Trading volume jumped over 2,500% to 10 million shares from 381,400 shares a day before. Yesterday’s trading volume is also more than double the average trading volume of the stock of 4.8 million shares.
Why this sudden surge in the stock price? Has the company finally found a white knight or a solution for its debt problems? Or could the spike in interest come from bargain hunting investors? After all, the stock did drop to its historical closing low.
On top of that, some 1.8 million shares or a 1.3% stake in LCL were traded off market yesterday in block trades. The shares were traded at between 7.5 sen and nine sen apiece.
When contacted by The Edge Financial Daily, LCL’s executive chairman Datuk Low Chin Meng declined to comment, adding that he was not aware of the reason behind the move in the stock price.
Low’s interest in LCL was sold down completely in December 2009 after CIMB Group Nominees (Tempatan) Sdn Bhd disposed of 16 million shares, or an 11.2% stake, pledged to CIMB Islamic Bank Bhd as part of the security for a facility granted to LCL. In 2009, Low disposed of a total of 41.805 million LCL shares.
According to research house Standard and Poor’s, the valuation of LCL depends on its ability to restructure the company and its debt.
“Based on its current financial position, we believe that it is likely to remain loss-making. Our target price is derived from computing its adjusted NTA, assuming that its bankers and creditors take a haircut of 75% to 90% on the outstanding debt. We note that the eventual restructuring may be more complex and that a more detailed valuation will only be possible when details of its restructuring plan are unveiled,” the research house noted in a recent report. It has pegged its target price for the stock at five sen.
“Given the group’s weak fundamentals, there is technically little value in LCL. Nevertheless, trading interest on its shares may sustain, with volatile price fluctuations likely from speculation on the group’s rescue plans and possible emergence of a white knight. The company has until end-November to present a regularisation plan to the authorities,” it added.
LCL is the first local mishap from the Dubai crisis that hit late last year. LCL had announced its first loan default in December last year and analysts had expected the company to announce more defaults as it continued to face difficulty in collection.
LCL was well established locally, before it ventured into Dubai as one of the emirate’s major IFO players, catering to major contracts like the RM280 million IFO project for Red Line Dubai Metro. To finance its working capital needs, LCL geared up to take on the Dubai contracts. It was severely hit by the crisis in the emirate, and its receivables went unpaid.
It is no secret that LCL Corp is scouting for white knights to salvage the company. Speaking to the press after the company’s AGM on June 30, Low said then that LCL had not found anyone suitable, but it had not given up on finding a “saviour” for the company, adding that the white knight needed to be “financially sizeable” because of its huge debt problems.
The company also announced that it has appointed its auditors UHY on June 18 to conduct a special audit to review its trade receivables and contracts of works-in-progress. As at June 30, 2010, these two components amounted to RM19.2 million.
For its second quarter ended June 30, 2010, LCL continued to bleed, registering a net loss of RM32.7 million compared with a net loss of RM18 million a year earlier. This loss follows the company’s announcement of large net losses of RM334.72 million in 4QFY09 and RM130.79 million in 1QFY10.
This article appeared in The Edge Financial Daily, September 8 2010.
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