Silverlake Axis: Quick Profit or a good Night Rest?

I know the markets are down, and just got a wee bit better. Nevertheless, we could be in a long painful ride down (or up higher). Don’t really know what is in store for us in the coming months. However, let’s live in the moment (click here – hope the song lift you up) and think about companies.

“Value investors will not invest in businesses that they cannot readily understand or ones they find excessively risky.” Seth Klarman

Anyway, in the case of Silverlake Axis, I felt it was in the perfect storm. It was hit by a report from razor99, and shortly after on 21 Aug 2015, the company requested for a trading halt, the market tanked sharply on Mon 24 Aug 2015 (the market was nevertheless, in a downtrend prior to all these). After the trading halt was lifted on 26 Aug 2015, the stock price dropped further to 0.43. Market started rising on 26 Aug 2015.

Question is would I buy the stock then? Without doubt, I was very tempted to buy – as the saying goes, to be contrarian. To buy when others are fearful. To bottom fish. To catch the rebound back up and quickly sell once I made a tidy profit.

However, the only problem is I do not know the company’s product, and I am not sure if the strong financial figures reported by Silverlake Axis are genuine.

Investing is not just simply doing the opposite of what others are doing (to zig when others zag). At the end of the day, you just have to buy strong companies. If Silverlake Axis turn out to be a fraudulent IT service company, no matter how good the figures are, or how high the rebound in stock price is, it will crash (or even be delisted).

Of course, I could tell myself that I would probably just trade for a day or two and sell all my holdings – but well, I won’t know what will happen the next day / next few hours etc. Maybe I will become more greedy and hope for bigger profits. Not a trader at heart. In fact, I prefer a good night rest over instant profits.

The risk factor for a company which I am unfamiliar with – esp. with its products and business operation is huge. Neither am I able to predict the direction of the market for the next few days / weeks / months.

“The focus of most investors differs from that of value investors. Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose.” Seth Klarman

I have actually read through the 42-page research report issued by the anonymous researcher called ‘razor99’ (read here), and in certain sections they were able to justify their findings (eg. poor financial performance of the subsidiaries for the related party transactions / inflated selling price which only profit Mr Goh etc). These were backed up with data from the Companies Commission of Malaysia and analysis of related party transactions.

Of course, there are portions which are less factual eg. like the easy life of Silverlake Axis employees who are probably under-performing (pertaining to the argument on the unjustifiable higher revenue per employee reported – but when they compare to revenue per employee of other companies in the same industry- it does make some sense), or bribery concerning how they obtain the contracts from banks etc. There is little proof on these except from hearsay.

Silverlake Axis has issued a statement clarifying the trading halt (read here). Silverlake Axis has decided against its own point-by-point rebuttal to the report (so as not dignify the Report). Notwithstanding, to provide additional comfort to Shareholders of the Company, the Company will be engaging Deloitte Singapore, as an independent third party, to undertake an independent review of the allegations. I was rather hoping for a point to point rebuttal (after all Deloitte is employed by Silverlake Axis. Deloitte wearing two hats -> Silverlake Axis is their client and they being the Auditor).

I realised that there is so little I know about this company, and so many things one can dig up for this one company. A lot of effort has been made to this report. It reminds me of the other report made about Huabao International Holdings Limited (read here). I previously did a post about another company listed in HK market, which also has stellar financials – read here.