2006-05-29 daily chart ($0.815)

Biosensors Int'l Technical Analysis:

Can you escape from a massacre like that in Biosensors when the China stocks is simply hot? Fundamentally, perhaps Prof. Sebastian of ShareOwl can have a better insight of the company.

Technically, I believe you can... (a simple case study for the Technical Analysis newbies)

1st Alarm! In late-Oct '05, daily MACD reflect weakness with bearish divergence when share price reached all-time high of
$1.52 . Big sell-down came afew days later triggers the bearish alarm at $1.32 closing

2nd Alarm! Not convinced by your own technical studies (likely other TA practitioner also saw this warning sign)? There is this 2nd chance to escape on mid-Nov '05. A bearish Gap-Down on 14/11/05 triggers more bearish signals: (i) 4.5mths uptrend broken, (ii) MACD slips into negative

The final bottom of $0.98 , a 25.7% loss from 1st Alarm at $1.32

Recent Alarm! Yet another bearish Gap-Down on 15/05/06 to close at $1.20 triggers the bearish alarm - bearish divergence, bearish signal crossing. And the following day on 16/05/06, another lower closing at $1.15 sets the Red Alert with (i) breaking of 4.5mths uptrend & (ii) similar breakout on daily MACD

Unfortunately, there is no 2nd Alarm for this one. As of today's closing of $0.72 , that's already a 40% loss from 1st Alarm at $1.20

With simple usage of MACD divergence & trendline breakout, I believe you might not enter a stock at the right timing, but certainly you can prevent yourself from being "slaughter" at the wrong timing.

When I was compiling Free Float data, Biosensors especially shocked me. Its
issued and paid-up capital is only US$ 58,218.90. Its par value is 1/150 US cents, meaning 0.00006666 US cents, meaning 0.01 of a Singapore cent, meaning 1/100 of a Singapore cent.

My impression immediately was that this stock existed only on the premise that its
business would be successful. I am not sure whether a company with such a low
authorised capital of US$ 160,000 should even be allowed to be listed. And what
more on the Mainboard, not Sesdaq. I wonder then what are the listing rules and guidelines.

The revelation was very stunning.
Source: Annual Report 2005

2006-05-30 daily chart ($1.01)

Bio-Treat Tech Technical Analysis:

Once again it's a China stock, this time another pass-darling of many investors - Bio-Treat Tech.

1st Alarm! In late-Sep '05, share price achieved new high of 2005 at $1.09 but daily MACD has begin to show weakness with bearish divergence. Bearish turn-dwon finally seen with a lower closing on 28/09/05 at $1/03

2nd Alarm! On 11/10/06, big sell-down to close at $0.93 triggers more bearish signals with immediate uptrend broken (not shown) & MACD falling further

The final bottom of $0.785 , a 23.8% loss from 1st Alarm

Recent Alarm! Late-Apr '06 while share price approach all-time High >$1.35 , daily MACD once again shows bearish divergence. Bearish crossing finally arrived on 03/05/06 when share price close lower at $1.30

In fact, there is a 2nd warning on 15/05/06 when share price once again suffer a big selldown at $1.16 and eventually formed a bearish Ascending-Wedge pattern breakout

As at 29/05 closing of $1.01 , that's already a 22.3% loss from 1st Alarm, or 12.9% loss from 2nd warning

2006-05-29 daily chart ($0.36)

Sky China Technical Analysis:

It's another China stock. Another darling stock that rocketed to the sky and tum around just as fast as it rises.

1st Alarm! Similarly, daily MACD shows bearish divergence and confirmed with a bearish signal cross, coupled with a bearish Ascending Wedge pattern breakout the following day.

Unfortunately, no second chance were given! As of 29/05 closing of $0.36 , share price tumble 37.4% from 1st Alarm.

Hi CSK,

Since you mentioned about the paid-up capital & par-value of Biosensors, I've actually came across another hot stock which is LMA Int'l of similar figures:

Fully paid-up capital: US$58,095
Common shares par-value: US$0.0001

Annual Report source: HERE

Do you have the same opinion?


Rdgs.. Lion

Hi Lion,

I must qualify that I am not fundamentally inclined and not trained in accounting.

I normally gets turned off when I see low par value. So a number like that makes
me uncomfortable. While this feeling may not have been necessary but somehow
par value takes a meaning to me as the worth of a thing.

Par value in Bonds and Notes take on an entirely different meaning from stocks.
Par value of a bond or note is the money that I lend (when I buy a bond) and is
also the money returned to me on maturity. Par in this case is usually 100 (%).
Between the time I buy the bonds to the time it matures, I recieve periodic and
regular interest payment.

Par value in stocks, well seeing many stocks with very low and sometimes
ridiculous par value makes me look at their price charts and usually I come out of
the analysis negatively. I get the impression, rightly or wrongly, that there is
baloney in the numbers.

Many countires now no longer require par value for stocks.

A company issue millions of shares in an IPO at a certain price. Certainly the
capital recieved is substantial. So what is this low par value and low issued and
paid-up capital about? I can never get it.

Anyway, with effect from 30Jan2006, the Companies Ammendment Act (2006) has
abolished the concept of par value and authourised capital. This is why the SGX
website lists many comanies with $0.00 par value. That space is irrelevent now.

http://www.acra.gov.sg/legislation/pdf/ACRA LEGAL DIGEST _Aug05-z.pdf

I am not train in accountancy, but let me chip in my thoughts.

First of all, there is a difference between Authorized Capital and Paid Up Capital.

Authorized capital is an arbitrary selected artificial ceiling of share capital a company can issued. The actual share issued and fully paid up - called Paid Up Capital, usually is substantially lower that this figure. Authorized Capital can also be amended later as required. I do not know why and how this Authorized Capital is there in the first place, but it serves no accounting purpose.

Paid Up capital is the amount recorded in the company "Share Capital" entry when shares were issued to shareholders. Paid up capital is a product of [nos of shares issued] x [Par value]. Par value, is also an arbitrarily chosen value, usually $1. Par value does not relate to the net asset value of shares, nor the selling price of shares. Par value has some accounting implications, such as when issuing x% dividend, this x% is based on par value.

A newly set up company without any asset, the sole asset is the cash that was injected by the shareholders. So let say ABC company issue 100,000 $1 par value shares at $1.00, then the total value of the company is $100,000. Since it issued 100,000 shares, each share is worth $1.00.

Now if the company has been running for some times and is making big money, the company has a total net asset of $150,000. Its share with worth $1.50 ($150k/100k), but the par value remain at $1. Let us say that now there is someone who wish to have some share of the company but the existing shareholders are not selling out, so the company issue more shares (say 100,000) of the same par value to this new share holder at $1.50 ($1.50 so as to be fair with the existing shareholders).

So now there are new cash $150,000 received by the company, $100,000 will be entered as paid up capital ($1 x 100,000) and $50,000 [($1.50-$1.00) x 100,000] as share premium.

(I think there is a law or company act the prohibit issue of share below par, so share premium cannot be negative.)

If the company is doing extremely well, its total net asset balloons to $200 mil. The total nos of share issued is till 200,000, so each share typically worth $1,000. Since this is too high a value to be appreciated (Ah Beng said: "Wah, so expensive"), the company do a share split, dividing each $1 (par value) share into 10,000 $0.0001 (par value) share, and sell this $0.0001 (par value) share at $0.10 each (Ah Beng said: "Yah this is cheap").

Hence the value low par value.

Each of the $0.0001 Par share issued to Ah Beng at $0.10, the paid up capital only increase by $0.0001, while the share premium increased by $0.0999.

Thus the high "Share Premium".

If we look at the case of Biosensors, we can see that there is a huge share premium, meaning that Biosensor had issue many share well above that par value.

Now a twist.

There are instances where the company's share capital is deliberately kept at a low value.

Just for example, let us go back the ABC company, having 200,000 share, par value $1, total net asset $300k. Now there is an opportunity that come by and required an additional $300k cash injection. ABC company can issue an additional 200,000 shares at $1.50 to shareholders, and with the cash ABC can grab the opportunity and make profit. But when coming to distributing profit to shareholder, it can only come in the form of dividends (share buy back is too troublesome - see below, so just rule out here), which is subjected to tax.

An alternative way to get this additional $300k, is via loan from shareholders to ABC company. The nos of share remain the same, paid up capital remain the same (there is an increase in Liability of ABC company). After the profit had been made, the company can repay this $300k loan to the shareholder, without any tax.

Another reason to have a low paid up capital is, the amount in paid up capital is the committed sum that shareholders have to risk. Any cash injection to ABC company in the form of paid up capital, cannot be withdrawn quickly. But repayment of loan is just a cheque away, don't need for AGM, EGM, resolution & voting.

I have heard of story that a prominent businessman setting up $2 company and run it for years. All money injected into the company beyond that $2, are all his personal loan to the company. Just imagine if thing turn sours, how much his creditor can get when suing the company?

In technical point of view, the poor result warning is not totally unexpected. I've given out a cautious posting on 28/04 that the share price has formed a bearish triangle breakout with initial measuring target along $1.14

Below chart is a detailed view when :
[1] share price break off bearish triangle pattern in late-Apr at $1.31 (initial measured target - $1.14)
[2] share price stop falling only at $1.28 and make a powerful reverse in early-May. Like Prof has mentioned before in JC&C thread, this is probably an action to kill the shortist. But it does not constitute a good trend reversal sign as price was still held resisted along uptrend line and previous High as shown
[3] the Gap-Down on 16/05 finally confirms the bearish outlook at $1.19 closing. Coupled with the previous bearish pattern breakout and daily MACD once again crossing below signal line (in addtion, in negative region)
[4] share price paused along measuring target mentioned in [1] at low of $1.12 for a couple of days after the Gap-Down. Reaction rally (a term for technical rebound after a downtrend) might be found along $1.14 but w/o bullish confirmation, it must still be avoided

The bearish signal in [3]l is strong enough to warn the bullish investor to keep away from this stock at the time being even when the fundamentals was bullish. The poor result was not created out of a sudden in the final minute and therefore, the Market Players have already reacted in accordance as reflected from the chart.