When the new unity government has formed and our tenth prime minister is appointed, our currency and share market spiked up momentarily. From then on, it just felt like going down a slippery slope. The excitement did not last even two weeks. Our hope for a rejuvenated and resurrection of the market was crushed. But what are the reasons behind the lackluster performance of our share market?
A short recap of the market performance in year 2020 when covid-19 pandemic caused the economy to come to a standstill for almost one full year. However, the market recovered earlier than the economy and any shares purchased after the crash skyrocketed despite disappointing financial report of most companies except gloves shares. That was the year that all mutual funds in equity clocked a substantial increase in value.
Since then when the economy started picking up in year 2021, the trend of the market was in reverse despite good performance report from most companies. It was difficult to pick many good shares that would yield positive capital return. By then, most companies had started paying dividend. Buying shares was like throwing darts to a target positioned 1km away. If you hit, you hit.
It was also in the year 2021 that revealed some financial irregularities in the report submitted by Serba Dinamik for year-end 2020. The auditor KPMG raised a red flag on the report which started the investigation by Security Commission (SC). After changing auditors to E&Y and Nexia SSY PLT, the situation did not improve. In fact, the company shares were suspended for a period of 6 months from Oct 2021 and resuspended again in Dec 2022. The company which has declared such a healthy balance sheet and cash flow is now suddenly in debt due to untraceable and unverified assets and receivables of RM11 billion. The banks stopped giving out loans to the company and creditors were busy suing for default payments. For all that, the company directors were only fined RM3 million each while the minority shareholders lost everything. The lack of transparency in financial reports seemed to be daunting for investors and can deter potential investors especially when they cannot be sure of the actual financial status of companies when placing their investment.
Then, there are big companies like Datasonic and Iris which have received contracts from the government without going through tender processes. Now, that the new government is in, all big contracts are being investigated and reviewed and suddenly all these stars started to become meteorites in the sky. Even the share price of MyEG was not spared when it was reported that all immigration related services, including those managed by external parties, could revert to the Immigration Department with the potential rollout of the NIISe project by 2025. It seems that bad news after bad news were released in a short period of time.
Recently, Bintai Kinden which was a favorite company among share punters in the years 2020 and 2021 lost more than 95% of its value and was declared a PN17 counter when its subsidiary defaulted in payment. There was no sign of a major problem when looking at the net tangible asset (NTA) over the quarters. As per data obtained in the KLSE screener databank, in Dec 2022, the NTA value was RM0.22 but the share is now RM0.040. Does it mean that the counter is selling at a discount? I also remembered the company and its subsidiaries received many contracts in the previous years. On my own, I am guessing that the overexpansion without consideration of actual capacity may lead to excessive borrowing and taking projects with minimum profit margins which may lead to loss when materials and operating costs increase. Remember the story of the largest construction company in Malaysia before 1997, Lion Group Construction?
In conclusion, all the above lead me to question the validity of the art of reading balance sheets and cash flow. Are most numbers just fabricated to look good? How many auditors have been fined for irregularities in the financial reports? Is there any protection for the minority shareholders? Most shares are bought with the announcement of good news but investors do not really know what is lurking behind them. It is as if there are monsters waiting behind every corner and turn that are taken down the lane of the KLSE bourse. As of now, any spare cash would be better off invested in EPF for those who are close to the age of 55 as the cash could be withdrawn anytime after you reach 55.
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