Talk about share investment, my return stumbled badly
yesterday afternoon after one of my heavyweight invested listed company got
serious fire incident at the main factory. This is the first time in my life
suffering so much loss from share investment.
As per quick phone interview with the company director published
by the media, he expressed that there’s about 500 control machines were
affected, estimated $150 million losses and roughly needs 9 months to recover! And
their existing inventory can only last for 2 months.
Once this news spreads out yesterday noon, the counter share
slumped 30% just within an hour and it’s been suspended due to hit the down
limit. And it also hits the highest volume among the entire stocks, about 36.7
million shares transacted within an hour! Not only that, it also created the
highest volume record since listed from 2005! Why majority of the shareholders has
just a big reaction while fire incident is not something new for manufacturer?
Unfortunately, this is not the first time for this company
to hit fire incident. The previous incident was occurred in Jan 2014, merely
less than 4 years! And this time, the estimated losses and recovery time are at
least 3 times worse than the previous fire incident!
To me, it’s not a big deal about the fire incident and one-time
loss, as most probably they can be recovered 80 to 90% via insurance
compensation. What matters me is the company reputation and customers’ order! With
the production is affected for 9 months or more, how can they deliver the goods
to customers as their inventory only can last for 2 months?
I’m not sure the current factory capacity % and number of
control machines at Plant 2, 3 & 4, but the affected factory is the core
production site which consists of 1,500 control machines and about 1/3 of the
machines are affected by fire. Assumed the capacity is about 80-90% with
another 750 control machines, they only manage to cover 75 – 150 machines
capacity while the remaining 70-80% of productions are not able to fulfill after
2 months.
Put aside the trust and the upcoming 9 months affected
income, if they are not able to deliver the goods to customer but the customers
are growing, what will happen next? The customers will definitely approach other
manufacturers for the orders, may be for short term. But if other manufacturers
are aggressive enough, providing perhaps a better quality and price than this
problematic company, what will happen next? That’s what I worry about.
The revenue can sure come back upon the rebuild of the
machines and production. But trust and orders cannot once customers ran away.
Unless the management is able to demonstrate the outstanding leadership and effective
way to solve this production issue, else I think that’s it.
The company market capitalization is about $312m before
slump, and now at $230m upon slumped. Can you see that? The fire incident has
caused $150m loss but the capital is only $230m. It looks very attractive
provided the management takes a prudent steps to pinpoint this issue by next
week.
Well, crisis always comes with opportunity. I think most
probably I’ll give it a small shot on next Monday to average down my buying
price, regardless the share price slumps further, retains or bounces back. I personally think this company is still having a bright future, but perhaps I have to hold
longer than I expected now.
Posts
