In the past one month, one stock has really defied gravity. It is Harvest Court, a loss-making concern whose share price has rallied from a low of RM0.08 to a high this morning of RM1.17. All this was because it has a new major shareholder, Datuk Raymond Chan Boon Siew who acquired 13.85% in Harvest. Raymond Chan is the man behind the development of the biggest shopping complex in Kota Kinabalu known as 1Borneo. His company, Sagajuta is reportedly involved in a few more major property development, such as 1likas and 1Sulaiman in Kota Kinabalu. For more, go here. Is Raymond Chan going to inject any of his property development into Harvest? We do not know.
Harvest's Financial Performance & Position
What we know about Harvest is that it is a loss-making concern, with a big accumulated losses (here). As at 30/6/2011, Harvest's shareholders' funds stood at RM30.5 million (after deducting the accumulated loss of RM19.7 million). Its outstanding shares is now 174.3 million units of RM0.25 each plus 70.7 million warrants (known as Harvest-WA). Its financial position is deemed poor despite a current ratio of about 1 times & little borrowing. Its Liabilities include Other Payables of about RM7.0 million while its Assets includes a huge Inventory of RM7.0 million. Can the Inventory be converted into cash? Does the company need to make provision for diminution in value?
My take on the current rally is that it is probably a quick play (because Raymond Chan seems to be very vague on the details when asked by reporters). If there is more to the rally than a quick play, then I think Harvest shares would have to go through a capital reduction scheme. If Raymond Chan is injecting his assets into Harvest, the assets would have to pay for using new Harvest shares as Harvest is in no position to take borrowings to settle the purchase. Raymond Chan would not accept Harvest shares valued at RM1.00 each. So, a capital reduction will be a part of any plan to inject assets into Harvest. The euphoria which is part of any sharp rally could frizzle out once the punters come to their senses.
Technical Analysis
Chart 1 shows how sharp was the rally in the share price over the past one month. The 60-minute intra-day charts for the stock & its warrant show signs of bearish divergence. We cannot be sure when the rally will end but bearish divergence is always a sign that the rally could enter into a correction or consolidation at any moment.
Conclusion
Based on the above, I believe you should avoid this stock or if you were fortunate enough to have it, you should take some profit.
Chart 1: Harvest's monthly chart as at November 8, 2011 (Source: Tradesignum)
Chart 2: Harvest's 60-min chart as at November 8, 2011_10.00am (Source: Quickcharts)
Chart 3: Harvest-WA's 60-min chart as at November 8, 2011_10.00am (Source: Quickcharts)
Note: Harvest & Harvest-WA have achieved a price limit-up of 30% this morning. This seemingly bullish development can be the set-up for a temporary top. If the limit-up failed to sustain in the afternoon (if the share price were to rally & then falter), a drop below the morning limit-up price could signal the beginning of a sharp correction for the stock.
Hi Alex ,
ReplyDeleteCan you comment about KPJ technical outlook? It looks quite bearish for me .
Tx!
Hi Alex:
ReplyDeleteThose who intend to make a quick kill will instead be culled by the onslaught of selling pressures once golden goose's eggs being taken away.
Hi Alex
ReplyDeletePardon me for my ignorance on corporate accounting. Could you explain further how to inject an asset into a plc via capital reduction? Can they also withdraw the asset from the plc whenever they like? Thanks.
We have rules and regulations to prevent the management to withdraw asset from the PLC. However, the controlling shareholders usually have the power to move mountain and sea if the authority dare not touch the key person, the director who is the PM's son.
ReplyDeleteHi JY
ReplyDeleteYour questions:
1) how to inject an asset into a plc via capital reduction?
I think you are referring to my comment in this post. What I've meant was that the seller must be paid & he is likely to be paid via shares swap. He would be silly to accept Harvest shares a current price of above RM1.00 when it should be worth much less, possibly less than RM0.30. So, as a businessman & major shareholder, he can do two things:
a) ask for more shares valued at lower price, say RM0.30 each [which would anger the existing shareholders]; or
b) he would cause the share to drop in order to achieve a share swap that is palatable to him. The easiest way to do that is to propose a capital reduction scheme, which is quite reasonable as the company is carrying in its book a huge accumulated loss.
2)Can they also withdraw the asset from the plc whenever they like?
No. They can sell the assets. If the assets are of sizable value (a certain percentage of the shareholder's funds), the directors need to get shareholders' approval.
Hi luckystock2
ReplyDeleteKPJ may have peaked. It is trading below its 200-day SMA line at RM4.21. You can also see a short-term downtrend formed, the lower 'low' & the lower 'high' present. However, the stock has good horizontal support at RM3.80. We will have to wait & see whether it can stage a recovery to rectify this "technical" SELL signal.