An analysis of NLFCS share purchases in Premium Nutrients

Sorry for the long space between post but I have been busy and this post took a long time to do. I have to do a lot of calculations and double check the figures and I had to rework this a few times, to get it right and it took some time to gather the information needed. You can jump straight to the conclusion section to get a summary.

I am going to break this year by year, so yearly comparison's can be made. Unfortunately from 2006 many of the notifications have no detail of what price the shares were acquired at. In those instances I will use the closing price of the day of purchase. These notifications are all publicly available at the KLSE website.

2003

6,182,300 shares were bought for a total consideration of RM2,837,810 ringgit. Shares in Premium were bought at 34 separate instances. The average price of these purchases was 0.46 sen.

6,500,000 shares were sold for a consideration of 3,884,000 ringgit at an average price of 0.598. Shares were sold in 2 separate instances.

As is the proper way to calculate this, the shares sold will be against the shares already held (In this case the 62,863,195 shares they hold where I will use the IPO price of 0.50sen). This is the FIFO (First In First Out) method and is how share trading profit is calculated.

So the 6.5m shares were sold at a profit of 637,000 ringgit.

The share price closed at 0.47 sen on the 31/12/03 so the profit on the 6.2m shares was 61,823 ringgit on a mark to market basis which is how it is usually done.

So that is a total profit of 698,823 in 2003.

2004

In 2004, 78,785,693 shares were bought in 61 separate instances (someone's been very busy!) for a total consideration of 36,550,323 ringgit. The largest chunk , 13,994,207 was bought from a director of Premium Nutrients at 0.45sen. The total average price of these purchases were 0.46en.

The above includes 13,355,700 shares whose notifications did not include any price details. In these case I used the closing price of the shares on the day of purchase as stated on the notifications.

34,825,000 shares were disposed of in 10 separate instances for a total consideration of 16,397,639 ringgit. The average price of the disposal was 0.46sen. Using the method as set out above, this disposal would be set against the shares held during the IPO at 0.50sen. So in this case there was a loss of (-1,393,000) on this disposal.

The 6.2m purchased in 2003 had a year end closing price of 0.46sen. The purhases in 2004 had an average price of 0.46sen . The closing price on the 31/12/04 was 0.38sen. So the total loss on these purchases from 2003 and 2004 using mark to market was (-6,797,439.20 ringgit).

That is a total loss of (-8,190,439.20) for the year

All the share price dealing information can be found on the KLSE website under Premium Nutrients.

One of the Directors, a Mr.X (I am using initials (not actual initials) as I will mention other directors and otherwise it gets confusing) also sold almost his holdings in Premium Nutrients (He sold 13,994,507 shares at 0.45sen to NLFCS leaving him with 49,761 shares on the 28/12/04). He is a director of both Premium Nutrients and NLFCS.

The question I have over this sale is, what is his rationale for selling his shares? If he needed the money why sell the whole lot? If he though Premium Nutrients was not a good investment and wanted to sell, then why continue to be a director till today? It's not normal for a director to sell his entire holding (albeit with a remaining small residual amount) and continue to be a director. Very strange.

Out of the disposal, 10,000,000 shares were sold to Antara Consolidated Sdn Bhd on the 28/12/04 for 0.45 per share.

2005

2005 is much easier, 9,594,800 shares were purchased in 2 separate instances for 4,283,163 ringgit and at an average price of 0.45sen.

12,000,000 shares were disposed at one go for 0.40sen, so for 4.8m

The loss on disposal was (-1,200,000) as we are still taking this from the amount of shares held Pre-Ipo.

The 84,967,996 shares they purchased in 2003 and 2004 had a closing price of 0.38sen. The average price of their purchases of 9,594,800 shares in 2005 was 0.45sen.


The closing price at the end of the year was (Friday the 30/12/05) was 0.185sen.

So the total loss for 2005 was (-19,111,381.22)


9m of the shares acquired this year was from a director (Mr. Y) of Premium Nutrients. The purchase price was 0.45sen. The shares were purchased on the 28/01/05.

12m of the shares sold/disposed were to Antara Consolidated Sdn Bhd on the 27/01/05 for 0.40sen per share.

2006

In 2006, they bought 8,461,100 shares, none of these 14 purchases have prices on their notifications, so I have the closing prices on the day of the purchases. The total consideration in this case was 1,868,458 and the average price was 0.22sen

They disposed of 24,000,000 shares in one instance at 0.3sen for 7.2m.

Out of the original 62,863,195 shares they had at the IPO, they have now only got 9,537,695. So this 24,000,000 that was sold will have to be marked against this 9,537,695 and then against the shares they have purchased since, which had a mark to market of 0.185 at the end of 2005, so some of the disposal has been at a gain.

This reduces the total loss for this sale for this year to (-244,373.93).

The 24m shares they sold, were sold to a Mr. Z (not a director) at 0.30sen per share on the 23/08/06. On the 07/12/06 they bought 6.5m shares from Mr. Z, no price was on the notice but in my calculations above I have used a price of 0.225 as that was the closing price on that day. So from MR. Z they made a profit of 438,750. That is assuming the price I have used is close to the correct one.

The end of year closing price was 0.235sen and the average price of purchase was 0.22sen, so there is a net gain there. The shares they bought last year have also risen in value from 0.185 to 0.235sen.

The complete total gain for the year was 4,326,317.12.

2007

Out of 19,430,924 shares purchased this year only 1,000,000 have a transaction price. The rest I have done as above and used that day's closing price. The purchases were therefore made for a consideration of 4,705,316 and an average price of 0.24sen.


The closing price as at 31/12/07 was 0.195sen so these purchase had a net loss for the year of (-874,391.58).

The 88m shares they had at the close of 2006 have also fallen in value, from 0.235 to 0.195sen which gives a loss of (-3,542,463.64).

So the total loss for the year was (-4,416,855.23)

Out of the 19,430,924 shares they purchased this year, 17.5m was a purchase from Mr.Z on the 27/07/07. No price details were included but I have assumed a price of 0.245. With this Mr. Z's initial 24m he bought from NLFCS in 2006 has gone to zero.

So, the total loss to date was -26,693,535.53. All this as I said are from publicly available information. I have tried to do this by excluding their intial Pre-Ipo holdings to just show the affect of their trading in Premium shares. Including that would increase the losses.



Conclusion(s)

The total number of shares bought) over this period was 122,736,817 and 77,325,500 shares were sold over this period. Shares were bought at 117 separate instances and sold at 14 separate instances.

I have used the IPO price of 0.50sen in my calculations, but say the initial book price was 0.20sen (highly likely since they have been long term share holders in Premium Nutrients and their entry price should have been lower), then the initial disposals would have been at a profit, but what has essentially happened is that the whole initial 62m shares they had, has been replaced by shares bought at higher prices, approximately at 0.47 sen, so what is on the NLFCS books now has been purchased at a higher price and this will have to be marked against the current price of 0.18. So whichever way you look at it, at least-20m has been lost excluding the initial shares it held. Including that would increase the loss to -31m.

If they did not buy any shares, then it would only be a reduction of value on their books, a paper loss, but what has happened here has been a net cash outflow of approximately 18m ringgit. Over the last 4 years, these trades have caused a net cash outflow of 18m ringgit from NLFCS bank accounts . This money could have been used for other purposes. This whole things is unacceptable.

What is the rationale behind this exercise? NLFCS has essentially sold all the 62m shares it had initially and bought a further 45m plus it initial stake back.. Why do that? They have effectively traded through 32% of Premium's stock. Why would any long term shareholder do that? It does not make sense. NLFCS is a cooperative, not an investment bank.

The other thing is that the chairman and occassionally his associated company (Sunworth Corporation where the chairman and Seven M Management are the shareholders) have also traded quite extensively (much more than NLFCS, so more than 117 times if combined) . Having the chairman trade in Premium shares in his own capacity and then having NLFCS also exhibiting similar behaviour would imply a co-ordination of movement. More attention should have been paid to Premium Nutrients rather than trading its shares! Look after the underlying investment!

Just looking at this whole thing, explanations are needed. This is not normal for a company and definitely not normal for a co-operative.