Friday, 20 May 2016

Unrealistic projections, anyone held responsible?

From MalaysiaKini: Audit: ERL operator's projected earnings were 'too high'

Some snippets:

A demand from Expressrail Link Sdn Bhd (ERLSB) for RM2.9 billion in compensation from the government was made based on projected earnings which were too high, a federal audit has found.

The Auditor-General's Report 2015, released yesterday, stated that the compensation demand was made after the government had twice ignored requests to increase the fare for ERL rides from KL Sentral to KLIA and KLIA2, as agreed in its concession agreement.

Based on the concession agreement signed between ERLSB and the government in 1997, the company can request to review the fare after a stipulated period of time and based on an agreed fare.

“The audit found that ERLSB’s actual revenue for the period between 2012 and 2014 was only between 11.5 percent to 13.7 percent of its projected revenues. This is a much lower figure than the projected sum,” said the report.

In 2012, it was stated that ERLSB had projected its earnings to reach RM741.1 million, but its actual revenue was only RM85.5 million.

The following year, ERLSB projected revenue was stated as RM780.38 million but its earnings only totalled RM98.14 million.

Similarly in 2014, the concessionaire collected RM124.3 million, with targeted earnings stated as RM905.31 million.

And how was the issue solved?

...... ERLSB has agreed to withdraw its demands for compensation, in exchange for a 30-year extension to the concession agreement.

It is easy to come up with sky high projections that "serve the purpose", that is to get the project going. We witness the same over and over again with rosy DCF projections from Bursa listed companies.

But when the projections indeed turn out to be much too high, is anybody actually held responsible for this?


  1. Just like the independent adviser in the proposed acquisition of tile business by Hapseng using future PE ratio (average of future 5 years) to compared with peers' historical PE ratio, to justify the acquisition is fair

  2. Thanks, had not yet noticed that deal