Update on LMH, a look at ACM
/I guess this is just a market blog at this point, which I don’t really want it to be. But I thought I should follow up on my early post from last week (Feb. 5).
LMH: It turns out that was the day that big shareholders in LMH sold their shares. In total, they sold more than 17% of the total shareholding. No wonder the stock is down more than 70% over the past year. When I wrote about it on Feb. 5th, the stock was down 25 sessions in a row, and it seems like the company’s transition from petrol station owner to real estate and renewables wasn’t really working.
Now, it seems like management has given up on the transition, at least given their holdings. Not counted in those shares below is another 1.6m shares sold by the Chairman and two board members. So in total, it’s probably more like 24% of all stocks were sold.
Source: Vietstock.com.vn
It’s hard to touch this stock unless you could come in and buy out the company entirely.
However, there are a few catalysts that could move the stock:
Sale of Manhattan Tower project - this is a project in Hanoi that has had lots of issues because of a not great partner. It looks like the partner stopped paying the contractor, and so the contractor stopped working.
Some announcement on progress at the other land plots the company has.
Better results from its petrol stations or progress on the renewables side.
In the near term, it looks like the sale of the Manhattan project is the one that could happen soon-ish. Let’s hope it does. But I am still worried that investors have lost total confidence in management at this point. Hell, management appears to have lost total confidence in management.
It would be better if someone came in and bought the whole company. I would recommend them to do the following: refocus on the assets the company already has, stop the transition to renewables, grow sales at the petrol stations, sell the Manhattan project (although I am worried that the partner might have already spent all of the customer deposits), and either invest in the new land projects or just sell them. Then we might get a real price for the stock.
It actually isn’t that expensive at VND66bn, or $2.9m. I am surprised competitors don’t start sniffing around at it.
ACM: Another stock I am looking at because it just seems crazy to me is A Cuong Mineral Group (ACM). It reported net profit of VND7bn in 4Q2019, on no revenue. The profit was from the reversal of some bad debts - so it looks like it is getting some payment.
The bigger issue is that the company didn’t have revenue because it wasn’t able to mine, which is basically its sole reason for existing.
For the year, despite falling revenues (VND15bn, down 22%) and weak gross margin (10%, compared to 33% in 2018), the company barely squeaked by with a profit of VND0.2bn. Last year, the company had a big loss of VND4.3bn.
So that all seems pretty straightforward. Company can’t mine, so it got no minerals to sell (copper mostly in this case). But it looks like now it has approval to start mining again, although the market doesn’t buy it.
What it does have is very high equity: VND429bn ($18.6m) with assets of VND580bn, and liabilities of VND151bn. The stock has a market cap of just VND31bn, which means that it is trading at 0.07x P/B.
Source: Vietecon.com
Clearly, the company has issues. But it has assets. If you could just sell some of those assets, you could probably make some good money. Let’s say you were able to sell all of the assets for 50% of their value. That would give you cash of VND290bn. Then you close out all of the liabilites of VND151bn. That leaves you with VND139bn. Let’s say you also have to pay for laid off workers, set aside money for environmental issues, and other things like that to the tune of VND70bn (half of your cash). You would still have a profit of VND38bn or so. That would be a nice return on an investment of VND31bn.
Plus, the company has already written down a fair amount of receivables (VND122bn) that are never going to be collected (provisions for bad debts: VND81bn). And hey, you might get some of those back - the company did get VND7.9bn in 2019.
This is another stock that I am going to watch. If you could get a sense of when mining would come back and how real those bad debt provisions are, you could make so much money. Well, work to do…