12.57 million. See the Segmental Information where the revenue & results of these businesses are classified under Continuing Healthcare Operation here.

While the pre-tax profit of RM3.26 million is fairly encouraging for FYE30/10/2012, one couldn't help but wonder how a small increase in revenue (from RM12.57 million to RM14.63 million) would bring about such a sea of change in the bottom-line. Is this results massaged by the management?

Based on the above, we have to be careful about jumping into the bandwagon of buying Adventa. We can see that the market has started to look for the next 'Adventa' and in the process bought aggressively into CIHldg, which gained 11 sen to RM0.95.

 
Chart: Adventa's daily chart as at Jan 7, 2013_3pm (Source: Quickcharts)

Based on the above, I feel that it is best to avoid Adventa (or take profit if one has the stock).

Note:
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, Adventa.