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FINANCIAL CHRONICLE™ » EXPERT CHRONICLE™ » Touchwood Case Review

Touchwood Case Review

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seyon


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Unofficial information that the expected Touchwood case against Sri Lanka Accounting and Auditing Standards Monitoring Board(SLAASMB) next hearing will be on 26th May 2011. Yes everyone looking the favorable outcome. Today, there are rumors that outcome will be favorable to the company and some brokers recommend to buy at current price. I could see some collection (about 820,000 shares) was made @ 23.60 levels.

I just did some research on the Touchwood Case. It looks like decision will be favorable to company. (This is not a promotion, just merely to getting your views. To be honest I do not have TWOD shares at the moment.)

We all know about the case related to the valuation of biological assets. I extracted some facts from SLAASMB website of case information to start from beginning.

The Sri Lanka Accounting and Auditing Standards Monitoring Board has determined that the estimates of fair value of biological assets used by Touchwood Investments Limited in its financial statements for the years ended 31 March 2005 and 31 March 2006 are clearly unreliable. The Company has also not been able to provide the Board with any other estimates which are reliable. Further, the method of valuation used for the year ended 31 March 2005 was not in accordance with International Accounting Standard, IAS 41 Agriculture, which the company has purportedly adopted.

As the company has purportedly adopted International Accounting Standard, IAS 41 Agriculture, the Board has concluded that the biological assets should have been valued at a value which approximates cost in accordance with paragraph 24 (b) of IAS 41 or at cost less accumulated impairment in accordance with paragraph 30 of IAS 41. Based on such valuation the company would not show a net profit for the relevant financial periods.

As the impact on the financial statements is substantial the Board has decided to refer the non-compliance to the Attorney General. The Board has also decided to investigate the compliance with auditing standards by the auditors in relation to the audit of the financial statements of the Company.

Based on the above information I can see in the absence of Sri Lanka Accounting Standards, company uses International Accounting Standards 41, Agriculture for the valuation of biological assets. But SLAASMB argument is that estimates of fair value of the biological assets in not accordance with IAS 41 and the financial statements are unreliable.

Further I have received BASL News Letter (Bar Association) of December 2010, there talked about some legal judgment (I attached the newsletter in our research forum http://research.srilankaequity.com/t96-touchwood-case-basl-bar-association-news-letter-judgement-views , refer page 4 for the Touchwood case). There they briefed about the case and given their views. Based on that, Board had not statutory power to challenge the valuation of the Petitioner on non compliance with IAS 41.

Further company received the Certificate of Compliance by the Institute of Chartered Accountants of Sri Lanka for the Annual Report Awards 2010. This certificates covers the CSR, Financial, Presentation and Compliance. Therefore, this reveals that the company practice in valuing biological assets in accordance with IAS 41 as the certificated awarded by ICASL which is the statutory for setting the Accounting Standards

Followings extract from Touchwood website

Certificate Of Compliance

January 24th 2011

We are proud to announce that our Sri Lankan office, Touchwood Investments PLC has been awarded the “CERTIFICATE OF COMPLIANCE” by the Institute of Chartered Accountants of Sri Lanka for the Annual Report Awards 2010 - at the ceremony held on 7th December 2010.

This award is granted by the Inst. of Chartered Accountants of Sri Lanka every year. They evaluate and grant awards in key areas such as - CSR, Financials, presentation, compliance, etc.

This certificate emphasizes that all requirements are being met in order for us to achieve our goals and serve our investors with industry leading standards.

For the year to come Touchwood Investments PLC has its goals set on the CSR awards to be handed out in the 2011 ceremony.

Thank you to all our accounting and administration staff who made the award possible.

http://www.touchwood.com/news/certificate-compliance

So Guys, Based on the above information and facts, to me the decision would be favorable to company. How do you all look into that..

Pls Share ur thoughts and views

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Post Wed May 25, 2011 12:39 pm by seyon

The present buying pressure reveals some good news we can expect from the company.

Post Wed May 25, 2011 3:48 pm by Hawk Eye

All thier profits are in Books. cash flow didnt look good until the rights issue. they havent given dividends for a last couple of years.

Post Wed May 25, 2011 4:37 pm by seyon

Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.

Post Wed May 25, 2011 4:42 pm by Sana

@seyon wrote:Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.


yes its exeactly on 18th july 2011.

mono

Post Wed May 25, 2011 6:14 pm by mono

@Hawk Eye wrote:All thier profits are in Books. cash flow didnt look good until the rights issue. they havent given dividends for a last couple of years.

i think that is because of their business structure. they're like an investment fund. profits are a fair value assessment.

mono

Post Wed May 25, 2011 6:17 pm by mono

@Sana wrote:
@seyon wrote:Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.


yes its exeactly on 18th july 2011.

can this be confirmed

innam

Post Wed May 25, 2011 6:23 pm by innam

@mono wrote:
@Sana wrote:
@seyon wrote:Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.


yes its exeactly on 18th july 2011.

can this be confirmed

The danger is that a lot of people MAY have bought the share based on the court case being tomorrow. If there is no "court case" then a lot of speculators will run for the exits unless the company can deliver good earnings.

avatar

Post Wed May 25, 2011 6:31 pm by ha_na

@innam wrote:
@mono wrote:
@Sana wrote:
@seyon wrote:Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.


yes its exeactly on 18th july 2011.

can this be confirmed

The danger is that a lot of people MAY have bought the share based on the court case being tomorrow. If there is no "court case" then a lot of speculators will run for the exits unless the company can deliver good earnings.

innam absolutely correct. I bought this share purely on technical ground between 22.9 - 23 last week. It is excellent formation you can rarely see. But I never expect it will run this high in a day. Uncertainty is always there as innam said. I existed around 32 because of the fear of keeping overnight.

mono

Post Wed May 25, 2011 9:34 pm by mono

you will not believe this. My broker called me at 20:58 and asked me not to sell my TWOD holding. He also told me that a certain group of people are going to push it tomorrow morning.

My guess is that the certain group is probably my brokerage. they most likely bought into this heavily around the 30 level and going to push it further. Tomorrow morning will be fun

Rocky

Post Wed May 25, 2011 9:48 pm by Rocky

@mono wrote:you will not believe this. My broker called me at 20:58 and asked me not to sell my TWOD holding. He also told me that a certain group of people are going to push it tomorrow morning.

My guess is that the certain group is probably my brokerage. they most likely bought into this heavily around the 30 level and going to push it further. Tomorrow morning will be fun

I doubt that the brokers still believe that the investors believe in their advise at all.
When the broker instructs us to buy, we sell and vice-versa.

My broker calls me to ask me whether I want a cheque for the credit balalnce in my account.
He doesn't know that I am testing out my resistance levels of not buying some other shares with that balance. If one can wait still till the market goes down to re-invest will prove that one has self control.


avatar

Post Thu May 26, 2011 12:17 am by seyon

@mono wrote:
@Sana wrote:
@seyon wrote:Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.


yes its exeactly on 18th july 2011.

can this be confirmed

My broker told me that tomorrow the hearing date and is confirmed. I think the date should be correct, otherwise we did not see these much of collection ( 13.5 mn shares were traded today)

will see what will be the outcome of the hearing.

ss7097

Post Thu May 26, 2011 12:21 am by ss7097

@seyon wrote:
@mono wrote:
@Sana wrote:
@seyon wrote:Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.


yes its exeactly on 18th july 2011.

can this be confirmed

My broker told me that tomorrow the hearing date and is confirmed. I think the date should be correct, otherwise we did not see these much of collection ( 13.5 mn shares were traded today)

will see what will be the outcome of the hearing.

Seyon, what do you think about the current price level of TWOD? Is it still undervalued according to your findings?

avatar

Post Thu May 26, 2011 12:28 am by seyon

@ss7097 wrote:
@seyon wrote:
@mono wrote:
@Sana wrote:
@seyon wrote:Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.


yes its exeactly on 18th july 2011.

can this be confirmed

My broker told me that tomorrow the hearing date and is confirmed. I think the date should be correct, otherwise we did not see these much of collection ( 13.5 mn shares were traded today)

will see what will be the outcome of the hearing.

Seyon, what do you think about the current price level of TWOD? Is it still undervalued according to your findings?


It is depend on the tomorrow court decision, if the outcome is favorable, then there will be other good run. Some of their investment are in the matured stage and going to harvest in one or two months. Then we will be able to have comparison their estimation on fair value of the biological assets against the actual results.

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Post Thu May 26, 2011 8:40 am by bmi

Thanks for the information guys. Seyon please check the situation of hearing whether it is today or 18th 0f July you have enough time befor the market starts

avatar

Post Thu May 26, 2011 5:05 pm by seyon

@bmi wrote:Thanks for the information guys. Seyon please check the situation of hearing whether it is today or 18th 0f July you have enough time befor the market starts


Next hearing has been put off to 18th July 2011. I can not understand the investors behavior. Postponing case is not a matter to influence the share price as the decision going to favorable to the company. Pls refer the BASL judgment review ( http://research.srilankaequity.com/t96-touchwood-case-basl-bar-association-news-letter-judgement-views page no 4) Based on this the decision looks like favorable to the company.

Be patience whoever bought at high price, this will shoot up when discloses the financial, yesterday about 13.5Mn shares were traded and today about 6mn shares.

Will see the financial.

avatar

Post Thu May 26, 2011 10:55 pm by seyon

Look at the Financial as of 30the September 2011 for the six months.

Net Earnings about Rs.86Mn

Total net assets is Rs.2.8Bn and Net Assets per share about Rs. 39.92.

When u analyze the balance sheet Cash and Cash Equivalents is reported 484 Mn, this is generated from the rights issue. This surplus cash would have been used for the new investment. So we will get very much attractive net assets in the Range of Rs.50-55 per share as at 31.03.2011, Further Agarwood plantations is in stage of harvesting, hence the fair value of these biological assets will boost the net assets.

I am pretty much sure, on disclosing the financial TWOD will have a other run.

Happy Trading


avatar

Post Fri May 27, 2011 3:45 pm by seyon

Look some interesting information about Touchwood, I managed to get some information from their newsletter ( http://www.touchwood.com/PDF/TW.YIELD.pdf)

As i mentioned earlier coming financial statement would be very much attractive

Touchwood Delivers over $328,000USD in First Wave ofAgarwood Returns

Our goal at Touchwood is to provide sound investments that
deliver future value. And few products fit that requirement
better than our Agarwood investments. After totaling the returns
paid from November 2010 through the end of March 2011, we
are pleased to report a range of profitability that extends from
24.3% to 34.4% for clients who initially purchased our Agarwood
product.

These returns are just the beginning. In the coming months,
clients who have invested in subsequent agarwood packages
will begin to receive the profitability from their investments as
well.

25% Increase in Price per Tree

Due to the consistent level of quality graded Agarwood being
produced at our plantations we have negotiated a higher price
per KG. This means a higher return of US$250 will be paid out per
tree in quarter 2, an increase of US$50 over the previous quarter.
This proves the quality of our product and commitment to deliver
the best value possible to our clients.
Note: These figures are based on the agar trees that are 6 years old. Our
current 7 year product will hold a higher grade and quantity then the 6 year
meaning a higher level of return come harvest.


Bamboo Processing Plant: Furthering Profitability through High-Quality Timber Products

When it comes to ensuring your investment future, our highest
priority is providing investment products that deliver maximum
value through reliable returns. As such, we are proud to announce
the construction of a series of large-scale, multimilliondollar
processing plants – including a 30,000-square-foot
manufacturing plant and a 15,000-square-foot processing
plant, both located in Sri Lanka and set to open their doors for
production in June 2011 (please see photos on this page). In
Thailand the construction of a further plant is also on the way.
These facilities enable us to process bamboo and other raw
materials, instantly increasing the end value of our investment
products by producing high-grade bamboo flooring that has
been treated, lacquered and finished for sale. In addition, these
plants will create up to 100 jobs for local communities – an
essential component in our ongoing pledge to a triple bottom
line: people, planet, profit.

avatar

Post Sat May 28, 2011 1:52 am by seyon

Who gave _ rep.. Pls tell me the reasons

I do not understand the members behavior

chamith

Post Sat May 28, 2011 5:08 am by chamith

must be someone who missed the bus, and got losses by getting on board at high.

avatar

Post Sat May 28, 2011 9:01 am by seyon

@seyon wrote:Who gave _ rep.. Pls tell me the reasons

I do not understand the members behavior

I just have done the research on this and Keep on updating my findings. I know there are people in this forum who might have earned profit in early run or who might have bought at high price. Unfortunately again the case has been put off to 18th July 2011, then the price was drop significantly, that is only reason i am updating the finding on TWOD and telling the people who bought at high price that not get panic and be Patience. Yes this will have other run after the financial released. I know the people who tried to pushed up the shares and booked some profit and last two days they are slowly collecting.

Further when i started to post regarding i did not have any single shares of Touchwood, even i did not trade during the run also. If u want to check my portfolio ( It is in Acuity Stockbrokers) I will give my CDS a/c personally.

Now i decided I will not be doing any posting in this forum hereafter, i going to be only the visitor.

Thanks guys for ur all support.

Happy Trading.

Antonym

Post Sat May 28, 2011 9:25 am by Antonym

@seyon: Please do not get discouraged by some misguided member. You will be depriving many of us of your valuable opinions, from which this forum has certainly benefited.

Most of us do not doubt your genuine nature; please continue to express your views sincerely and fearlessly... Thanks, my friend!

avatar

Post Sat May 28, 2011 10:11 am by Fresher

@seyon wrote:
@seyon wrote:Who gave _ rep.. Pls tell me the reasons

I do not understand the members behavior

I just have done the research on this and Keep on updating my findings. I know there are people in this forum who might have earned profit in early run or who might have bought at high price. Unfortunately again the case has been put off to 18th July 2011, then the price was drop significantly, that is only reason i am updating the finding on TWOD and telling the people who bought at high price that not get panic and be Patience. Yes this will have other run after the financial released. I know the people who tried to pushed up the shares and booked some profit and last two days they are slowly collecting.

Further when i started to post regarding i did not have any single shares of Touchwood, even i did not trade during the run also. If u want to check my portfolio ( It is in Acuity Stockbrokers) I will give my CDS a/c personally.

Now i decided I will not be doing any posting in this forum hereafter, i going to be only the visitor.

Thanks guys for ur all support.

Happy Trading.

dear friend,
you must understand people's mentalities. As chamith said, it must be someone who missed the bus or made a loss buying at a high.
the rep system has been argued in the past too. don't take decisions based on that.
most of us know how valuable you are to the forum, so please be with us.

chamith

Post Sat May 28, 2011 4:06 pm by chamith

Come on. This rep thing is so silly.
Well we will give you positive reps. dont worry.

I knew this share was at 52week lowest when i brought it. I just had to hold it nearly 3 weeks. n the rally started. I was so impressed with your research work. The BAR Association newsletter and all the case dates. I tried to even contact a friend of mine who is a lawyer. But certainly you have found so much details than me. So impressed. Please continue sharing your research. Dont get put off by these reps. Anyway there has to be stupid people like those who just jump into rallies without any clue. Well it touched 30 to 32 i knew that the momentum is loosing. So i dumped all my shares. Finally that was a good decision. Now i can buy later at low. If someone who has no analytical point of view, may just give negative reps and express their anger. Its always like that. Take it easy..

UKboy

Post Sat May 28, 2011 4:18 pm by UKboy

@seyon wrote:Who gave _ rep.. Pls tell me the reasons

I do not understand the members behavior

Dont worry Seyon

If you go with the flow most people recognise you as a hero.

But if you see things from a different angle or trying to tell the bitter truth, then you will be black listed.

As Sri Lankans we have this attitude in our blood



Last edited by UKboy on Sat May 28, 2011 4:21 pm; edited 1 time in total

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Post Sat May 28, 2011 4:19 pm by StocksWatch

I also had bought this around 24 and kept in my PF for more than 3 months. When this was trading around 32, I also noticed that buying pressure is diminishing and disposed all my stake between 29.80 and 32.90. As Chamith correctly said, you need to have at least some common sense to notice that the trend is coming to an end and liquidate your position at an early stage. There is no point in blaming others or giving minus reps.

So Seyon, don't worry about these childish behaviours of some. Please cheer up buddy. We need you actively participating in this forum.

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Post Sat May 28, 2011 4:44 pm by bmi

guys its our own money we should take the risk please think no money no honey brokers are brokers they must respect investors brokers have no knowledge they pretending they know everything all bullshit don't believe and depending on brokers and adviser what they say take your own decision win or loss we are happy with the experience of ours

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Post Sat May 28, 2011 5:08 pm by bmi

but I didn't mentioned about Seyon we need him cheers Seyon

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Post Sat May 28, 2011 5:12 pm by kasun333

cheers Seyon

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Post Tue May 31, 2011 9:56 pm by Thushara

cheers seyon......EPS for the Year 11.52 and Net assets per share Rs 50.37. Currently trade at almost haft of it's NA. So there is a another possibly run. What do u think.

Slstock

Post Wed Jun 01, 2011 4:30 am by Slstock

@seyon wrote:
@seyon wrote:Who gave _ rep.. Pls tell me the reasons

I do not understand the members behavior

I just have done the research on this and Keep on updating my findings. I know there are people in this forum who might have earned profit in early run or who might have bought at high price. Unfortunately again the case has been put off to 18th July 2011, then the price was drop significantly, that is only reason i am updating the finding on TWOD and telling the people who bought at high price that not get panic and be Patience. Yes this will have other run after the financial released. I know the people who tried to pushed up the shares and booked some profit and last two days they are slowly collecting.

Further when i started to post regarding i did not have any single shares of Touchwood, even i did not trade during the run also. If u want to check my portfolio ( It is in Acuity Stockbrokers) I will give my CDS a/c personally.

Now i decided I will not be doing any posting in this forum hereafter, i going to be only the visitor.

Thanks guys for ur all support.

Happy Trading.

Seyon, do not get discouraged. Sometimes I too feel when some give negative reps they are more emotional than constructive. I found the way you presented this as genuine and as a finding which is very helpful ( though I don't have any TWOD also within last 9 months).

It is good if there is system to give a reason for negative reps ( comment next to reps. Maybe it can be anonymous ).

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