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Tuesday, May 31, 2005

Advanced @ 60 cents ( Oil svcs / Singapore ) 1 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)

Main issues

1.Priced to perfection

2.Insider profit-taking

A services company with <10 cents of NTA (Net Tangible Assets). Revenue base of about S$10 million over the past three years. Just listed on the Sesdaq (note it's SESDAQ, not the Mainboard) LAST YEAR, keeping in mind that IPOs typically exhibit unnatural decelerations in earnings after they list (why am I not surprised?). The market prices it at 20 times historical PE (I never like to project future PEs).

So why is Advanced Holdings, an oil and petrochemical services firm, selling at such high valuations? Ok so institutional fund recently took up 6 million shares in the company. But guess what? It was placed out by the owners of the company, not issuance of new shares. An exit strategy for them at high share prices. I remember United Food's key shareholders did the same thing in 2003. I sold out whatever I had of their shares the next day. We witnessed negative growth by the company for the next two years.

Of course for every hot stock there is a hot story. Advanced has a strong order book of $38 million which is double their last full-year revenue of $17 million. They have contracts with the Chinese oil giants, such as Sinopec recently. So the funds might be purchasing them for their China and oil story, which are two of the sexiest themes nowadays. But look again to the negative intangible (the share sale) described above, the fact that the oil services industry is hardly one in which size and scale of operation is unimportant, that people are attracted to the order book and potential revenue but hardly wonder about whether margins are sustainable, and that the stock is priced to perfection, and you have the makings of a sad tale for late buy-and-hold "investors" of this stock.

(1) Latest analyst report from Phillip Securities
(2) Directors place out 6 million shares




Anonymous Buffett said...

Sounds interesting. Phillip Securities just recommended this stock and set a target of over 60 cents. You should look at the prospective PE, not historical!

5/31/2005 4:31 PM  

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