Recently, I was asked by a subscriber to do a case study on “YNH and Gang”. For me, while I do know that YNH is a listed property developer, I’m not sure on the company’s latest happenings and what the “Gang” actually refers to. Thus, I did some quick studies on YNH and found that the “Gang” refers to another 2 more companies namely, Rapid Synergy Bhd and Imaspro Corporation Bhd.
The first common ground is their major shareholder, Dato’ Dr. Yu Kuan Chon. As for the second one, their stock prices had tumbled by 60%-90% in January 2024 and thus appeared in the financial news. From 1 to 24 January 2024,
- YNH Property Bhd dropped by 84% from RM 4.04 to RM 0.66.
- Rapid Synergy Bhd fell by 94% from RM 27.82 to RM 1.74.
- Imaspro Corporation Bhd tumbled by 60% from RM 3.53 to RM 1.41.
So, how did it happen? Well, prior to their acute declines, the three stocks have experienced a fast rise since early 2022. YNH doubled. Rapid Synergy tripled. So was Imaspro, which had more than doubled in stock price during this period. As an investor, although stocks are volatile, their degree of price fluctuation is very unusual.
There is no surprise for them to be hit by Unusual Market Activity (UMA).
Here, I’ll do a post-mortem from the angle of a value investor. Of which, my aim is to share how investors can easily avoid these “Titanics” by just simply looking and focusing on the basics / foundations of investing.
Stock 1: YNH Property Bhd
In recent years, YNH had derived sales from developing Kiara 163 and a handful of commercial projects in Seri Manjung. In 2014-2019, sales had been relatively flat at RM 300-400 million a year. Then, YNH reported lower sales in 2020-2023, where revenues for its latest 12 months is RM 214.5 million. In terms of profits, YNH was profitable in 2014-2019. Since 2020, YNH has incurred losses. YNH has reported RM 29.7 million in net loss for the last 12 monthsAs for its balance sheet, most of YNH’s assets are tied up with lands and various properties that are under-development. Cash typically makes up around 1%-2% of its total assets. Most of its properties are funded with loans. Thus, its gearing ratio is always high, well above 50% for the last 10 years.
Interestingly, as it reported “lower sales + incurring losses + high gearing” in the past 3 years (2020-2023), its stock price maintained at RM 2.70-RM 2.80 for the period (2020-2022) before jumping up to RM 5.00-5.10 a share in 2H 2023. This growth in stock price is abnormal.
There is no P/E Ratio. (incurred losses).
There are no dividend yields (little cash and no dividend payments since 2021).
It is obvious that the rise in stock price is not backed by business fundamentals. Thus, value investors who have all these facts could easily refrain from investing in YNH in 2022-2023, preventing themselves from huge 80% capital loss, arising from its acute decline in January 2024.
Stock 2: Rapid Synergy Bhd
Rapid Synergy Bhd has two segments: property investments and manufacturing of precision tools, dies, and moulds. After reporting a huge one-off loss in 2015, the company made a string of small profits where its highest profits recorded in its recent years was RM 5.2 million in 2020. Then, its profits declined to RM 1.7 million in the 18-month period of FY 2023. In the past 12 months, excluding RM 17.9 million in disposal gains of investment properties, it has incurred a net loss of RM 2.6 million.
Obviously, Rapid Synergy Bhd is a small company. But, its stock price grew, from RM 5.90 in January 2020 to as high as RM 29.50 in end-2023. The company had grown its market capitalisation from RM 630+ million in 2020 to RM 3.15 billion by the end-2023.
Wow! Imagine paying RM 3.15 billion to buy a company that (at most) makes as much as RM 5.2 million. Talk about a P/E Ratio of 600 to 1,000!
That’s astronomical. But, for those who bought Rapid Synergy Bhd during 2020- 2023, what do you think is on their mind? Here, suffice to say, whatever they’re doing, it is definitely not investing. The numbers here do not make sense. Then, the inevitable happened. Its price fell freely down to RM 1.74 a share.
Stock 3: Imaspro Corporation Bhd
Imaspro Corporation Bhd manufactures herbicides, insecticides, fungicides, and related specialty products. Since 2014, Imaspro had recorded a fall in both sales and earnings. Revenue fell, from RM 108.4 million in 2014 to RM 50.1 million in 2023. Earnings dropped from RM 9-10 million per year in 2014-2016 to RM 1.5- 2.5 million a year in 2021-2023. Despite its prolonged decline, Imaspro’s stock price had remained at RM 2+ per share in 2016-2021. In 2022, its stock price rose sharply to hit RM 6 in 2023. So, its market capitalisation has risen from RM 160 million to RM 480 million in just 1 year. Once again, we are looking at a P/E Ratio of 200. Just like the two stocks, it is a repeat of abnormalities. Stock price growth is unjustified. Hence, in 2024, its stock price fell to RM 1.41 a share within weeks.
Key Lessons & Takeaways
Clearly, what happened isn’t an investor’s game. My hunch is: “people, who are into them, are not interested in business ownership but fast money”. It’s greed. And when I see illogical rises in stock prices that aren’t backed by fundamentals (sales, profits, cash flows, balance sheet … etc), I see heightening greed and the consequences to it are quite severe.
How much money are you willing to “play” to have such “fun”?
Is it RM 5,000? RM 10,000? How about RM 20,000 for each stock?
I don’t know about you. I don’t find this game exciting. What’s so exciting about losing fast money speculating stocks? As a member in our community, it is in all our best interests to refrain from the “double or nothing” mentality in investing in the stock market, or any markets.
To conclude, I hope the above examples would serve as case studies that would encourage you to stay grounded and rooted in sound investment principles like:
- Focus on solid businesses with economic moats.
- Find stocks that grow sales, profits & operating cash flows consistently.
- Find stocks with strong balance sheets (low debt + high cash).
- Do valuation and make sure you don’t overpay for these stocks.
- Be objective when it comes to portfolio weightage.
If you can heed the 5 above, you should do fairly okay as an investor.
By Ian Tai Financial Content Machine
