M-MODE BERHAD (MMODE, 0059) - Quarter Review Q4 2011 : Suspicious Profits? Red Flag? Mistakes?

Income Statement:
EPS: 1.16sen
Total 4 quarters: 7.77sen
NoteL Provision for and write off receivables and inventories increased.
Gross profit margin decreased.

Balance Sheet:
Cash amount increased
Term loan (noncurrent and current) increased marginally.
Net Tangible Asset: 24.53sen

Cash Flow Statement:
Operational cash flow remains strong, slightly increase in CAPEX

My Insights and Views:
Overall MMODE financial statement is still no bad except the decline of its EPS significantlly compared to its preceeding quarter.

However, the most crucial problem I find out is its segment results at the note 5. Segmental Information.

That is, negative profit (loss) (i.e. segment results) from its core business, that is, Contents & value added services. However, this loss was offset by MMODE investment holding segment with revenue of 7.472millions and profit of 5.927million. After some elimination, the total profit was 1.881billion (excluding the 16K financial cost).

So, my questions are:
1. Why the core business can lose money which apparently did not happens in last few quarters?
2. Why the investment holding segment can suddenly earned lots of money in this quarter which never happened in last few quarters?

Personally, I think that are two opposite explanations:
1. The financial report was wrote wrong.
2. It is a red flag. Because, I will not accept that the core business of the company I have invested lose money without reasonable explanation.

It is better to invest safe than sorry.

Therefore, I decided to clear out all my MMODE in my portfolio. IF EPS maintains at 1.16sen for next three quarters, with PE of 8, 1.16x4x8 = RM0.37 should be its fair value. But please bear in mind that I am not going to invest a company with its fair value while I still can find many undervalued company for investment.

But I still hope MMODE does not "cook the book" or manipulate its earnings. Because it will ultimately cause lots of people losing their hard-earn money.

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Written by: Xaivier Chia

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