PN 17 - A painful "code"

 
Nakamichi to be delisted on Nov 27 after Bursa rejects its regularisation plan (Nakamichi).
 
The news above has reminded me of a painful lesson during my early years in stock investment (or rather stock speculation) - a stock I bought was delisted, I guess only those already started stock investment in the 90s probably has heard about this company: Yaohan (M) Holdings Bhd. It is indeed a very good lesson for me and hopefully those of you who read this article can avoid this totally.
 
First of all, lets have a brief understanding on how a listed company can be classified as PN 17 company (below is the extract from Bursa's Practice Note 17 (PN 17 ):- 
 


2.0 Criteria

2.1 Pursuant to paragraphs 8.04(2) of the Listing Requirements, where a listed issuer triggers any one or more of the following Prescribed Criteria it must comply with the provisions of paragraph 8.04 and this Practice Note:

(a) the shareholders’ equity of the listed issuer on a consolidated basis is 25% or less of the issued and paid-up capital (excluding treasury shares) of the listed issuer and such shareholders’ equity is less than RM40 million;

(b) receivers or managers have been appointed over the asset of the listed issuer, its subsidiary or associated company which asset accounts for at least 50% of the total assets employed of the listed issuer on a consolidated basis;

(c) a winding up of a listed issuer’s subsidiary or associated company which accounts for at least 50% of the total assets employed of the listed issuer on a consolidated basis;

(d) the auditors have expressed an adverse or disclaimer opinion in the listed issuer’s latest audited financial statements;

(e) the auditors have highlighted a material uncertainty related to going concern or expressed a qualification on the listed issuer’s ability to continue as a going concern in the listed issuer’s latest audited financial statements and the shareholders’ equity of the listed issuer on a consolidated basis is 50% or less of the issued and paid-up capital (excluding treasury shares) of the listed issuer; or

(f) a default in payment by a listed issuer, its major subsidiary or major associated company, as the case may be, as announced by a listed issuer pursuant to paragraph 9.19A of the Listing Requirements and the listed issuer is unable to provide a solvency declaration to the Exchange.

Please take note only need to hit one criteria, not all ( it is "or" , not "and") .

What I have learnt from Yaohan's lesson was I did not check the financial statements or annual reports of the company when I bought the stock. It was hearsay or rumours that something exciting was happening and the share price would "fly" very soon. If I had taken a quick glance at  the financial statements, I would have probably avoided it as the company had ticked not only one, but a few of the above criteria!! Ever since, I have never invested in a stock without first looking at the annual reports or latest quarterly reports to check if the company has the risk of hitting one of the criteria above. All it takes is less than 1 hour of reading time, we could avoid the land mines that is damaging to us.


Below is the list of PN 17 companies per Bursa's website for reference (PN 17 Companies)

1. ASIA KNIGHT BERHAD
2. BERJAYA MEDIA BERHAD
3. CN ASIA CORPORATION BERHAD
4. EKA NOODLES BERHAD
5. HB GLOBAL LIMITED
6. KINSTEEL BHD
7. KUANTAN FLOUR MILLS BERHAD
8. LION DIVERSIFIED HOLDINGS BERHAD
9. MAA GROUP BERHAD
10. MALAYSIA PACIFIC CORPORATION BERHAD
11. MAXWELL INTERNATIONAL HOLDINGS BERHAD
12. MULTI SPORTS HOLDINGS LTD
13. NAKAMICHI CORPORATION BERHAD
14. PERISAI PETROLEUM TEKNOLOGI BERHAD
15. PETROL ONE RESOURCES BERHAD
16. STONE MASTER CORPORATION BERHAD
17. TH HEAVY ENGINEERING BERHAD
18. YFG BERHAD

Why then there are still trading in these companies?  Obviously there are still some who would like to bang on turnaround story or a successful regularisation plan to be approved by Bursa, with the hope that the share price will stage a strong rebound. I am not saying that none of these companies could get out of PN 17 or able to turn around, just that take note of the risk if they fail to do so.

Just sharing my only experience with a PN 17 company after it was delisted. I still received its Annual Reports for few years but the financials only got worst and subsequently no more news / annual reports from the company. Since there is no requirement to announce quarterly results etc as it is a private company, it is getting less transparent and corporate compliance is less stringent, the risks are much more for minority shareholders. Finally, it was a total write off!!  Therefore, PN 17 is a very painful code to me as I lost a big portion of my capital back then ( yes, 1,000 shares of Yaohan 20 years ago, that was big to me). But it is a lesson well learnt and fortunately (or unfortunately) I learnt that during my initial years of investment.