Friday, July 19, 2019

Scomi: The White Knights Are Having Second Thought!

Yesterday evening (July 18), Scomi surprised investors when it proposed to revise its current share capital from RM224.96 million to RM3 million, instead of the earlier announced RM 40 million. For more, go here

The revision was made less than 12 hours after it was announced that Wan Azmi and the ex-Renong MD will inject new capital into Scomi based on a restructuring involving inter alia a proposed share capital reduction which entails the reduction of the issued share capital of the company from RM224.96 million to RM40 million. For more, go here

When a company reports a drop in profit from tens of millions of ringgit to a mere few thousands ringgit, you know they are trying to avoid reporting a loss. 

Similarly when a company reduced its capital from hundreds of millions of ringgit to a mere RM3 million, they are trying to avoid reporting that it may be worth nothing- or worse than nothing.

Imagine if you are a savvy corporate man like Wan Azmi, you won't want to get into a messy situation when the whole business environment is a buyer's market. This means the rescue deal may collapse any time. 


You may say, all these are pure conjecture. Then, let's look at the numbers.

Assuming the revised reduced capital of RM3 million is the true book value of Scomi, we can compute the "adjusted" price to book value of the stock by dividing RM3 million with the outstanding shares of 120.329 million. This will give you the book value per share of RM0.025. 

At the current price of RM0.105 (as at 10.34 am), Scomi is trading at an “adjusted” price to book value of 4.2 times (computed by dividing 0.105 by 0.025). That's a very rich valuation to peg onto any stock, let alone a distressed stock. For your information, Gamuda's PBV is 1.3 times. Thus, it is a good price to sell now.

Based on the above, you may want to take advantage of the “euphoria” to get out.  

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