Wednesday, March 27, 2013

How do you smell a rat? PART 2

This one is much more difficult to spot than my earlier article. Seriously, until now I am not able to be very  sure. Since my article few months ago, Asia Media went downhill further - reporting a first time quarterly loss (if I can remember) and asking from shareholders for money, raising funds via rights. However, if you notice the quarterly loss is due to mainly the taxation which sometimes can only be a P&L item.

If you notice, again on paper it is a healthy company - registering 2 continuous years of profits and revenue trend continue to improve over the period. These numbers will definitely pass through any systems that only checks through revenue and Net Profit.

Asia Media Group's P&L as at 31 Dec 2012

At its today's price of RM0.14, it is trading at RM67 million valuation. Based on the Net Profit 2012 of RM11.7 million - that's around 6x PE we are getting. On the P&L above, notice the growth in Revenue...

The stories does not end there. The balance sheet is not squeaky clean but yet again if we look through there may not be much fault to be identified. Cash was at RM12.5 million while debt was at a manageable RM4.5 million.

Balance Sheet as at 31 Dec 2012
Then, where is the wrong? Nothing much that can pass through a normal investor, unless we look further. Still, I do not like the high PP&E but yet again I invested in Airasia which has an even higher Fixed Assets in proportion.

One of the favorite spot to look at - cashflow and a little bit of intuition i.e. gut feeling. As I have mentioned before, its operating cashflow vs capital expenditure. A growth company will most necessarily be requiring more cash - Asia Media seems to be so. As you can see, it is eating up cash faster than it can churn - capital expenditure for broadcasting equipment? How much does that costs?

Cashflow 31 Dec 2012
Now, I am not implying Asia Media is doing this but do you know that capital expenditure numbers can be boosted up? Say the equipment actually costs RM20 million but an arrangement with supplier can make it looks like RM50 million. Hence, on paper it can look like the PP&E is purchased at RM50 million while that difference in numbers is passed through back into the operational cashflow. That's why free cashflow is very important.

Again, I reiterate I am not saying Asia Media is doing this. The onus to check this is dependent on the auditors - not investor. Hence, as an investor we can only depend on the auditor to pass through the accounts for us to believe in. In an investment, look for a better quality auditor as in the Big 4 or at least the middle tier auditors. Names of auditors that we have never heard of sometimes can be a bigger suspect. One thing though I would like to highlight is the substantial drop in net cashflow from operations but the trade receivables did not increase much. Neither was the cash which was cushioned by the additional raising of cash from new private placements and borrowings during the year. Net total RM11.8 million. This scenario looks like a huge portion of the cashflow from operations in 2011 was even collected upfront. Where is the upfront from? Other payables? I am not sure.

I am looking through the cashflow (unaudited) for Asia Media for 31 December 2012. Notice the ones I box-ed in Orange. If you notice, the capital expenditure paid was most probably for the other payables which was extremely high the year before. Other payables to me was still un-explainable. Why other payables for capital expenditure. Shouldn't it be trade payables. For 2012, there was barely much capital expenditure being spent with a net addition of RM1.3 million. Still, I do not understand the need for broadcasting equipment with today's availability of technology capable of delivering content through the 3G, 4G and whatever not. Asia Media does not need to do live broadcast.

The rights issuance proposed is to beef up the balance sheet of the company for more capital expenditure - I presume (otherwise why?), and I am not so sure one should be confident enough to put in more money into it.


Malaysia Stock Talk said...
This comment has been removed by the author.
Malaysia Stock Talk said...

Proceeds from the proposed right issue is for purchase of gap fillers to be installed in Klang Valley, and DTTB for JB and Penang.

Gap fillers are used to improve the quality of broadcast signal.

The rollout of DTTB has been delayed for 2 years. Something not right here. They should just focus on the rollout of DTTB in Klang Valley before making further capex investment for DTTB in JB and Penang

Malaysia Stock Talk said...

While the revenue for 2012 was higher than 2011, as you have pointed out above, the quarterly revenue growth was relatively flat. Indeed, there was marginal drop in revenue in 4th quarter compared to 3rd quarter

1Q12: RM10.852m
2Q12: RM11.137m
3Q12: RM11.604m
4Q12: RM11.173m

yhtan said...
This comment has been removed by the author.
felicity said...

If you notice, the important revenue should be airtime, and programme sponsorship. It was not growing as fast as production.

Ben Gan said...

When in doubt, stay out. I don't like this company, simply because after a bonus issue, they ask you for money. This is like giving you paper and asking you for currency notes.