Whether HeveaBoard Berhad is operated by candid and competent management?

Recently, HeveaBoard Bhd's 2Q19 financial result just released and recalled me something related to 1Q19 quarterly result as I did put some comments on KLSE i3 (Search Genghis Hoe if you're interested to know what I commented). 

When reading the Notes to Financial Statements of the respective quarterly reports, I sensed that the management weren't be frank with the problems that they faced and also looking for excuses on the poor financial performance:

Figure 1.0: 2Q16 Quarterly Result

Figure 2.0: 3Q16 Quarterly Result

Figure 3.0: 1Q19 Quarterly Result

Figure 4.0: 2Q19 Quarterly Result

From the above Figure 1.0 to 4.0, it's obvious that the management provided the similar reason while the financial results' release didn't meet the expectations -- why it had a major shutdown for preventive maintenance, couldn't it be avoided during the operation? I'm not sure that whether the management did highlight the 'cyclical factors' during the AGM or any interview before. Would the preventive maintenance be one of the  major business risks?

To recall, let's refer to the past 5-year Financial Highlights to assess whether the management is candid to face the issues and competent to resolve it.

From the past 5-year revenue, it's obvious that revenue FY2018 was plunged by RM 96.58 million (down by 17.74%) and net assets were squeezed by RM 16.69 million (down by 3.65%) as compared to the previous financial year. In hindsight, the management might be aware that its core business operations would be impacted by inherent risks, therefore proposed to venture into King Oyster mushroom cultivation by giving the reason that those residual wastes could be utilised to cultivate the mushroom, in order to create extra income stream in future.

"We select our marketable securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to be (1) one that we can easily understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at an attractive price."

Were HeveaBoard's key management also losing their confidence?

When comes into the investment decision -- how much efforts that you really put on to do your thorough research?

I would like to point out some clues that HeveaBoard key management's actions may hold on your investment decision.

There are some points to ponder, before putting on your bet:

1. An analysis of shareholding of two (2) key management in the past.

2. A land deal with an insider on 11 January 2017 and completed on 19 June 2017.

3. A key management resigned on 23 February 2019.

First of all, let's briefly introduce the two (2) key management's background (please refer to below picture).

Figure 1: HeveaBoard Key Management

 Who're the two (2) key management? Management No. 3 and No. 4.

Figure 2: Key Management at a Glance

After going through their brief background, what would you get related to? Would you think that whether they had their stakes in HeveaBoard? Let's have a look at the summary of the analysis of their shareholdings in the past to date:

Figure 3: Key Management's Shareholding Statistics

How do you look at the above shareholding statistics? 

Think deeply: 

1. What're the reasons behind both of them divested all their shares prior to the second round of 10% of private placement exercise in April 2014 (completed on 21 July 2014). 

2. Did they also feel that they're lack of confidence on the future prospects since they didn't own any shares of HeveaBoard? Weird, right?

Secondly, the land acquisition deal was between HeveaBoard and one of the key management, Mr. Yee Kong Yin on 11 January 2017. This insider's deal was about RM 13.46 million for a leasehold vacant land measuring 3.127 hectares (7.7269 acres) in Negeri Sembilan. The reason given that this land acquisition was to expand the RTA segment by building a new factory and to acquire new machineries. The questions here are: 

1. Whether the offer price of the deal was reasonable.
2. Are the RTA segment's prospect very firm in future since it'd spent a large sum on it? Time will tell.

Lastly, after 21 months of the deal, Mr. Yee Kong Yin resigned on 23 February 2019. Why suddenly resigned since he's aged 56? However, there's no smoke without fire!

If you have your own thought, kindly share with me as well.

Can we simply trust the business/financial media press?

Behind the News —— Have their own Agenda.

In the world, who can be trusted? Yourself. 

Let's take this for example.

From the news published on 23 July 2018 (Monday, 12:00 a.m.), it claimed that "Furniture and glove makers winners in US-China trade war" -- For wood-based panel makers, potential beneficiaries would be:

1. Mieco Chipboard Bhd

2. Evergreen Fibreboard Bhd

3. HeveaBoard Bhd

As for glove makers, they are:

1. Top Glove Corp Bhd

2. Hartalega Holdings Bhd

3. Kossan Rubber Industries Bhd

On 28 February 2019, HeveaBoard Bhd released the FY2018 4th quarterly financial results. From the notes to financial results, the management claimed that the lower revenue and profit before tax were mainly due to the soft particleboard market sentiment caused by: 

1. the trade war between USA and China

2. weakened USD/MYR exchange rate
3. increase in direct raw material cost

Figure 1.0: HeveaBoard FY2018 4th Quarterly Financial Results

Figure 2.0: Evergreen Fibreboard Bhd's Financial Results Summary

Figure 3.0: Top Glove Corp Bhd's Financial Results Summary

Figure 4.0: Hartalega Holdings Bhd's Financial Results Summary

From the above examples, we have to be rational while reading the business or financial news as sometimes their write-ups may have their own agenda behind or they may be ignorant, but still have to come up some works to show their bosses. 

However, we have to exercise our own judgements to verify the information sources that we obtained nowadays.

"No matter the situation, never let your emotions overpower your intelligence."