Trade receiveables is important! (Suneast case)

Exactly one year ago, i pointed out some suspicious corporate actions in the SGX listed company called 'Suneast'. The link below will bring you to my earlier posting.
http://level13-analysis.blogspot.com/2007/12/saying-no-to-suneast.html

Now, one year later, my call to avoid this company has proved to be correct. Besides the questionable actions by the company i have stated earlier, I would like to draw your attention to the main reason that has caused the downfall of Suneast - Trade receiveables.

As at June 2007, the trade receiveables in Suneast was HK$168.4 million. One year later, it went up to HK$295.1 million, which represents an increase of HK$126.7 million (75.2%). Over the same period, sales revenue went up by merely HK$97.5 million (31.4%). To all the value investors out there, seeing the trade receiveables growing faster than sales revenue is a big red flag. Time to head for the exit immediately, regardless if you own the stock or not! What good is the company if it cannot convert all the profit into cold hard cash?

True enough, this problem is growing bigger and at the end of Aug 2008, Suneast has total trade receivables outstanding of HK$360 million. At this point in time, the problem is compounded because the banks are unwilling to lend it more money to finance the business operation. The events that followed were typical of a company desperate for cash.

On 30th Oct 2008, Suneast announced that it will issued more shares in three stages to raise capital. On 16th Dec 2008, Suneast has decided to sell its subsidiary which controls the much touted 51% of NuXD, which resulted in a loss of HK$56 million. Imagine, 56 million went up in smoke in just over 1.5 years!!!

The final blow was delivered today when the Executive Chairman, Mr Philip Chung, resigned with effect from 29 December 2008 due to health reasons. (Frankly, who will believe all this bullshit.) To put it crudely, it was a toxic stock from the beginning. The long suffering shareholders of Suneast ought to band together to seek a recourse from the management.


Wish all a very happy new year.