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Eversendai: Risk in Investing kcchongnz

kcchongnz
Publish date: Sat, 20 Apr 2019, 03:17 PM
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This a kcchongnz blog

Most participants in Bursa only care about how much they can make from investing in a particular share, without taking into consideration of the risks involved. There is no such thing as “risk” in their dictionary.

In parties, gathering, the public forum and internet, you hear and read a lot of people bragging about how much they have made speculating in certain stocks in the short term. But really, return alone, and especially return over short periods of time says very little about the quality of investment decisions. Return has to be evaluated relative to risk taken to achieve it.

I often read about how some people made millions, or even tens of millions by using the Golden Rule; this quarter’s profit must be higher than the previous, the subsequent quarter must be higher than this quarter, and the PE ratio must be less than 10. The only thing matters is the earnings, and nothing else.

I even heard about interview in radio proclaiming that one has consistently making money, a lot of money without even having to know how to read the balance sheet.

That is interesting, as for me, the balance sheet is one of the important parts of the language of business, telling me how safe is it investing in the company, for I don’t want to lose all my money just because the company I am invested in can’t pull itself through during an economic or a financial crisis.

Let us refer to this company Eversendai to illustrate my point of view. Incidentally I have just written an article about the cash flows of the company in the link below,

https://klse.i3investor.com/blogs/kcchongnz/202651.jsp

Again, I must clarify here that I have no idea what the share price of Sendai will be in the next few days, the next few weeks, next few months or the next few years. I have no intention to promote (for it seems every time I write about Sendai, its share price jumps up), nor I have any intention to bash it (the share price never comes down whenever I write something not good about it). I totally have no position in it, nor am I intending to buy it cheap, or to short it. This article is purely for sharing my view, and I hope, sincerely, you learn something.

Eversendai Corporation Berhad, Sendai, provides specialist engineering and construction services, specializes in structural steel design and construction. It operates in Asia, India, and the Middle East.

In the last 5 years from 2014 to 2018, Sendai’s revenue grows by 70%, from RM1 billion to RM1.71 billion for a compounded annual growth rate (CAGR) of 14.2%. Net profit grows at a higher CAGR rate of 20% from RM36.4 million to RM74.7 million, or 9.2 sen per share. In 2016, it made a huge loss of RM274m. Sendai can be considered as a high growth company.

In analyzing the balance sheet, we look at one of the most important things of the growth in equity, plus the dividends which will determine if the company has increased shareholder value throughout the years. The equity has grown by just RM45m from RM910m to RM970m, or just a CAGR of 1.2%. That was due to the huge loss in 2016. In the last 4 years, only a total of 2 sen dividend distributed in 2015 and 2016.

Growth and the quality of growth

The glaring thing in the balance sheet is the growth of 140% in its inventories from 2014 to 2019, or a CAGR of 25%, almost double the growth in revenue.  Trade account and other receivable and amount due from customers also grows at an alarming CAGR of 20%, way above the growth in revenue. To put that into perspective, it takes the company more than 400 days to collect its outstanding debts.

The jump in Inventories and Receivables was particularly alarming from 2016 to 2018. This seriously and adversely affecting the cash flows of the company, with huge amount of cash tied up as working capitals for the operation. Being a construction company, it also casts some doubts on whether some of these Receivables are subject to disputes and if they are collectable.

No wonder the company has to continue to borrow money from the bank in order to stay afloat. Its total short and long-term interest-bearing debts has increased by 132% from RM537m in 2014 to RM1248m in 2018, in just 4 years. Yes, RM1.25 billion, a huge number. The increased in the short-term debt of about 300% is particularly a red flag to watch.

Quality of assets

Trade and other Receivables and amount due from customers made up 60% of its total assets as shown in Figure 2 below.

The next big asset item is property, plant and equipment, which we are doubtful about their actual realizable value. Only 0.6% is in cash. We can say the asset quality for Sendai is low.

Hence although Sendai’s net asset value is RM954m, or RM1.22 per share, it is doubtful it is worth a small fraction of it on liquidation.

Financial health

Table 1 below tabulates the liquidity ratios and long-term financial strength of Sendai.

Table 1 shows that Sendai financial position is precarious with current ratio less than the required norm of 1.5, and negative cash flows from operations. It may not be able to fulfill its short-term financial obligations when due. Its long-term financial strength is also poor with excessive debts and high operating leverage. There are plenty of red flags around. It is particularly vulnerable in times of financial and economic crisis.

Conclusions

A company, even a specialist with jobs all over the world with amounting to billions a year for a company doesn’t signify its stock is a fantastic investment. Some industries, one such as the construction industry, is a challenging one, more so in the international arena. Earnings which is not translated to hard cash is not a good sign and it signifies a big red flag. Management efficiency in cash management is vital for the success, otherwise it will lead to a precarious balance sheet filled with the risk of bankruptcy.

It is no wonder at the price of 50 sen at the time of writing, with its low-quality assets and low-quality earnings, Sendai is trading at a very low price-to-book ratio of just 0.4 and price-to-earnings of just 5.2 times. Yet I am not willing to risk my money investing in it.

Understand the risks of investing through reading the balance sheet is very important to see if there is cockroach around the closet, for you don’t want to lose everything investing in it.

I have written and compiled a eBook on personal finance and what you should look out for in investing. Those interested in my eBook giving out free may contact me at my email below,

ckc13invest@gmail.com

KC Chong on Good Friday and Easter Holidays

 

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2 people like this. Showing 50 of 51 comments

sell

Jaks is good?

2019-04-20 16:34

kcchongnz

Posted by sell > Apr 20, 2019 4:34 PM | Report Abuse
Jaks is good?

Of course!

2019-04-20 17:00

sell

U-turn so fast?

2019-04-20 17:04

sell

In what way-why Star sue Jaks?

2019-04-20 17:06

andychay6124

Jaks going to do private placement

2019-04-20 17:49

qqq3

next report card, Sendai collects $ 250 million from trade receivables......then u how? U eat your words?

2019-04-20 19:40

probability

The equity has grown by just RM45m from RM910m to RM970m, or just a CAGR of 1.2%


Its total short and long-term interest-bearing debts has increased by 132% from RM537m in 2014 to RM1248m in 2018, in just 4 years. Yes, RM1.25 billion, a huge number. The increased in the short-term debt of about 300% is particularly a red flag to watch.

mind boggling

the banks are always the winners

2019-04-20 19:52

qqq3

probability > Apr 20, 2019 7:52 PM | Report Abuse

red flag
mind boggling

============

I know....people like u will stop there , mind boggling.....

but what caused it and no solutions meh?


lesser companies went burst already from the collapse in oil market 2014 - 2016......This company wrote off $ 100 million investments in OG and some controversies with 2 tug boats ...Oil market is recovering Middle East is recovering, the tug boat issues are being solved.....so how?

2019-04-20 20:03

qqq3

never heard of crisis = opportunities........?

or only red flags = sure die?

2019-04-20 20:06

probability

sendai could be a good buy at this price sifu qqq3...it can be explosive if business turns around well

2019-04-20 20:06

qqq3

why are there successful people?

As it applies to KYY, only one explanation....

https://klse.i3investor.com/blogs/BursaSnipers/203178.jsp




Make Positivity A Habit

2019-04-20 20:31

kcchongnz

Posted by qqq3 > Apr 20, 2019 7:40 PM | Report Abuse
next report card, Sendai collects $ 250 million from trade receivables......then u how? U eat your words?

Exactly a year ago, Sendai tested the first lift boat done for its major shareholder, a related party transaction.

Just wonder, has that been paid to Sendai, for a job completed a year ago?

2019-04-20 21:19

hpcp

If you are a shareholder of Eversendai, you should question the Chairman of Audit Committee what has he done about the outstanding payment. The liftboat was handed over to client about a year ago and remaining payment has yet to be received ? The audit committee just closes one eye? Eversendai is bearing the hefty interest cost due to late settlement by the client, which happens to be Eversendai's founder, Tan Sri AK Nathan

2019-04-21 08:36

tah16600

Sendai = perlahan2 mati loh!

2019-04-21 09:54

tah16600

Better sell n buy Benalec .Sell 1 lot can buy 2 lots ,got balance some for nice dinner loh!

2019-04-21 09:58

kcchongnz

Posted by tah16600 > Apr 21, 2019 9:58 AM | Report Abuse

Better sell n buy Benalec .Sell 1 lot can buy 2 lots ,got balance some for nice dinner loh!


If you follow my course closely and carry out some analysis, you may find Benalec is far from being a good company.

Only thing it is cheap now. But many things are cheap for good reasons.

2019-04-21 10:04

tah16600

Sifu Kcchongnz , I kena trapped In IPO, buy to average loh !

2019-04-21 10:25

kcchongnz

My comment for Benalec and Jaks is the same,

In doing business, you can't get a good deal from the management which is not credible and honest.

2019-04-21 10:41

tah16600

I still remember Sifu said in your one of the articles saying , when shares dropped to very2 low, a not so good comp can be a good buy loh if I am not mistaken.

2019-04-21 10:53

kcchongnz

Posted by tah16600 > Apr 21, 2019 10:53 AM | Report Abuse
I still remember Sifu said in your one of the articles saying , when shares dropped to very2 low, a not so good comp can be a good buy loh if I am not mistaken.

That is true. It could be true for Benalec too.

But don't forget of what I caution about, evaluate if the drop of share price is due to some temporary reasons, or is it due to structural change, or a poor and dishonest management.

2019-04-21 11:03

kcchongnz

Posted by andychay6124 > Apr 20, 2019 5:49 PM | Report Abuse
Jaks going to do private placement

If you know and care to read its balance sheet, you know it has to do the PP. No two ways about it.

Similarly for Sendai, with the major shareholder holding 70% of the shares, and the precarious cash flows and balance sheet, there is no two ways about it too.

PP has to be done, real fast.

2019-04-21 15:33

longtermvaluegain

SENDAI 龙大和可怕债务,还20年都还是在欠着别人钱(有盈利又怎样,EPS 10sen都无法吸引人买入)

2019-04-21 15:35

freddiehero

?

2019-04-21 15:45

freddiehero

u buy house also.need 30years

2019-04-21 15:45

freddiehero

buy car 7 years

2019-04-21 15:45

freddiehero

ur kids... unlimited years...

2019-04-21 15:46

freddiehero

all work for money ma.. same

2019-04-21 15:46

freddiehero

as long as project still run and work still can do ma.. waakkaka

2019-04-21 15:48

qqq3

kc


never seen companies do private placements then share double in next few months?......I have and not rare too.

2019-04-21 16:11

kcchongnz

Posted by qqq3 > Apr 21, 2019 4:11 PM | Report Abuse
kc
never seen companies do private placements then share double in next few months?......I have and not rare too.

Jaks in 2017? Sure!

2019-04-21 17:00

kcchongnz

And also Sendai in the same year. Wonderful!

2019-04-21 17:01

qqq3

kc


u suffer from recency bias because last year was a bear market....


every year also 2018 meh?


true what I said....shares double within a few months of private placement not that rare if u take the totality of all private placements in Malaysia..............

2019-04-21 17:29

kcchongnz

Posted by qqq3 > Apr 21, 2019 5:29 PM | Report Abuse
kc
u suffer from recency bias because last year was a bear market....
every year also 2018 meh?
true what I said....shares double within a few months of private placement not that rare if u take the totality of all private placements in Malaysia..............

Well, at least I could name two stocks, and what a coincidence, they were both heavily promoted by you shouting margin and sailang!

Why don't you name some and from when to when that they double in price in a few months.

Come on, don't just quack quack quack. Show some examples!

2019-04-21 17:36

kcchongnz

I can name another one; London Biscuits.

It has made a few private placement at 80 sen to RM1.00 the last few years, now at 34.5 sen

I am still waiting for you to name some and from when to when that they double in price in a few months after private placement.

Come on, don't just quack quack quack. Show some examples!

2019-04-21 18:46

lachai2004

Yes. Auditor had given negative opinion too.

2019-04-21 19:31

qqq3

lachai2004 > Apr 21, 2019 7:31 PM | Report Abuse

Yes. Auditor had given negative opinion too.
============

u are refering to which company?

2019-04-21 19:41

kcchongnz

Posted by qqq3 > Apr 21, 2019 7:41 PM | Report Abuse
u are refering to which company?


Posted by qqq3 > Apr 21, 2019 4:11 PM | Report Abuse
kc
never seen companies do private placements then share double in next few months?......I have and not rare too.


?????

""Not rare"" at least 10 companies?

I haven't seen one given by you yet??????

2019-04-21 20:00

qqq3

Posted by kcchongnz > Apr 21, 2019 8:00 PM | Report Abuse

I haven't seen one given by you yet??????

=========

all depends on bull or bear market.......

2019-04-21 20:06

lachai2004

qqq3,
I m referring to London Biscuits.

2019-04-21 23:13

3iii

Post removed.Why?

2019-04-21 23:14

qqq3

lachai2004 > Apr 21, 2019 11:13 PM | Report Abuse

qqq3,
I m referring to London Biscuits.
==========


yeah, u must be clear lah......

2019-04-21 23:18

qqq3

Sendai............

As at 12/2017, they had $ 500 million owing by related company for liftboats....

by 12/2018, this figure has been reduced to $ 250 million

2019-04-21 23:22

calvintaneng

Sell Sendai fast

Sendai might

SINK
SINK
SINK!

2019-04-22 01:22

kcchongnz

Posted by 3iii > Apr 21, 2019 11:14 PM | Report Abuse
MARKETS
Issuing more shares good for shareholders
Koon Yew Yin
Eversendai’s private placement is different from other usual private placements

Wonderful private placement!

With the PP at RM1.00 even during the good time at end of 2017, the share price went straight down and never recover.

It lost half its value in about a year from RM1.00 to just 50 sen now.


Posted by qqq3 > Apr 21, 2019 4:11 PM | Report Abuse
Posted by kcchongnz > Apr 21, 2019 8:00 PM | Report Abuse
I haven't seen one given by you yet??????
=========
all depends on bull or bear market.......

2019-04-22 07:19

qqq3

kc.......why senda do 12 million shares?

thanks to your article again..........

no wonder I love it whenever u write about Sendai..........

2019-04-22 22:21

kcchongnz

Posted by qqq3 > Apr 22, 2019 10:21 PM | Report Abuse
kc.......why senda do 12 million shares?
thanks to your article again..........
no wonder I love it whenever u write about Sendai..........

What else can I say? The ignorant can only talk about the share price and how many shares were transacted. they know nothing about the value.

2019-04-23 04:59

kcchongnz

I also wrote about Sendai on 12th September 2017 when it was trading at RM1.03 here,

https://klse.i3investor.com/blogs/kcchongnz/132084.jsp

Another one when it was 80 sen here,

https://klse.i3investor.com/blogs/kcchongnz/133708.jsp

There was this comment from the chameleon quack quack quack, with his other nick Stockmanny,


Posted by stockmanmy > Oct 6, 2017 9:43 PM | Report Abuse
in short....lousy timing, lousy analysis and lousy business sense to rite this article when it is 80 sen....now 95 sen.....

2019-04-23 05:07

kcchongnz

Posted by qqq3 > Apr 20, 2019 7:40 PM | Report Abuse
next report card, Sendai collects $ 250 million from trade receivables......then u how? U eat your words?

Your "next report card" shows related party owing on the lift boats has increased from RM420m at end of 2017 to RM537m in 2018 now.

Bullshit again, quack quack quack?

2019-04-29 19:14

3iii

Post removed.Why?

2019-05-23 16:22

qqq3

for beginners, the best advise is still quality....

for most people quality is some thing u know it when u see it.....KC focuses on wrong stuffs.

2019-05-23 16:26

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