This article first appeared in The Edge Malaysia Weekly on September 30, 2024 - October 6, 2024

One only needs to look at Lambo Group Bhd (KL:LAMBO) to understand why investments in penny stocks, where the companies undertake a series of corporate exercises without adding any value to shareholders, is a recipe for disaster.

Lambo, a Guidance Note 3 (GN3) company, which undertook several fundraising and share consolidation exercises in the last few years, will see its shares suspended from trading this Friday. This follows Bursa Malaysia’s rejection of its application for an extension of time to beef up its business. To be fair, the regulator had given the company time to get its act right since August 2022.

Why Lambo’s management has not been able to acquire or build up a steady business in proportion to its share capital of RM258.5 million is perplexing. The company, which facilitates e-commerce businesses and is in the last-mile delivery segment, has a fairly clean balance sheet with cash of RM12.5 million and very little debt. Its investments in quoted securities of RM93 million as at June 30, 2024, is the single largest item among its assets.

According to Lambo’s announcement on April 1, the investments in quoted securities was RM76 million while the market value is RM31.3 million. The cash used for the investments could have been better utilised to finance a steady business.

Lambo’s immediate task is to file an appeal to avoid being delisted by Bursa.

The company’s biggest shareholder is a subsidiary of Cheetah Holdings Bhd, with less than 19% equity interest. Cheetah is unlikely to lose sleep over the investment in Lambo, which had a market capitalisation of only RM15 million at the time of writing.

This is considering that a delisting of Lambo will take the company off the radar and keep its transactions away from the public eye.

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