Business

Thursday November 5, 2009

Getting carried away once again?

MAKING A POINT By JAGDEV SINGH SIDHU


LITYAN Holdings Bhd’s stock is on a rally like it was in 1999, in particular, the end of the millennium when any stock related to the dotcom/Internet boom, even remotely, surged on the potential of tomorrow’s promise.

The stock bolted off the blocks, after its shares were requoted on Bursa Malaysia on Oct 30 after its restructuring, by rising 79% in its first day of trading from its reference price of RM1 a share.

In the first four days since it was requoted, the stock is now up a staggering 181% having closed at RM2.81 yesterday.

In the process, the total volume of shares traded now stands at 88 million, which is about 40% more than the company’s entire shareholder base of 63 million shares.

The churn of the shares of this newly-restructured company is even more surprising considering that Lembaga Tabung Haji, which owns 56% of the company’s stock, appears to not have sold a single share in Lityan.

The exact reason for such high interest is yet to be determined but some of the reasons given have been the company’s newly-minted government-linked company (GLC) status or a slice of a lucrative contract.

Being a GLC stock is not a right for a rise in any company’s share price and winning a contract is only as good as the amount of money the company will make out of it, which at this time, is still unknown.

In the end, a company is gauged by a number of reasons, and it starts with its earnings.

There has only been a sprinkling of coverage on Lityan and two brokers have pegged the stock’s fair-value range at between RM1.50 and RM3 a share.

The range is wide but is derived from Lityan’s forecast that it will earn RM15.6mil, or 24.8 sen per share, in net profit for its financial year ending Dec 31, 2010.

Based on the closing price, Lityan is trading at a prospective price earnings ratio of 11.3 times, not bad when compared with the broader market but when compared with some of its peers, it is a lot more expensive.

HeiTech Padu Bhd, a company Lityan is compared with, does not attract much interest in terms of broker research but its revenue and profit track record over the past three financial years has been on an upward trend. It is also a company that is much larger than Lityan in terms of revenue but not so in terms of market cap.

For the current year ending Dec 31 (FY09), HeiTech’s numbers are slightly off from its FY08 pace but it tends to book it a bulk of its profit in the final quarter. But, based on FY08’s numbers, HeiTech is trading at 3.77 times earnings, a snip of Lityan’s valuations.

The other thing investors have to keep in mind is the volatile nature of projections and earnings by IT companies. They have a tendency to flatter and disappoint and, in Lityan’s case, it is still uncertain if the numbers can be achieved.

Lityan’s forecast also projects that it to have a much higher profit margin than some of its listed peers.

In light of the query by the stock exchange on Lityan’s share surge and the resumption in the upward charge of the stock yesterday, I wonder if investors are getting carried away once again.

Maybe investors should decipher this piece of news: Lityan’s managing director and CEO sold all of his 1.25 million shares in Lityan at RM3.13 a share on Tuesday.

● Jagdev Singh Sidhu is deputy news editor at The Star. He wonders if investors have learnt their lesson from the years of chasing hot stocks.

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