The Management Integrity Lesson

Selamat Hari Raya and Happy Merdeka Day! I hope you have a great holiday for the past few days.

I went to Times bookstore yesterday and I read a local Chinese stock magazine. A reader wrote in and ask about how's HEVEA doing and what is it's prospect. Interestingly, the author regret that he did write a bright future and good prospect for HEVEA early this year, due to the misled from HEVEA's management. The management told The Edge that they are started to export their products to China and they will improve their revenue and profit in the near term. 

Unfortunately, HEVEA reported a very poor result for 1H2011. They did not being honest of what they told the journalist and the public. In contrast, EVERGRN management told the journalist and the shareholders that they will facing a very challenging business environment and high cost material. The author expressed that he is very frustrated and lost confident and trust with HEVEA management integrity. He urged the reader stays away from the company which the management is lack of integrity.

After reading the article, it recalled one of the companies in my portfolio, Masterskill (MEGB). I still have 4.5 lots in hand, and my average buying price is RM1.78. Today, it has dropped to RM1.32 due to surprising poor result in 2Q11. If you are following MEGB news announcement from the beginning, you will learn how good the CEO Dato Edmund talks about his company.

He told the journalists in early March that anything below RM2 does not justify keeping the company list. And he is considering to up his stake in the group. He always emphasized that the company fundamental remains strong. Yes, even in the latest quarter report. I have the feeling that he is talking bull shit. He never raise his stake, is he? The company is not making money lately due to PTPTN has changed the maximum value of it's loan from RM60,000 to RM45,000 and minimum entry requirement for nursing programme from 3 to 5 credits at SPM level. Does it still consider fundamental remains strong? Hey, this will impact the future earning significantly!

The most bull shit is the first 2 paragraph under commentary on Prospects. MEGB bull shit about they still able to make money from this business and maintain healthy balance sheet. They also bull shit that despite the high inflation and low GDP growth, they are still maintain it's competitive edge. If they compared to the latest results from HELP and SEG, MEGB has nothing to proud of. 

Anyway, I'm glad that they are honest to the analysts about their problems. So as usual, those 'PRO' analysts has downgraded MEGB from RM3.xx to RM1.7x-1.9x. It's a joke. Those analysts have totally misled by the management. I'm really suspecting about MEGB management integrity.

The reason I haven't let go MEGB shares is because I do believe the 2H11 result may getting better compare to 1H11. It's NTA is already RM1.29. I think the share price would be taking this price as the baseline. Anything below this price would be worth to look at, if the management claimed that their 'fundamental still remains strong'. 

Another thing is that they have strong cash flow. I hope they will spend the money carefully and properly to bring back the revenue and profit. With the high dividend policy, I decided to keep it and wait for 3Q11 result. Perhaps I'm too stubborn. Let's wait and see.

Management integrity, it is too important!

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