Tuesday, November 03, 2009

The Revenge of the Fallen

On the pages of Bursa Malaysia Quotes, classified stocks are highlighted in 'red'. These are Practice Note 17 (PN17) companies or companies in financial distress. Criteria for a listed company to be classified as a PN17 company are as follows:-
1. Shareholders' fund is equal or less than 25% of the total issued and paid up capital of the listed company; or
2. Receivers and/or managers have been appointed to take control of at least 50% of the total assets employed of the company on a consolidated basis; or
3. Winding up of a subsidiary or associate company which makes up at least 50% of the total assets employed of the company on a consolidated basis; or
4. The auditors have expressed adverse or disclaimer opinion on the listed company's latest audited accounts; or
5. For any default in payment, the listed company must announce its inability to provide a solvency declaration through Practice Note 1/2001 or PN1; or
6. The listed company has suspended or ceased all or a major part of its operations. (Source: Ken Low).

For the complete listing, go here.

Emboldened by the sterling performance of some recently declassified PN17 stocks (Lityan comes to mind), some PN17 stocks rose sharply in early morning trading. Quick sell-off ensued in the afternoon session after Lityan share price took a dive. I have appended below a list of the more actively traded PN17 stocks & the volatile performance today.


Table: The list of actively traded PN17 stocks for Nov 3, 2009

If one accept the conventional wisdom that blue chips are the first stocks to recover after a bear market, what would one say about a rally involving the weakest stocks (in our case, the 'red' chips)? Would this signal the end of a bull market? Hopefully not...
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13 comments:

  1. solomonTuesday, November 03, 2009 8:42:00 PM

    Gd evening Alex,

    My observation tells that the tail end of a rally always end with warrants. As at now, no sign of them as yet.

    What is yr view on Bjcorp? I am keen to discover why Goldman Sach keeps on accumulating this counter. Any idea, undervalue or release value?

    ReplyDelete
  2. HoNGTuesday, November 03, 2009 10:01:00 PM

    Hi Alex,

    Do you know why etitech dropping about 30% since last month? What happen to this company? The financial report seems like the same last year but why the price dropping so much?

    ReplyDelete
  3. KCTuesday, November 03, 2009 11:07:00 PM

    WHY GO IN TO TRADE 'PROBLEMATIC STOCK', WHEN YOU HAVE MANY CHOICES TO BUY UNDERVALUE STOCK AT CHEAP PRICE (PRICE BELOW PAR VALUE/ BELOW NTA )

    ReplyDelete
  4. Alex LuWednesday, November 04, 2009 9:45:00 AM

    Hi Solomon,

    Your comment on a bull rally ending with warrants (rally & blow-up) may be partially true. The end of a rally has often coincided with a rush to buy by the man in the street. The normal securities that he buys are low in value. These include stocks & derivatives, such as warrants.

    I must say that warrants have not been played up this round. One of the possible reason could be the retailers are not back in the market or they are avoiding warrants due to higher perceived risk.

    I have posted on BJCorp in September. Since then, it has broken above a irregular triangle at about RM0.94-95. There is also a research report which valued this stock at RM2.00- an extract of which was published in the Edge a few weeks ago. Check it out.

    ReplyDelete
  5. Alex LuWednesday, November 04, 2009 10:06:00 AM

    Hi Hong,

    I heard a rumor about the stock last week. Looking at the chart that day (Oct 29), it seems like the stock has just violated its downward channel stretching back to Oct 13.

    Its financial statements look alright. One concern could be the high receivables but this has been a constant feature of this company- 166 days in Aug 2007, 180 days in August 2008 & 188 days in August 2009. It recorded a net profit of RM20.1 million on a turnover of RM83.1 million for FYE August 31, 2009. Based on this, its EPS for FY2009 is about 3 sen. EtiTech (closed at RM0.565 yesterday) appears overvalued at a PE of 19 times.

    ReplyDelete
  6. Alex LuWednesday, November 04, 2009 10:09:00 AM

    KC,

    I agree with you- almost 100%. The only time I would bend that rule a bit is when it comes to trading BUY. Even so, I think we should avoid stocks that are grossly overvalued.

    ReplyDelete
  7. WK888Wednesday, November 04, 2009 1:31:00 PM

    huaan looks like bottomed out... can it rocket thru its previous RL @ 59c? look safe to go in now...

    thanks for comment

    ReplyDelete
  8. Alex LuWednesday, November 04, 2009 3:58:00 PM

    Hi Wedding Gifts,

    Nobody knows. The RM0.59 level will be a strong resistance. However the immediate resistance level is at RM0.54-55. Good luck.

    ReplyDelete
  9. investorWednesday, November 04, 2009 9:49:00 PM

    can TIME continue to soar because it will be outlifted from PN17 starting tomorrow,

    ReplyDelete
  10. Alex LuThursday, November 05, 2009 9:06:00 AM

    Hi Investor,

    After the relatively light resistance area at RM0.52-55, the stock must overcome the heavily congested resistance area of RM0.60-70. Nevertheless, in the environment, one cannot discount the possibility of a breakthrough.

    ReplyDelete
  11. tehFriday, November 06, 2009 9:35:00 AM

    Hi Alex,

    Can you comment about today MRCB? what is the good price to go in?

    ReplyDelete
  12. kangmingwFriday, November 06, 2009 10:38:00 AM

    may i know what cause TA drop from 1.5 to 0.755?

    ReplyDelete
  13. Alex LuFriday, November 06, 2009 11:32:00 AM

    Hi Kenny,

    TA did a special dividend-in-specie where its shareholders were given TA Global shares & TA-ICPS. The basis of this dividend is 3 TA Global share & 3 TA-ICPS for every 5 TA shares held. The value of TA Global share is about 50 sen & TA-ICPS also about 50 sen.

    ReplyDelete