Citiraya

Let's help each other to learn from Citiraya

The initial collapse of Citiraya spooked me because I could not uncover any warning signs in the financial statements. In fact, the statements looked so impressive that it was easy to be tempted to buy despite the soaring price.

Perhaps some smarter financial Sherlock Holmes could enlighten me as to where I could have missed out in the financial statements. I am not able to detect any glaring figures.

Nevertheless, there were still warning signs;
1. Senior management resignations
Below shows the series of resignations among its key personnel.
# 25 Sep 2002
Resignation Of Director
# 17 Nov 2003
Resignation Of General Manager
# 31 Dec 2003
Resignation Of Director
# 23 Feb 2004
Resignation Of Managers
# 31 May 2004
Resignation Of Financial Controller
# 02 Aug 2004
Resignation Of Director

There was some disagreement between the co-founders, the Ng brothers. Raymond Ng quit and sold off the bulk of his shares. Some other key figures quitted along with Raymond Ng who set up a rival business.

Given the booming picture painted by Citiraya's financials, it is a better bet to stay on in Citiraya than to join a new start-up. The high turnover among the key staff is cause for suspicion and worry. What else could they have known?

2. Insider selling
The co-founder Raymond Ng sold off the bulk of his shares. If a knowledgeable insider expresses his lack of confidence in the company, it is a cause for concern.

3. Stock is becoming too expensive
Taking 3Q Sep04 book value and last traded price,
Price to book value = 5.94
PE ratio = 40.51

Even if the accounting figures were accurate, the financial ratios are enough to indicate that the price has risen to risky levels.

Given the resignations, insider selling and the expensive price, it should easily fail the margin of safety test of a conservative investor.

Investors who were burnt by Citiraya will probably be thinking "Is this smart aleck trying to prove he is smarter than the rest of us? It's just wisdom on hindsight" I would like to end by saying it is easy to analyse based on hindsight. The difficult part is staying objective amidst the excitement of seeing the price soaring to ecstatic levels. Frankly speaking, I myself might have bought it out of greed then. Luckily, I was never a follower of Citiraya.

For investors who were burnt by Citiraya, this post was never meant to show somebody else was smarter than you. The purpose is to learn from this lesson so that we all can be smarter next time to protect ourselves against evil fraudsters in future.

teachme posted on 23-5-2005 at 06:20
http://www.wallstraits.com/community/viewthread.php?tid=1631&page=1#pid13711