This does not make sense. YHM has been in the top actives list, trading as high as 430% above the $0.01 share price level that it was trading at before Ezion’s proposed subscription of new shares in YHM, announced on 25 Oct 2012. The offer price of $0.0018 per share, which was then a 80.4% discount to its VWAP of $0.0092, the share price of YHM should have tanked, by logical reasoning.

No earnings and negative book. YHM’s only business is in scaffolding business for the marine sector, which is hardly profitable. The company is also in a negative equity position. It is essentially a shell company which is why Ezion was interested in acquiring it in the first place, with the purpose of injecting a new business.

Could YHM be the next Ezion? Ezion intends to transform YHM into an offshore oil and gas services player and to take up businesses that are complementary to Ezion. However, concrete plans are still patchy. While CEO Chew Thiam Keng has proven himself with Ezion’s success, if investors are betting on YHM to mirror the latter’s performance, it may be too early to judge.

Substantial shareholders have been selling. The surge in share price has allowed previous substantial shareholder, Credit Suisse to dispose of their stake in YHM. The former has notably reduced its stake from more than 18% to below 5%. Rising Flame International, YHM’s creditor, has also converted a total of $440,000 in convertible loan owed by YHM into new shares at $0.001. This is part of the condition required for Ezion’s share subscription deal. The surge in share price made the convertibles deep-in-the-money and with the conversion, it is worth SGD12.8m now, a handsome paper return of 2900%. We would not be surprised if they subsequently dispose of their stake.

Exercise due caution. We fail to see any strong fundamental reasons behind YHM’s current valuation level and would advise investors to exercise caution in trading the stock.

Source: Maybank Kim Eng Research - 29 Nov 2012