Wednesday, January 30, 2008
Housekeeping: What to do with those losers? part iv
RIMH (1997)
This series is running like a journal now. I must have been cursed!
I suggested this share last Aug at $2 but now it's down by half to $1. At one time it was as low as 80 cents only! It's the biggest money loser in this blog and among my personal holdings too.
What happened was one day out of the blue the CFO (also an executive director), the qualified accountant and company secretary (same person), and all independent non-executive directors walked away. You can't have a no-confidence vote stronger than that.
The official explanation was the CFO had some misunderstandings about his future in RIMH and the closing down of the HK office, the INEDs had some misunderstandings about the leaving of the CFO and the use of IPO proceeds, the qualified accountant/company secretary found no misunderstanding but a new job.
This sounded like a total mess and consequently the market awarded a valuation of the same.
BUT I think it may look messier than it actually is.
The most paramount concern is whether there's any indication of fraud involved. The ex-CFO is relatively young at 33 and only joined RIMH in 2006, mostly for the IPO I suspect. The ex-qualified accountant/company secretary was even younger at 29 and joined RIMH in 2007. I don't mean to discriminate either of them but it would seem to me that more (preparation) time and experience would be required to perpetuate any accounting fraud, especially with an IPO.
Looking at the business model of RIMH where substantially all business are conducted in China, the function of the HK accounting staff is likely only for liaison with the regulators, accountants, and lawyers. They probably get busy during the reporting season but otherwise should be pretty free. So it's not a surprise that the chairman/owner of RIMH would want to keep the HK overhead as low as possible, barely enough to satisfy the HKSE requirements.
So I think the story is as it's told. The chairman asked the CFO to be transferred to the international sales department. He didn't like it and quited. There may have been some disagreement about salary increment too but I'm only guessing. The replacement CFO is even younger at only 30.
The counter argument is that all accounting fraud is masterminded in the China offices and hence minimum competency is preferred for the accounting staff in HK. It's valid argument but I doubt whether the E&Y auditors can be held in the same regard.
The INEDs didn't really know what's going on, got scared, and quited together. There's mentioning about the actual usage of IPO proceeds being lesser than that written in the prospectus. But there may be legitimate reasons for the change, a slowdown of sales for example. One can't draw conclusion from this lone fact. I think the INEDs might also be upset by the special dividend paid in Q3, which I agree is unusual (but i've seen another new listed company did the same). The chairman of RIMH might want to cheer up the share price a bit but this act showed his lack of consideration and understanding of the HK capital market. I agree this is a question mark area which requires further explanation. My suggeston is RIMH should really retain some quality advisers if its wants to regain market confidence.
RIMH for its fundamentals was a good investment at $2. Now its status has been downgraded to a speculation, but a good one at $1.
DISCLOSURE: I hold 1997 at time of writing.
This series is running like a journal now. I must have been cursed!
I suggested this share last Aug at $2 but now it's down by half to $1. At one time it was as low as 80 cents only! It's the biggest money loser in this blog and among my personal holdings too.
What happened was one day out of the blue the CFO (also an executive director), the qualified accountant and company secretary (same person), and all independent non-executive directors walked away. You can't have a no-confidence vote stronger than that.
The official explanation was the CFO had some misunderstandings about his future in RIMH and the closing down of the HK office, the INEDs had some misunderstandings about the leaving of the CFO and the use of IPO proceeds, the qualified accountant/company secretary found no misunderstanding but a new job.
This sounded like a total mess and consequently the market awarded a valuation of the same.
BUT I think it may look messier than it actually is.
The most paramount concern is whether there's any indication of fraud involved. The ex-CFO is relatively young at 33 and only joined RIMH in 2006, mostly for the IPO I suspect. The ex-qualified accountant/company secretary was even younger at 29 and joined RIMH in 2007. I don't mean to discriminate either of them but it would seem to me that more (preparation) time and experience would be required to perpetuate any accounting fraud, especially with an IPO.
Looking at the business model of RIMH where substantially all business are conducted in China, the function of the HK accounting staff is likely only for liaison with the regulators, accountants, and lawyers. They probably get busy during the reporting season but otherwise should be pretty free. So it's not a surprise that the chairman/owner of RIMH would want to keep the HK overhead as low as possible, barely enough to satisfy the HKSE requirements.
So I think the story is as it's told. The chairman asked the CFO to be transferred to the international sales department. He didn't like it and quited. There may have been some disagreement about salary increment too but I'm only guessing. The replacement CFO is even younger at only 30.
The counter argument is that all accounting fraud is masterminded in the China offices and hence minimum competency is preferred for the accounting staff in HK. It's valid argument but I doubt whether the E&Y auditors can be held in the same regard.
The INEDs didn't really know what's going on, got scared, and quited together. There's mentioning about the actual usage of IPO proceeds being lesser than that written in the prospectus. But there may be legitimate reasons for the change, a slowdown of sales for example. One can't draw conclusion from this lone fact. I think the INEDs might also be upset by the special dividend paid in Q3, which I agree is unusual (but i've seen another new listed company did the same). The chairman of RIMH might want to cheer up the share price a bit but this act showed his lack of consideration and understanding of the HK capital market. I agree this is a question mark area which requires further explanation. My suggeston is RIMH should really retain some quality advisers if its wants to regain market confidence.
RIMH for its fundamentals was a good investment at $2. Now its status has been downgraded to a speculation, but a good one at $1.
DISCLOSURE: I hold 1997 at time of writing.
Comments:
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I always find it difficult to sell shares that are at a loss.
When they are from smaller companies, usually they have quite some volatility to them, and within 2 or 3 years they return to the price I had bought them for, and then I kick them out of my portfolio.
I know that this is more sentiment driven than looking at fundamentals, but I do think that many people have trouble selling stocks that are making a loss.
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When they are from smaller companies, usually they have quite some volatility to them, and within 2 or 3 years they return to the price I had bought them for, and then I kick them out of my portfolio.
I know that this is more sentiment driven than looking at fundamentals, but I do think that many people have trouble selling stocks that are making a loss.
# posted by 
: 2:27 PM, February 08, 2008
: 2:27 PM, February 08, 2008Subscribe to Post Comments [Atom]
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