Thursday, August 15, 2013

FRB- a strong rally after a huge Right Issue!

Formis Resources Bhd ('FRB') is a loss-making company which had incurred a net loss of RM40 million for FYE31/3/2013 on a revenue of RM339 million. This is a deterioration from FYE31/3/2012 when it reported a net profit was RM11 million on a revenue of RM295 million.

In the past 4 years, FRB has completed a Bonus Issue of warrant (1-for-1), a distribution of a subsidiary shares (ISS) [again 1-for-1] and recently a Right Issue of 2 shares at RM0.50 each with 1 free warrant for every 2 shares owned.

The share price rallied strongly over the past 6 weeks from 45 sen to an intra-day high of 80 sen today. In view of the poor financial performance and the recent doubling of its outstanding shares, a gain of 70% over 6 weeks looks excessive unless there is an exciting project ahead. The share price may soon test the upper boundary of the irregular downward channel at about 85 sen.

Based on the above, I believe those holding the stock should consider taking profit on the shareholding.

Chart: FRB's weekly chart as at August 14, 2013-11.00am (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, FRB.


lai said...

Hi Alex,

Just wondering, how come BKoon also never experience this despite its recent right issue?


Alex Lu said...

Hi Lai,

When I wrote that FRB has a rally after a huge Rights Issue, I've meant it as a warning. If you had issued shares at 50 sen (plus free warrant thrown in) and then you have a rally to 70-80 sen, those buying into the stock today are buying from shareholders who bought their shares at a lower price. So, you must be very careful.

I don't expect Bkoon to rally. The stock has been declining for the past 20 months. That's a sure sign that all is not well in that stock.

lai said...

Appreciate the analysis. Thxs.

Btw, wht is your view on SPAC, in particular Sona?

Alex Lu said...

Hi Lai,

Have you heard of the South Sea Bubble? In short, it is a name given to a huge speculative stock bubble in England in early 1700s where speculators were throwing their money into all kinds of venture. The listed companies had only to advertize that they would be getting into some profitable ventures (in many cases, they did not even disclose what that venture might be) and the money would come flowing in.

Whenever I hear of a SPAC being listed, I think of South Sea Company. I would not participate in nor comment about these stocks, regardless of their technical outlook. I may knock them if they get too silly (like what I did for Hibiscus) but I would avoid it in the future. There is nothing more dangerous that a stock that defies your call to sell, to draw in the crowd. Let the fools dance on the trading floor. I am now a bigger fool staying put on the outside.