Metronic Global: Mangled by Bad Debts

As Metronic plays a sub-contractor role for some government projects,the inability of the main contractor to obtain the payments from these government departments has caused Metronic to have poor operating capital and thus cannot pursue many new projects which it otherwise could. This is reflected by its miserable price of 5-6 sen per share.

Just how much is owed to Metronic?

In a filing to the Bursa today, related party trade receivables is RM46.914 million for sub-contract work
on certain federal public sector projects for the Government of Malaysia.  RM10.594 million are from 1-3 years old debts while RM36.32 million are aged  from 3-5 years old.

In July 2010, the Company did receive a minuscule repayment of RM290,000 in respect of an outstanding related party trade receivables amount owing from the Main Contractor.

As to the step to be taken to recover the monies, Metronic proposes

(a)Actively meet and negotiate with related parties to pursue the outstanding receivables;

(b) Contra the receivables against payables with the same related parties;

(c) Obtained consent from the Main Contractor Related Party to proceed with the certification and collection directly from Ministry of Health (“MOH”), Ministry of Finance (“MOF”) and Jabatan Kerja Raya (“JKR”).  The claim is pending certification by JKR before submitting to MOF for approval;

(d) Negotiated and obtained a Deed of Assignment from the Main Contractor Related Party to pursue the receivables directly from the Government of Malaysia; and

(e) To commence legal action to recover outstanding receivables in the event of failure to recover the full amount.

In relation to the related party receivables due from the Main Contractor Related Party, subject to the finalization of the claim certification by JKR and the subsequent disbursement of payment from the Ministry of Finance, the Company expects the outstanding receivables to be fully recovered through progressive disbursements to be made by the Government of Malaysia not later than 31 December 2011.

With regards to the other outstanding related party receivables other than from the Main Contractor Related Party, the Company expects full recovery within 1 year from August 2010.

I do hope the various certification dapartments are doing their work. What they have not been doing is bleeding Metronic.

So much for Malaysia Incorporated and 1Malaysia.

Postscript:

The latest quarter-on-quarter result ending June 2010 showed major improvements in the accounts of Metronic.

Revenue has increased 77% from RM 2.269 million in 2009 to RM21.724 million in the current year.

From a loss of RM624,00 in the corresponding quarter of 2009, Metronic has turned in a profit  of RM3.427 million.

As for  profit attributable to shareholders, it also display a positive RM 2.532 million compared to  a negative RM497 million accrued in 2009.

Earnings per share has increased from negative 8 sen in 2009 to 40 sen in 2010.

If Metronic can step up its debt collecting ability, things will be rosy once more for this moribund company.

An Optimistic RAM Prediction of GDP 2010

RAM Ratings expects gross domestic product (GDP) to expand 7.4% for the year following the Government’s announcement that GDP grew 8.95 in the second quarter ended June 30, 2010.

The rating agency said in a press release that they agree that the country’s GDP growth will possibly grow at a slower pace of 5.6% in the second-half (H2), which was broadly in line with potential output.

It said H2’s slower pace of growth was due to “moderating external demand, fading low-base effects and easing re-stocking activities”.

Meanwhile, RAM Ratings said resilient domestic demand drove consumption to a 6.5% growth while a 9.4% rebound in investment activities in H1 contributed significantly to the rapid recovery.

According to it, private consumption “is expected to maintain upbeat momentum with a 7.7% growth for the year, slightly higher than the public-sector component, where growth is anticipated to reach 6.4%”.

RAM Ratings said changing trade patterns was holding up external demand.

“Export growth is attributable to sustained (and increasing) demand from newly industrialised economies and China,” it said.

RAM Ratings noted that this trend was expected to continue as Asian economies still power much of the current global growth momentum.

“For the full-year, exports are projected to expand 12.9%, with imports clocking up 18.3% backed by a pick-up in industrial and investment activities,” it said.

RAM Ratings has also maintained the estimated inflation rate of 2.5% for this year as the rate reflected increasing consumer confidence and the rise in food and transport prices following the Government’s subsidy cuts.

Looks like quite a rosy picture,don't you agree?