PECD Stock – Why You Should Run Away, Fast

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Jun 22 2007
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If there’s one thing you should consider before investing a particular stock, it has to be the profit and loss statement of the company. This is the easiest indicator to show how the company is performing and to tell investors how well it is being managed, or how great the management has been screwing up the shareholders’ fund.

When you read about business news on the local newspaper, you’ve to actually go back to the history of the company especially when you’re investing in a country which transparency is a rare commodity such as Malaysia. Most of the times (more than 90%) you’ll be bombarded with good news about the company. Very rare you would be presented with the other flip of the coin unless it’s really bad news that cannot be covered anymore such as the recent accounting irregularities. You can’t cover 10 holes with only 1 cap, can you?

So, when construction firm PECD Berhad (KLSE: PECD, stock-code 5093) announced yesterday a tie-up with Dubai Investment Group (DIG) to strengthen its role in that region’s construction sector, I took it with a pinch of salt. PECD’s Dubai-based unit, PECD LLC, is said to undertake construction and property development projects for DIG-owned companies as well as projects for Dubai Properties.

PECD – a poor paymaster or having cashflow problem?

On 14-May-2007, stock price of PECD Bhd took a plunge when it fell 15.5 sen (24.41%) due to winding-up petition on PECD wholly-owned unit, PECD Construction Sdn Bhd which owe over a small amount of only RM 880,000.
Today, 22-May-2007, a group of small contractors hold a demonstration during PECD’s shareholders’ meeting carrying posters that read “Debt not paid. We have to go to loan sharks.” They were among the 17 sub-contractors who have asked to be paid RM25.6 million, over the past two years, for work on houses and offices in Precinct 11, Putrajaya.

Spokesperson Wahid Mirza said “We are now living in debt. Most of us had to resort to selling our personal belongings to pay creditors who are also chasing us for payments … We have met up with the management of the company. In fact, we have obtained a letter from the Ministry of Finance instructing them (PECD) to pay us … Unfortunately, until today, except for that small token received two weeks ago, we have not received any payment”

In response, PECD chief executive officer Rosman Abdullah said the company has no intention of running away. He further said “We are doing everything we can to resolve this matter … The problem right now is timing … We, too, have not been paid for the work that we have done … So how can we pay them if we ourselves have not received any payments.”

These episodes points to how PECD’s financial health has deteriorated over time, no doubt about it.

PECD bleeding profusely

The company registered a net loss of RM133 million in the financial year ended December 31 2006 and a net loss of RM8.9 million in the first quarter ended March 31 2007. PECD has sold its headquarters building and land for RM8.8 million and RM15.73 million respectively.

The company was doing quite well in construction but other sectors such as development and energy were failures. From 2002, net earning per share (EPS) was on uptrend till 2005 when the cracks appeared. All hell breaks loose in 2006 when the EPS was in the red of minus 39.41 sen per share.

Rosman said that PECD aims to be in the black, hopefully by this financial year ending December 31 2007 or the next, with the execution of several key turnaround initiatives, including pursuing outstanding claims and the disposal of non-core assets. So if you read between the lines, the CEO isn’t sure himself if the company can actually turn around.

Government bailing PECD

It was the news where the Maalysian government tried to bail-out the loss-making PECD on the day of Valentine this year that the share price jumped more than 130% (refer to chart). Despite being a political party, UMNO, the main party party within the ruling government decided to buy 25 percent of PECD. The major loss was due mainly to project cost overrun in Sudan’s marine terminal.

PECD trying to suck more public money

What prompted me to write this article is when PECD proposed a renouncable rights issue of up to 345 million new shares together with up to 172.5 million free detachable warrants on the basis of two rights shares with one free detachable warrant for every two existing shares held.

The proposed rights issue with warrants would raise up to RM172.5mil and would be utilized for among others, repayment of shareholders’ advance, bank borrowings and working capital for the group.

Get real, the last thing you want to do is to feed the parasite who not only couldn’t get or manage the project right at the first place, but to shamelessly ask government to bail it out and has the guts to ask shareholders to pump in more money to “try” to turnaround (or to dries up more funds). I wouldn’t give it a second look, let alone to give more money to the incompetence management in running the company. Unless it’s Mah Sing Group Berhad (KLSE: MAHSING, stock-code 8583) to which I subscribe to the rights issue recently as I believe in the company’s management and performance.

# TIP: Run away from this stock if you treasure your hard-earned money. But I’m sure punters and speculators would like to put their bets on this penny stock as the main player, the government, is on the show. Punt at your own risk dude.

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agree with you though i am not a shareholder of this company. like to relate my experience for the benefit of other investors. subscribe for a rights issue in MMM. nothing very adverse mentioned in the rights documents. bombshell came about one year later with massive write offs. directors did try to explain about this phasing out of single hull tankers as the reason of the write-offs. hey, some listed competitors are still using single hull tankers and they are still doing well with respectable profits. then there are write-offs of capitalisation of docking and repair works. think thats creative accounting and bordering on dressing up of accounts. the latter is illegal, right? by the way, rights issue monies were supposed for buying of new ships. now, its for repayment of bank borrowings. if i have known thats the real purpose, i would have shooed them off coz there goes the growth story. by the way should they not secure the shareholders approval for changes in utilisation? anyway, no investigation by the authorities and I am still shellshocked like the underwriters of the rights issue. just waiting to unload the shares though it is going to cause a big hole in my pocket.
by the way, keep it up with the great articles. pleasure to visit your site.

sorry to heard about your experience with mmm yok hoong … i guess all the minorities should equip themselves with basic knowledge of asking the right question during meeting on how the board plans to spend the money raised, not that they cannot tell lies but at least they would think twice before committing …

also, minority shareholders have to stay united – only then authorities will keep their eye & ear wide open … the more than 100,000 signatures from johoreans in protesting about the crimes in johore is the good example of how people’s strength can make the changes (police finally was dispatch) …

it could be due to election though, but anyway with the strength of more than 100,000 the sleeping politicians are at least awaken …


well, the utilisation purpose is clearly spelled out in the rights documents. now they are saying that the funds are better used to repay borrowings coz one of the reasons is that they dont seem to be able to get the ships at the right price. sounds logical economically, rite? but then, how can you grow both the top and bottom line without the ships;afterall its a shipping company? without economic value growth, how can the share price perform? Am waiting patiently for the next sucker and sell out though gonna get a mighty hit on the chin.
About shareholders unity, its still a long way to go as far as shareholder activism is concerned in Malaysia. And if only there is a class action suit available against directors, I am sure there will be overall better corporate behaviour.
well, some lessons are more painful than others. gotta soak it up and the mantra now is to avoid like plaque those companies managed by personalities who are known to destroy minorities value ( either thru value enhancing schemes for the majority or those that have a track record that plainly take shareholders for a ride. there are loads of those in the latter category).
good luck and best wishes, stocktube.

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