AKN - My short-term investment.

I start accumulating AKN's share since March-2007. Now it is accountable for about 23% of my portfolio's value. My average buying price is RM0.51.

I noticed this company in early 2006. At that time, its share price is about 40 sen, very low compared to its historical prices in years 2002 ~ 2004 (around RM5) . The share price was so low because it's been suffering loss for two consecutive years. And the share price was lower than half of its net asset value.

So, I keep an eye on it. After one year studying and monitoring it, I decided to buy its share and keep it for about one or two year. (that's considered a short-term investment for me).

Here's my observations on AKN before coming into the buying decision:

AKN was a good company, manage to generate a stable income in many years during the past. Its share price fell deeply in 2005 due to the huge loss it suffered in that year. (about 80 sen per share). This loss was mainly aroused from two factors:

1. There's a fire incident on Jun-2005, destroying one of its operation premises located at Penang. This had cause damages to the machinery and ceased the factory from operation. Thus, the company had to out-source its operations to external parties, to meet the custormers' delivery orders. This has cause a big lost to the company due to the high cost of out-sourcing. As a result from this, the factory's operation had been temporarily stopped since 2006. also, The company had to compensate the factory's staff and workers who had loss their job.
2. The design, development & distribution division (DDD division) of the company, which is based in China, was suffering loss due to the tough competition from China's local companies.

The loss from the fire incident is big. But this is obviously an one-time-event, and shouldn't have any continuous impact in future. On the other hand, the loss suffered from the DDD division, though is much smaller, is likely to be a sustainable one. So, we had to see how AKN's management deal with this.

AKN's management had taken some steps to rationalise its operation since 2004. Among those rationalisation processes, I think the following two steps are the most important:

1. Winding-down the lost-making DDD division. The company's management had decided to dispose the subsidiaries under this division, and exit entirely from the related semiconductor chip & software business.
2. Acquisition of a new subsidiary, named Paramount Discovery Sdn Bhd - a company that provide polymer coating solutions for the production of powder-free gloves.

Firstly, to discontinue the operations of DDD division is a wise decision. This will free the company from the continuing loss of the subsidiaries under this division, and at the same time the cash generated from the disposition can help the company to reduce its dept. (hence, reduce financing expenses of the company)

Then, the acquisition of Paramount Discovery Sdn Bhd make the company venture into the strong-growing latex glove industry. Unlike the semiconductor sector, (in which most other subsidiaries of AKN are involved), latex-glove industry is almost unaffected by economical cycle. Paramount Discovery will generate a stable growing income for the company in the future years.

After the rationalisation, the company has turn-around successfully in the FY-2007 (ended March). That's the time I start buying AKN's share.

Here's some figures that make me feel safe to buy AKN's share at about 50 sen:

• the buying price is only half of its net asset per share (about 90 sen).
• Its loss-making division is to be disposed soon. The earning from Paramount alone, when reflected on its income statement, will be about 10 sen per share. Together with the earnings from other subsidiaries, AKN's P.E. ratio will be less than 5.
• After the rationalization plan, AKN's main business concentration is now switch from semi-conductor industry to glove industry. (The Paramount's earning now accountable for the highest portion of AKN's income.) Latex-glove industry is a sector that I'm quite familiar with, as compared to the semiconductor business. And, I'm very optimistic about the future growth of latex-glove industry in Malaysia.

So, I'm confident that AKN's performance for the FY-2008 will show a strong improvement from the previous year. (earning per share will be around 12 ~ 15 sen, I think). By then, its share price may rise to about RM1.50. I'll cash out my profit at that time, and put my money back into some long-term-investment counter.

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[updated 10/7/2008] : I had sold all my AKN in July-2008. For the reason of selling it, please read my post "selling stock".

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