Tuesday, June 3, 2014

PME: Cutting bait.

My initial research revealed that PME was  possible deep value play, trading below asset value. Subsequent research revealed that there was still too much risk in this trade and I've elected to close it before I get trapped.

My concerns include  the fact that the Roy Yu, the CFO, previously was the CFO of Lihua International, Inc. (NASDAQ: LIWA) The SEC recently suspended trading LIWA because of non-compliance with financial reporting obligations.  I don't want a CFO of a company that I would own to have previously headed a delisted company due to improper financial reporting.

In addition, PME is guaranteeing numerous loans in the name of the wife of the CEO, but admits the pleadge has no beneficial purpose to the company.

" We have entered into certain pledge agreements pledging 22 fishing vessels as collateral to secure a loan to Hong Long, a fishing company controlled by spouse of Mr. Xinrong Zhuo. The pledge has no beneficial purpose for us and we could lose our fishing vessels if Hong Long were to default on the loans, which could be detrimental for our operations."
Trade Summary:
When your reason for taking a trade is in doubt, get out. I took about $100 loss on  PME rather than stay in and hope for a profit. This is too thin and the Risk level I planned for this  trade did not account for a delisting. Given the history of executive delisting could be a legitimate risk. Given the risk that the company is taking without a benefit, I would not be surprised if the insiders leave an empty shell for the American Investors. I'll fish elsewhere.

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