Thursday, 15 May 2014
Latitude & Poh Huat: Buy Or Sell?
Since China placed an oil rig at the disputed waters between China & Vietnam in early May 2014, the relationship between both countries have been tense.
Sadly, the supposed-to-be peaceful rally against China in Vietnam turned into riot on 13th May 2014.
From the news, the area that is most heavily affected is Binh Duong province in southern Vietnam, which is an important industrial zone where both Latitude Tree and Poh Huat have their factories there.
There are news that many factories are sabotaged and even set on fire.
Yesterday both Latitude Tree and Poh Huat released an announcement regarding this issue.
Unfortunately, even though they are from Malaysia, both companies' factories in Vietnam were affected by the riot, in which trouble-makers vandalized the main office buildings & its equipment there.
Fortunately, both companies mentioned that their manufacturing facilities were not affected, there is no serious fire damage and nobody is seriously hurt. However, like almost all factories in the area, production was halted at the moment for the safety of the employees until further notice.
Both Poh Huat's facilities in Binh Duong & Dong Nai province were affected, while one of two Latitude's facilities in Binh Duong was affected.
Latitude's assets in Vietnam are insured against riot but there is no mention from Poh Huat regarding this matter.
For Latitude, as all the damage to assets are insured, the main problem will be loss of revenue arising from production halt. Latitude operation in Vietnam contributes almost all of its net profit at the moment.
It seems like the peak of the riot was on 13 May, and has subsided the day after as Vietnam police started to make arrest.
Personally I think the most important thing is when will the production restart. If the production stops for less than a week, then it is still acceptable. However, if it is more than that, then it's not a good sign.
I don't think that Vietnam government will be so naive to continue to let the rioters causing troubles in one of its most important industrial area. It will negatively affect foreign investment in the future.
Furthermore, Vietnamese are at risk of losing their jobs if factories close down or stop production for a long time. Some workers were actually protecting their factories during the riots.
So I think this will be a short-term setback for both Latitude Tree and Poh Huat, and it may present an opportunity to collect their shares, unless the production halt persist for too long.