27 February 2014

Sino Grandness - FY2013 Financial Statement Analysis (FEB 2014)

Snapshot of Income Statement

Income Statements. Source: Company, Jack Phang Compilation
The EPS grew 25% to 68 cents for financial year ended 31 December 2013 compared to the net profit growth of 38% mainly due to the dilution effect of shares placement amounted to S$82M during FY2013.

Financial Ratio. Source: Company, Jack Phang Compilation
Apart from that, we could see a rather stable net profit margin for FY2012 and FY2013 despite a product mix changes. The company increased the distribution cost ratio as it has started the business strategy to focus on domestic market as advertising & promotion costs and transportation costs across provinces increased according to the product under its own brand name Garden Fresh against white labeling export business mainly canned vegetables.

Snapshot of Balance Sheet

Balance Sheet - Assets. Source: Company, Jack Phang Compilation
Balance Sheet - Equity & Liabilities. Source: Company, Jack Phang Compilation
PPE more than doubled to RMB767M from RMB371M 2 years ago as the company increased capital expenditures on the domestic products (beverages & canned products) expansion plan. As a result of increasing credit sales, receivables ballooned to RMB895M from RMB298M 2 years ago. Cash conversion cycle increased to in between 4 months to 5 months.

As convertible bonds are expected to be redeemed this year, the company categorized convertible bonds under current liabilities instead of non-current liabilities. I would expect the company to get the beverages division (Garden Fresh) listed successfully in Hong Kong exchange as it has fulfilled the net profits target set under convertible bond terms & condition.

Snapshot and Comments on Cash Flow Statement

Overall, the company still managed to achieve a decent ROE of more than 30% and EPS growth of around 25%. Cash flow wise, the company was capable to maintain a positive net cash flow from operating for the full year 2013, which is a reverse trend from previous quarters. As the company


  • If Garden Fresh failed to be listed successfully, the company may end up have to make a huge repayment on convertible bonds which I believe to be funded from shares rights issues and it would dilute the EPS in future. 
  • I noticed that the gross profit margin of oversea canned products dropped to around 30% as the cost of production increases. Nonetheless, domestic canned products sales is playing a catch up against oversea canned products as the domestic to oversea profit margin percentage has been increased from 22.9% to 39% on year 2013. 

If we use a Sum Of The Part (SOTP) model, we could roughly calculate intrinsic value of Sino Grandness if Garden Fresh is listed successfully:

13X of 50% of Garden Fresh shareholdings - RMB2,031.25M
7X of Sino Grandness's canned products business - RMB1,596M
Total Value - RMB3,627.25M / S$756M / S$1.29

As there is a risk over there, so I would give a discount of 30% of the above value, so I would think 90 cents is intrinsic value of Sino Grandness based on current condition.

P/S: Please note that this company is still in the midst of expansion and there maybe a chance for company to raise up the cash from financing activities again this year if they could not manage increasing receivables effectively due to increased business activities. And as it is a S-Chip company, so we have no choice but to keep a close eye on it. This counter is only suitable for investors who have high risk profile.

Sino Grandness - Spin Off Exercise In Progress (FEB 2014)

Company's News Release

SINGAPORE – 26 February 2014 – Mainboard-listed Sino Grandness Food Industry Group Limited 中华食品工业集团有限公司 (“Sino Grandness” or “the Company” and together with its subsidiaries, the “Group”), a Shenzhen, China based integrated producer and distributor of own-branded juices and canned fruits and vegetables is pleased to announce its unaudited results for the twelve months ended 31 December 2013 (“FY13”).

As a result of higher orders across the board, especially that of own-branded products such as 鲜绿园® (“Garden Fresh”) juices from beverage segment and 振鹏达® (“Grandness”) canned fruits from domestic canned products segment, net profit attributable to equity holders for the Group increased by 38.5% to RMB401.1 million in FY13 compared to RMB289.7 million in the same period last year (“FY12”).
For the three months ended 31 December 2013 (“4Q13”), the Group reported net profit attributable to equity holders of RMB59.4 million, declining by 9.2% from RMB65.5 million in the same quarter last year (“4Q12”).

Mr Huang Yupeng 黄育鹏, Chairman and CEO of Sino Grandness said, “I am pleased to deliver another positive set of results for FY13 with record revenue and net profit. The robust results reflected strong growth momentum across both our own-branded business segments namely beverage and domestic canned products. Both these segments are key beneficiaries of the positive macro factors in China such as increased health awareness, rising disposable income and growing demand for convenience food and beverage products. At the end of 2013, not only have we completed installation of fruit juice production facilities at the new plant in Hubei Province, China (“Hubei Plant”), we also successfully expanded our distributor base for Garden Fresh juices nationwide comprising more than 200 distributors and covering more than 20 provinces in China. As such, we can look forward to another exciting year ahead with a larger customer base and expanded production capacity.”

“In 4Q13, we reported lower net profit year-on-year partly due to a significant increase in administrative expenses. These administrative expenses included higher depreciation charge from the new Hubei Plant, higher foreign exchange losses as well as expenses incurred for engaging the relevant professional parties such as investment banks and legal counsels to commence work related to the Proposed Spin-Off of our beverage segment as announced on 1 July 2013,” Mr Huang added.

In FY13, the Group recorded higher sales across the board for all product segments. In particular, sales of beverage segment which comprised Garden Fresh juices and domestic canned products segment which comprised Grandness canned fruits surged the most. Beverage segment sales surged 59.5% to RMB1,392.4 million in FY13 from RMB873.2 million in FY12 while sales of domestic canned products jumped 70.5% to RMB189.2 million in FY13 from RMB111.1 million in FY12. Domestic demand for the Group’s own-branded products grew significantly in FY13 largely due to increased production capacities, growing consumer acceptance and continued expansion of distribution network within the PRC market.

Overall sales of overseas canned products improved slightly in FY13, as the Group has a diversified customer base distributing its products across major discount stores and supermarkets in various countries across Europe and in Australia. In FY13, sales of overseas canned products segment rose 5.1% to RMB689.5 million from RMB655.9 million in FY12, largely driven by steady demand for its key export product category namely asparagus.

In FY13, sales of beverage segment which comprised Garden Fresh bottled juices surged 59.5% to new high of RMB1,392.4 million from RMB873.2 million in FY12 due to further expansion of retail points in the PRC market and positive response to the expanded range of Garden Fresh juices. The strong order momentum also reflected the success of the trade exhibition held during last week of March 2013 in Chengdu, Sichuan Province PRC (“Chengdu Trade Exhibition”) as announced in April 2013. The Group announced on 15 April 2013 that it had secured multiple new distributors thus expanding its distribution network in the PRC market further as well as sizeable indicative orders after participation at the Chengdu Trade Exhibition. Additionally, the Group also launched new beverage products such as loquat-mango juices as well as new soft-pack and tin-can loquat juices.

In FY13, sales of Garden Fresh loquat juice product line have exceed RMB985.7 million while sales of Garden Fresh Hong Guo Le product line, which comprised various fruits including hawthorn, have exceeded RMB406.6 million.

Optimistic Outlook

The rising disposal income per capita, increasing demand for health promoting products as a result of heightened health awareness in China are positive factors which may offer tremendous growth opportunities for the food and beverage (“F&B”) industries in China. As such, the Group remains optimistic about the growth prospects of its own-branded products including 鲜绿园® (“Garden Fresh”) juices and 振鹏达® (“Grandness”) canned fruits in China.

To capitalize on the potential growth opportunities ahead, the Group will continue to focus on four key areas to drive growth, namely:-
1. Advertising and promotional activities to further increase awareness and brand value of Garden Fresh juices and Grandness canned products;
2. Sales and marketing efforts to expand its distribution network for domestic and international markets;
3. Expansion of production capacity at strategic locations and
4. Research and development efforts to expand its range of products in order to appeal to a broader group of consumers.

The Group’s sustained efforts in building brand value have yielded positive results as evidenced by the growing brand awareness and brand equity. In November 2013, the Group announced that its in-house brand Garden Fresh has been valued at RMB3.5 billion according to a Brand Value Data Certificate issued Asia Brand Association Experts Committee and Asia Brand Research Centre.

The Group will continue to participate in various exhibitions and tradeshows in order to expand its distribution network and increase awareness of our in-house brands. Over the past few years, the Group has regularly showcased its beverage and canned products at one of the largest F&B tradeshows held annually in Chengdu, Sichuan Province China (“Chengdu Tradeshow”). As at 31 December 2013, the Group has expanded its distributor base for Garden Fresh juices nationwide comprising more than 200 distributors and covering more than 20 provinces in China. In the upcoming Chengdu Tradeshow to be held during the first half of 2014, the Group intends to seize the opportunity to introduce new products and expand its distributor base further.
Barring unforeseen circumstances, the Group remains optimistic about its overall performance in FY2014.

Update on Proposed Spin-off

On 1 July 2013, the Group announced that it is proposing to spin-off its beverage business segment under its wholly-owned subsidiary, Garden Fresh (HK) Fruit & Vegetable Beverage Co., Limited and its group of subsidiaries for a listing on an internationally recognised stock exchange (“Proposed Spin-Off”).
During the quarter ended 31 December 2013 (“4Q13”), the Group has engaged relevant professional parties including international investment bankers and legal counsels to commence work related to the Proposed Spin-Off. The Company will keep shareholders updated on material developments as and when appropriate.

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26 February 2014

First Resources - Record Total 4.5 cents given for FY2013 - FEB 2014

First Resources reported a net profit of US$238.2 million for the 12 months ended 31 December 2013 (“FY2013”) on the back of a 3.8% increase in sales to US$626.5 million. Excluding net gains arising from changes in fair value of the Group’s biological assets, underlying net profit rose 2.7% to US$217.0 million.
The resilient performance was primarily due to higher sales volumes as well as the realisation of some forward sales during the year. EBITDA rose 5.0% to US$338.9 million as compared to US$322.8 million in the preceding year.

The Group’s financial position remained healthy with cash and bank balances of US$272.2 million and a low gearing ratio of 0.21 times as at 31 December 2013.

First Resources proposes a final dividend of 3.25 Singapore cents per share, taking the total FY2013 dividend to 4.50 Singapore cents (2% dividend yield base on S$2.23 closing price), which translates to an annual dividend payout of 26% of underlying net profit. This is 12.5% higher than that of FY2012 and the largest made by the Group since its listing in 2007.
During the year, the Group increased its total planted area under management by 16.5% to 170,596 hectares. With the increase in mature hectarage and contribution from acquired plantations, fresh fruit bunches (“FFB”) production grew 4.5% to 2.3 million tonnes. FFB yield declined to 18.7 tonnes per hectare compared to 23.0 tonnes per hectare a year ago, largely due to biological tree stress and the combined dilutive effect from the newly mature and acquired plantations.

Mr. Ciliandra Fangiono, CEO of First Resources commented, “Despite a more challenging operating environment in FY2013, we are pleased that the Group has been able to achieve steady revenue growth and maintained a healthy profit. In 2014, we will continue to focus on expanding our upstream plantation assets which includes the construction of two CPO mills.”

My Own Analysis
Underlying Net Profit for financial year ended 31 Dec 2013 attributable to owners of the Company was US$217M or about 17.3 SG cents EPS. The PE of the company is now at around 11.8X, which I think is reasonable to the company at this size. However, if we look into the comprehensive income statement, the company suffered from a US$313M comprehensive income losses and it had caused the company NAV to reduce to around 88.0 SG cents despite the net profits reported last year. Large parts of the comprehensive losses attributed to Foreign Currency Translation (due to the depreciating Indonesia Rupiah against US$ and most of the assets are denominated in Indonesia Rupiah) and fair value losses on cash flow hedges as the company used futures / forwards to hedge on the sales made in advance.

We also have seen a drop in gross profit margin (from 63% to 61%) mainly due to:

  • acquisition of new agricultural land which requires company to further improve it 
  • higher cash cost of production

Let's take a look of the production highlights and trends.

Product Highlights. Source: Company

FFB purchased increased 221.6% to 288K tonnes, which accounted to 13% of total of FFB harvested. It shows that the company is in the midst of increasing activities in milling and refinery. Company aimed to be a leading plantation group with integrated operations throughout the value chain by:

  • expands total plant area to 200K ha within 3 years from current 171K ha or average 100K ha per year. 
  • increases number of mills to 14 by 2014 from 12 currently. 
  • integrate processing complex at Bangsal Aceh, Riau (commissioned the new refinery in Dec 2013)
  • expected capex of US$170 million 

Production Trend. Source: Company
Cash flow wise, the company achieved net cash flow from operating of about US$200M which is sufficient to support the company's expected capex of US$170M. I would think that the company could achieve a rather stable cash flow after year 2016 as the net cash flow from operating would be large enough as compared to expected capex later.


  • reducing operating efficiency after acquired more planted area
  • fluctuation of Indonesia Rupiah against US dollar (although I would think this is a good news as the cost was mainly calculated in rupiah while the revenue was calculated in US dollar)
  • fluctuation of crude palm oil price in the market (it hits RM2,700 recently from bottom RM2,000 last year)
  • As the company issued 4.5 cents dividend (about S$71M or US$56M), it may not have sufficient operating cash flow to support both dividend payout and expected capex (in total US$226M). The company would have to think of a way to improve working capital efficiency or net profits. 

In summary, I think First Resources is a good company in expansion stage and with proper corporate finance management. We may accumulate this counter when the CPO price drops significantly due to unforeseen circumstance as I think the company's EPS could increase by at least 30% in 3 years time based on the estimated capex plan and if other variables remain unchanged.

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25 February 2014

Chip Eng Seng - Generous 4 Cents Dividend Maintained FEB 2014

Background of the Company

Chip Eng Seng Corporation Ltd (“Chip Eng Seng” or the “Group”) is a leading construction player in Singapore and has been listed on the Mainboard of the Singapore Exchange Securities Trading Limited (“SGX-ST”) since 1999. The Group is principally engaged in the following key business segments which comprise Construction, Property Development and Investments and Hospitality.

Founded by Executive Chairman, Mr Lim Tiam Seng, Chip Eng Seng started as a subcontractor firm for conventional landed properties back in the 1960s. However, the Group soon made its mark by making a 
successful foray into the public housing market in 1982 after being appointed as the main contractor in its first
Housing and Development Board (“HDB”) project. 

Today, backed by more than 30 years of experience, Chip Eng Seng has earned itself a strong reputation and track record in the construction industry. In particular, the Group’s proven capabilities in design-and-build projects have established Chip Eng Seng as a leading main contractor for public and private construction projects alike.

The Group’s construction business is undertaken by Chip Eng Seng Contractors (1988) Pte Ltd (“CESC”) and CES Engineering & Construction Pte Ltd (“CESE”) while CEL Development Pte Ltd (“CEL”) oversees its property investment and development division.

Company Fundamental Highlights:
No. Outstanding Shares: 646,817,161
Shares Price: S$0.73
Market Cap: 446,303,841
NAV: S$0.7712
P/B Ratio: 0.8947
Annualized EPS: S$0.1134
Annualized PE Ratio: 6.3030
DPS: S$0.04
Dividend Yield: 5.59% 

Company Financial Highlights

Company Performance Snapshot. Source: Company
Company achieved S$73.4M net profit on the back of Revenue S$502.5M. The FY2013 EPS was 11.3 cents and NAV was 77.1 cents. As the company declared a 4 cents dividend this year, the dividend yield based on current share price is around 5.5%. The ROE was around 15%, which is still good in my view. 

Nonetheless, we could do thorough analysis via the report released by the company here. 

1st. Below is the snapshot of segment result:

Segement Report. Source: Company
As you could see from the chart above, the Profit Before Tax margin dropped significantly in both construction and property development division (5.9% and 10.1% respectively if we exclude share of result of associates from property development division and before take into consideration of eliminations of inter-segment sales). S$13M net fair value gain on investment properties would be treated as non-recurring income to the company, as the net fair value gain is calculated on annual basis. Nonetheless, we could expect additional income from Hotel division as the Alexandra hotel is expected to be completed on 2015 which is expected to bring in annual revenue of S$18M (based on calculation of average room rate S$200, average 200 occupancy days per room per year, 450 rooms after hotel construction is completed). 

2nd. Below is the snapshot of ongoing projects

Source: Company, Jack Phang Estimation
As there are several COC projects to be completed on financial year ended 31 December 2014, I would expect a total net profit of at least S$100M Profit Before Tax this year. I think the Company could achieve PBT of S$100M on FY2015 as Alexandra Central / Alexandra Hotel are expected to be completed on FY2015. 

Fulcrum, a high end project undertaken by company targeted to be completed by FY2015 only achieve 13% sales so far. The Tower Melbourne project could be delayed although it has achieved a nearly 100% bookings far. 

As the company started to venture in Australia, we may understand that it may face currencies risk as well as business risk there, as the operating environment is different from Singapore as the company may face the challenges to fight against the currently depreciating Aussie dollar as well as cash flow on the projects there as the company could only recognize the revenue and profit once the project is completed. Nonetheless, I think it is still a good move to venture oversea especially during peak property market in Singapore as it is harder to get land bank here at reasonable price. 

As most of the projects are targeted to be completed by 2015, I am a little worry that the company may take a half time break, to wait for the property market to cool down further before it started another capital recycle/reinvestment activities on year 2015. 

My personal view is that, if you are having a long term investment period (more than 3 years) and hope to achieve high dividend yield via long term investment irregardless of the shares price movement, then Chip Eng Seng would be one of your choices here and you may accumulate it while the property market remains weaker. 

20 February 2014

Maxi-Cash FY2013 Result - Tumbled Net Profit Despite a Decent Revenue Growth

Income Statement

Maxi-Cash FY2013 EPS slumped 51% to 0.47 cents as compared to 0.97 cents a year go, mainly attributable to increasing material cost and labor cost which were faster than revenue growth, offset by rental income and other income. Depreciation cost increased by 22% due to more PPE acquired in FY2013.

Balance Sheet

Net Current remains flat at S$58M. Large part of current assets are receivables, mainly due to the increase in pledge of book for the group's pawnbroking business. The NAV was at 13.53 cents compared to 17.91 cents corresponding period previous year, as there was a total 140M number of shares placement valued at S$5.8M.

Cash Flow
Net cash used in the operating activities for FY2013 was $24.4 million compared to $43.3 million for the corresponding period in the previous year. The decrease was mainly due to the lower increase in trade receivables for the pawnbroking business and inventories (as compared to that of FY2012) and partially offset by higher increase in trade and other payables and larger increase in income tax paid.

Net cash used in investing activities of $1.4 million in FY2013 compared to $2.4 million in FY2012. The lower net cash used in investing activities in FY2013 was mainly due to no prepaid rent paid and marginal increase in renovation expenses for pawnshops and retail outlets in new locations.

Net cash generated from financing activities was $29.9 million in FY2013 compared to $64.4 million in FY2012. The lower net cash generated from financing activities in FY2013 was mainly due to net repayments of short-term bank borrowings in FY2013 as compared to net proceeds from short-term bank borrowings in FY2012, lower advances from immediate holding company (non-trade) and dividend paid, partially offset by proceeds raised by the Company from the issuance of 56,000,000 new shares in the capital of the Company pursuant to its initial public offering on Catalist in FY2012.

As a result of the above, there was a net increase of $4.1 million in the cash and cash equivalents, resulting in a cash and cash equivalents of $11.6 million as at 31 December 2013.

Management Comments
Despite the challenging business environment as a result of the lower gold price, the Group’s leadership position and track record in the pawnbroking industry has enabled it to continually grow its pledge book and increase its retail sales. The Group will continue to capitalize on its current largest network and highest pledge book value in Singapore as well as its strong “Maxi-Cash” brand name as the leader and innovator in the
pawnbroking industry to capture more market share.

In FY2013, the Group as an innovator in the pawnbroking industry in Singapore, introduced island-wide renewal of pawn tickets for all its pawnshops, the first of its kind in Singapore. The island-wide renewal program which provides the convenience for the pawners to renew their pawn tickets at all its 35 pawnshops has received positive response from the pawners.

At present, the Group is the largest pawnshop chain in Singapore with a total of 35 outlets, four of which were opened in FY2013 and three in 1Q2014. The Group expects to open more new shops in the next six months.

The Group will continue to differentiate itself, not just by having the largest store network and highest pledge book value in Singapore but with innovation and high customer service standard.

Barring unforeseen circumstances, the Group expects to see continued growth in its pledge book value and revenue of its retail and trading of preowned jewellery and watches business in FY2014.

My Own View
The company may reverse the trend of low profit margin once the gold price has stabilized in this year. As more shops are opened, we may see an increase in investment cash outflow as well as increase in working capital. However, with current high PE ratio, I would rather observe whether the company could improve the operating profit before any further action.

Ezion - Still Growing - FEB 2014 (Updated 24 Feb 2014)

Company Background
Ezion is a company in Oil & Gas industry, specialized in service rigs and port & marine business, as it is one of the largest lifeboat service providers in the world and focusing in Asia and Africa region. The latest news was that it had cancelled the proposed acquisition of OceanSky and I think the company would still try to spin off the marine business to another entity so that it could achieve a better balance sheet performance and hence could get a better credit ratings. Nonetheless, as it is tapping on a fast grow area in O&G industry, I think the cancellation of the proposed acquisition would give a minimal impact to its whole business expansion strategy.

No. of Outstanding Shares: 1,184,829,936
Market Cap: S$2.7 Billion
Price: 2.31 (closing price of 19 Feb)
EPS (estimated annualized): 13.53 US cents / 17.15 SG cents (based on USD/SGD 1.2677 rate)
Estimated PE Ratio: 13.59X
Net earning growth: 103%

Income Statement Review

The company recorded a record revenue and profit on Financial Year ended 31/12/2013, as both improvement in revenue, gross profit margin and profits from associates. S$160M would be translated to around 13.53 US cents or 17.15 SG cents with trailing PE ratio is 13.59X, which is in a reasonable price range compared to peers. As the PPE items in Balance Sheet grew, the depreciation expenses increased by 174% to US$45M. If we deduct other operating income and gain on disposal of JV, Assets held for sale etc, the CORE operating profit would be around US$106M or EPS of 9.0 US cents / 11.40 SG cents. 

The income tax expenses is very low due to the tax exempted status granted to the company as it is in the specialized O&G industries. The Singapore government welcomes O&G players to setup their business in Singapore, and they gives special tax treatment to companies that fulfill their criteria.

Balance Sheet

PPE grew more than 80% to US$1.46 Billion as the company was expanding quickly in its service rigs business.  Joint Venture value experienced a near to 50% grow as the company seek for a profit growth through JV activities too. Current Ratio dropped to about 1.0X as large part of current liabilities is Financial liabilities (US$223M). Nonetheless, there was a huge improvement in Total Equity as the company had several corporate action in placed on FY2013 (pls see explanation on Corporate Action below) as well as the net profit growth. The Total-Debt-To-Asset ratio is about 61%, which implies a highly leveraged business here.

Cash Flow
Net Cash from operating activities was US$155M, about 70% improvement from corresponding period last year. Nonetheless, the amount is still not able to support the investing activities (about US$733M, mainly used for progress payments made and the deployment of funds towards the purchase and refurbishment of the Group's Service Rigs and partially offset by proceeds from the disposal of joint venture, plant and equipment and assets held for sale ) so the company would have to source the additional cash from financing cash flow of about US$615M.

Corporate Action
During first quarter of 2013, the Company issued 50,000,000 new ordinary shares at an issue price of S$1.895 per share. The newly issued shares rank pari passu in all respects with the previously issued shares. The net proceeds from the placement shares which amounted to approximately US$75 million were used for acquisition of offshore and marine assets. During third quarter 2013, 3,306,000 shares were issued under the Company's Employee Share Option Scheme. The newly issued shares rank pari passu in all respects with the previously issued shares. During fourth quarter of 2013, the Company issued 192,639,398 ordinary shares pursuant to the bonus issue on the basis of one (1) bonus share for every five (5) existing ordinary shares. The newly issued shares rank pari passu in all respects with the previously issued shares. As at 31 December 2013, the share capital less treasury shares of the Company was 1,184,829,936 ordinary shares (1,185,399,936 issued ordinary shares less 570,000 treasury shares). As at 31 December 2012, the share capital less treasury shares of the Company was 909,891,103 ordinary shares (910,461,103 issued ordinary shares less 570,000 treasury shares). As at 31 December 2013, there were 300 redeemable exchangeable preference shares (31 December 2012: 15,900,000) in a subsidiary available for exchange to ordinary shares of the Company.

Company Comments
The management is witnessing increased focus on platform and well related work by the oil majors in Asia
Pacific, Middle East and West Africa. As a result of this focus, the Group will continue to focus on investment in Service Rigs to meet the strong demand. The Group will also explore new ways to restructure its Port and Marine Based business to enable it to concentrate on its current key business activities. Ezion expects more assets to be deployed in 2014. The Group also anticipates to take on new additional Service Rigs projects in the financial year ending 31 December 2014.

My Own View
The company is still experiencing a fast grow in both Service Rigs and Ports & Marine business. So I would think that the future earning growth rate would be easily at 20% until few years later, perhaps 2 / 3 years more. Please note that the share price of this company is quite volatile, so it is good if we could accumulate it when experiencing in a big drop in shares price movement due to unforeseen circumstances and as long as the fundamental is still there.

Projects Clinched/ Letters Of Intention Since Year 2012

Liftboat Projects Clinched since Year 2012. Source: Company, Jack Phang Compilation

P/S: This counter is only suitable for risky investors who seek for capital appreciation as opposed to those who seek for higher dividend yield income. 

19 February 2014

PSL Holdings - Disappointing Financial Year 2013

PSL Holdings reported a disappointing performance on financial year ended 31 December 2013, with net profit slid 34.7% to S$2.9M as compared to S$4.5M a year ago. The revenue dropped 60% to S$14M from S$35M previous year. From the breakdown of the net profit, the profit from continued operation only attributed to S$1.2M.

Balance Sheets
The company remains in healthy state, with cash & equivalents S$43M which is increased by S$14M compared to previous year. As total liabilities is S$5M, so total net cash after deducted all liabilities is S$38M. If included 7M receivables from the disposal of subsidiaries, the total net cash would be S$45M or around 11.6 cents.

Management Comments
The management is now focus on trading of hardware and repair of machinery parts and earth moving works and excavation services after disposal of PSLE and RRPL. As of now, the company remains committed to exploring coal and minerals mining opportunities. The management is proposing 0.5 cents first and final dividend which translated to 1.8% dividend yield based on 26.5 cents closing price today.

If based on the current shares price, the whole enterprise value is estimated at around 15 cents after deducting net cash of 11.6 cents. Adjusted ROE ( Equity Minus the Cash Items including other receivables) is at impressive at the 36% level. Cash flow wise, the payables was reduced by around S$8M, notwithstanding the free cash flow remains in positive figure as the company have disposed off its subsidiaries.

As the company is committed to exploring coal and mineral mining opportunities, I believe the cash flow in future would be much volatile compared to these 2 years and probably the management would not be able to distribute more cash to shareholders as the CAPEX in coal and minerals mining activities is considered huge.

It is rather hard in estimating the intrinsic value in coal mining companies, as there are quite a few factors affecting the output & input price.  If based on net S$45M and 13X of 1.2M, the intrinsic value would be around 15.65 cents, about 60% of current shares price. So let's see if there is any business progress in this company later, and it may justify the current share price.

15 February 2014

Courts Asia - 3Q2014 Result Released - Feb 2014

Courts Asia Limited reported a 4% increase in Total Revenue for 9M2014 compared to same period last year, with net profit reported a 28.8% drop to S$20M compared to S$29M corresponding period last year. Malaysia contributed 33% of the Group's sales and reported 20.8% revenue growth mainly attributable to higher credit sales from credit campaign and opening of new stores during the period. Singapore remains main contributor (67% of the Group's sales but registered a 2.9% decrease in 3Q14 due to weaker consumer demand and lower bulk sales during the period).

Balance sheet item wise, Current Assets increased to S$412M as inventories, receivables and cash increased S$10M - S$20M respectively. The current ratio remains at healthy level of more than 3.0X, while debt-to-assets ratio was at roughly 42%. The borrowings are mainly formed by the Asset Securitisation Programme, Multicurrency Medium Term Note Programme and unsecured fixed rate notes.

Cash flow wise, the group recorded negative cash flow in operating activities as well as investing activities and positive cash flow in financing activities. The working capital needs as well as CAPEX increased significantly compared to same period last year, as the group tried to expand further in oversea. As a result of this, the group had to increased the borrowing via proceeds from unsecured fixed rate notes (S$125M) partially offset by repayment of loan received on asset securitisation and term loan. Total cash now stands at S$104M, with S$37M in fixed deposits and S$72M in bank balance.

The management mentioned that it is expected retails sales to remain soft for the next six months in Singapore, while the Group continues to improve credit sales in Malaysia via aggressive campaign. The second Courts Megastore in Subang was opened in January 2014, in tandem with the Group's expansion plan in Malaysia. In Indonesia, construction work for the Group's first 'Big-Box' Megastore in Bekasi is currently on track and is expected to be opened by 2Q15 (by September 2014).

9M2014 EPS was 3.66c or annualized 4.88c. With NAV of 52.3c, the Return on Equity would be roughly less than 10%. To me, this is not an exciting result. However, I believe that the net profit would be strengthened given the group's expansion plan in Malaysia and Indonesia.

Given current performance, I would think 50c would be a better entry price. I would prefer to invest in it after observing a few more quarters later and check if the sales growth could catch up with the the expansion plan.

Dukang Distillers - Bai Jiu industry in Consolidation - Feb 2014

Dukang Dislisters reported a very disappointing result, right after it issued a profit warning on 2QFY14 report. The revenue in 2QFY14  dropped a significant 45% yoy compared to corresponding period last year, with only RMB402.8M revenue recorded.

The product mix change towards Luoyang Dukang regular brand had eroded the gross profit margin. To make it worse, surging A&P expenses which amounted to more than 20% of revenue had made the net profit reduced to RMB10M in this quarter. According to the management, the it is not the time for the company to cut the A&P expenses as well as working capital needs, instead the company would increase CAPEX (as you could see that the inventories was increasing as well) in a preparation of facing fierce competition among peers.

Baijiu industry currently in a midst of intense competition (mainly due to government's curb), as many companies reduce the average selling price to gain more market shares.

While you could see that the company is still in net cash position, it is no doubt that the company would not distribute as dividends to shareholders as they would conserve the cash for CAPEX and OPEX requirements. The cash flow from operating activities had turned to negative figure this year, as the company increased the inventories (mainly grain alcohol).

Company's growth strategies remain at 3:
  1. Enhance brand value by participating in promoting baijiu, especially Dukang premium brand  
  2. Strengthen distribution networks as none of the top 5 distributors accounts for more than 10% of sales. However, I noticed that the number of distributors were lesser compared to FY2013 as I believe that mainly due to the curb of Chinese government on luxury spending in Banquets. 
  3. Improve capacity and utilization. The utilization rate was 105% for 2QFY14. 

With current 2Q2014 EPS of 1.26 RMB cents or annualized 5.04 RMB cents / 1.05 Scents, I think that Dukang distillers is trading at annualized PE of more than 20X, which I believe is still very expensive. The condition could only turn better if the sales volume could increase after positive impact of A&P activities seen. Nonetheless, the group remain positive on the long run as the management believe the demand for Baijiu will remain resilient in the long run.

I believe the sentiment for this counter is weak now, but it may take quite some time for company to turn around as revenue and net profit issue are experienced by the whole industry players. I may re-look on this counter only after the free cash flow could be improved (e.g. reduce % of A&P expenses in Revenue, better cash conversion cycle days etc) , maybe a few more years later.

P/S: I would think that to enter the share price at 13c and below would be a safer bet as of now.

12 February 2014

Silverlake 1H2014 Result - FEB 2014

About Silverlake Axis:

Silverlake Axis Ltd (SAL) is a leading provider of digital economy solutions and services for major organisations in Banking, Insurance, Payments, Retail and Logistics industries. The Group's Silverlake Axis Software and Services Solutions are delivering operational excellence and enabling business transformations at over 100 organisations across Asia, including 40% of the largest banks in South East Asia. Under Axis Systems Holdings Limited, the Group was listed on the SGX-SESDAQ on 12 March 2003. It was renamed Silverlake Axis Ltd in 2006 following the acquisition of SAACIS, the Company that owns the Silverlake Integrated Banking Solution (SIBS) and the listing was transferred to the Mainboard of the Singapore Exchange on 22 June 2011.

Silverlake had released its latest report on 11 Feb 2014. Below is some of the snapshots taken from company's report:

Income Statement. Source: Company

EPS for 1H2014 is RM0.0498. So annualized EPS and PE would be 22x to 23x. If you look at EPS growth compared to corresponded period, the EPSG would be 17% (partly due to the dilution effect of new shares issue on during FY2013). So to me this company may have a rather expensive valuation right now. Gross profit margin stands at around 60%, marginally drop compared with corresponded period. Net profit margin is roughly 49%, a flat performance compared to last year.

Balance Sheet wise, non current assets value is RM249M, a 21% increase mainly due to Intangible Assets (additional cost in acquiring subsidiaries) and investment in associates. Current assets valued at RM495M, a 8% drop compared to last year, mainly due to decrease in cash and bank balances and receivables offset by increase in amounts due from customers. Total equity represents RM594M, a slight improvement compared to RM588M last year, mainly attributable to total dividend paid to shareholder of RM111M offset by increase in retained earnings.

Cash flow wise, Cash and bank balances decreased from RM362.4M as at 30 June 2013 to RM331.7 million as at 31 December 2013 mainly due to the cash outflow from investing activities of RM45.5million for the first payment for the acquisition of CVSB and the second tranche payment for the acquisition of 80% equity interest in Merimen Group and the cash outflow from financing activities of RM111.0M for payment of dividend to shareholders, which was partially offset by the net cash inflow from operating activities of RM129.4M.

The expected annualized ROE would be around 35% to 40%, and it is still a good figure. Below is the screenshot income statement review by company management:

The company remain positive on current business trend, seeing ample business opportunities to pursue new software projects and to add to the present order book of software implementation service contracts. Besides that, the company remains open to any acquisition opportunities to broaden the range of business and technology capabilities and enable the company to provide customers operating in multi-industries with solutions to excel in digital economy.

At current price of 87c, I would say it is not an undervalued counter, but a growth stock with high growth potential. It depends on your risk appetite to add this stock in your portfolio.

11 February 2014

Sim Lian 2014 Q2 Result - FEB 2014

Sim Lian posted 2014Q2 Result today. Below is some of the screenshots from the data I compiled from recent company reports:

Income Statement. Source: Company, Jack Phang Compilation
EPS for 2H 2014 was 9.38 cents, about 55% of total EPS for FY2013. If you look at what management mentioned, $55.2 million recorded in 2QFY2013, with revenue of $207.3 million for 2QFY2014 reflecting a mere 0.5% decrease from $208.3 million in 2QFY2013. The increase in Group’s profit before tax is primarily attributed to reduced contract costs. Revenue from Property Development division contributed $156.9 million to the Group's revenue in 2QFY2014, compared to $170.1 million in 2QFY2013. The decrease of 7.8% is mainly due to reduced revenue contribution from Waterview project as it is in the later stage of the construction, partly offset by increase in revenue contribution from Parc Vera project which is in the peak of the construction cycle. The other development projects of the Group are accounted for on COC method. The Group saw its construction division contribute $42.1 million to its revenue, an increase of 33% from the $31.7 million in 2QFY2013. The higher revenue contribution is due mainly to increase in percentage of work done. The Group incurred contract costs of $125.2 million, 16% lower than the $148.2 million incurred in 2QFY2013. Contract costs have decreased after we have finalised the contract costs for our projects.

The Net Profit Margin surged to 31.92% in 2Q2014 quarterly report, mainly attributable to reduced contract costs. To me, it is quite impressive as the company still managed to control the project costs well. Maybe we have to wait for another 2 more quarters to check if this is an one-off event or a trend that the company could cope with difficult situation especially due to labor tightening policy started a year ago. 

Balance Sheet. Source: Company, Jack Phang Compilation
Total Assets stands at S$1.8B, about 5% increase compared to FY2013 result. Development properties is currently valued at S$1.16B and next biggest item is Joint Venture which is around S$251M. Current Liabilities increased to S$718M mainly attributable to Trade and other Payable item (S$523M) as the company started to apply for new financial reporting standard - only to recognize revenue and profit after the whole project was completed, and the progress billings received would be put under Trade and other Payable item. So higher payable could mean a better future profit in coming years. 

Over the years, we could see bank loan reduced significantly as the group repay the debts by using progressive billings received. The Equity attributable to Owners of the Company is now S$905M, and the market cap of the group is now around 13% lower than the Book Value. 

Another thing to note is about the Joint Venture and the contribution of net profits from JV. The Share of result of JV for 1H2014 is S$8.8M and JV is S$251M. The profit margin of JV is increasing over years, and I believe it could be another driving engine to the company, while the group is now focus on recurring income generation such as property investment (e.g. Australia property purchase in 1Q2014 etc) as well as to grow in oversea market. 
Cash Flow Statement. Source: Company, Jack Phang Compilation
As you can see from above Cash Flow summary, company registered a net cash from operating activities of S$14M and the Total Cash was reduced mainly due to debt repayment and cash dividend payout incurred in this quarter. Total Cash now is about S$265M now. 

I personally think Sim Lian NAV could reach S$1.00 - S$1.10 easily by next year end. As the CAPEX requirement is lower now (due to cooling measurement by Singapore government), the chances of dividend reinvestment scheme may not incur in near future. I personally think this is a good company, despite the liquidity issue faced by the minority shareholders.

MAS to revise TDSR Rule - FEB 2014

The MAS has announced certain exemptions in the implementation of its TDSR threshold. These apply mostly for owner-occupied properties, and helps buyers who have received their option to purchase (OTP) before 29 Jun ’13. 

Under the revised rules,
i) Owner-occupiers will be exempt from the TDSR threshold of 60% when refinancing loans for properties bought before 29 Jun ’13.
ii) MAS will exempt application of recent threshold changes to the mortgage-servicing ratio (MSR) and the max loan tenure limit for owner-occupied refinancing, as long as the OTPs were dated before the implementation of those rule changes.
iii) For investment properties, MAS will allow a transition period from now until 30 Jun ’17, for borrowers to be exempt from TDSR when refinancing, provided they commit to a debt reduction plan and have purchased the property before 29 Jun ’13.

The exemptions will reduce the incidence of TDSR-imposed fire sales, prevent forced selling and allows for a soft landing. The revised rules also allow owners who need to refinance their property, to hold on to the properties for at least four years to avoid paying Seller Stamp Duty, while reducing their debt gradually.
In my own opinion, this could be a good move for certain home owners to upgrade or purchase or just simply refinance without the hassle. And it may improve current market sentiment as the total volume transacted in past few months was very discouraging.

So, it could be the first move for the government to reverse the cooling measurement started since few years back and we may have better opportunities in investing in real estate counters. We may started to select some counters that fall under our searching criteria and hold on to it amid the speculation that interest rate may started to pick up soon as we already noticed that some banks offering about 2.0% FD rate.

08 February 2014

Singapore HDB Resale COV near 5 year low - Feb 2014

According to figure released by the Singapore Real Estate Exchange (SRX), Jan 2014 COV figure was the lowest since June 2009 during the global financial crisis. Despite the decline, HDB Resale prices inched up by 0.3% in the month which reverses the general decline seen in the market since Q2 2013.

Private property developers including CDL urged the government to re-look on the cooling measurements implemented several rounds since few years back and so the whole ecosystem could still be running in healthy level.

Source: http://sg.finance.yahoo.com/news/covs-resale-flats-fall-4-5-low-043834859--sector.html

In my own opinion, property market is about 6 - 9 months lagging behind stock market. The Quantitative Easing kicked off this year would increase the interest rate eventually and dampen the demand of riskier product such as stocks & real estates.

However, it does mean that there are more opportunities out there in the market compared to last 2 years. Try to be more selective in investment and you may get a bigger return in later years.

07 February 2014

US Stocks surged - 7 Feb 2014

[NEW YORK] US stocks surged Thursday (6 Feb 2014) amid optimism that the January jobs market report out early Friday will point to firm economic growth.
The Dow Jones Industrial Average gained 187.14 points (1.21 per cent) at 15,527.37.
The broad-based S&P 500 added 21.76 (1.24 per cent) at 1,773.40, while the tech-rich Nasdaq Composite Index tacked on 45.57 (1.14 per cent) at 4,057.12.
"Investors are a little bit more upbeat today on economic prospects, and have decided to look a little bit more at the bigger picture as far as overall economic strength," said David Levy of Kenjol Capital Management. - AFP
Source: Business Times Breaking News

My humble opinion is that, despite higher volatility this year, we could still hold on to investment that is still fulfill our requirement (buy at the margin of safety and sell when it is overvalued). So far, most counters have fallen from the peak and retreated to a level where we could slowly accumulate for the business value. 

06 February 2014

SingPost - 9M2014 Summary - Feb 2014

Singapore Post released its latest quarterly report yesterday. 

In overall, the group is in the move well to increase exposure to retail and logistics business while maintaining profitability in traditional mail services. You may see the revenue grew at the faster pace (mostly due to consolidation of logistic business) while underlying net profit rose marginally, partly due to higher increase in Operating expenses involved in logistics and retail division. 

Singapore Post recently just announced a strategic decision to acquire a piece of property in Malaysia, in tandem with the plan to expand logistic business to oversea. To me, it would be a good move as it could further increase exposure in oversea market at the same time maintaining its leadership (or in other more aggressive word - monopoly) in domestic market. 

Corporate Finance wise, the company reduced the debt ratio by repaying $300M Bond in April 2013 and enjoyed a good operating cash flow still. Not surprisingly,  the group announced a interim dividend of 1.25c payable on 28 Feb 2014. With expected full year dividend of 6.25c and current shares price of $1.315, it is translated to 4.75% dividend yield. 

In my own opinion, this counter is a defensive counter with lesser volatility (although we do see a fluctuation in between 90 cents to $1.40 in past few years). We could see that the net profit margin would be reduced further as the lower profit margin business (logistics) was growing faster as compared with more mature but higher profit margin business (mail services). The group would need to find a way to battle with the higher holding costs due to the nature of the logistic business itself while exploring alternatives to enhance profitability. 

It could a good idea to add it in your diversified portfolio to add defensiveness especially when uncertainties arise. You could still enjoy a stable dividend income while expecting a lower fluctuation in your overall portfolio. Nonetheless, it is unwise just to invest in single counter in a single time frame.

Below is the snapshot of the summary of the quarterly report which I extracted from company's presentation slides.
Source: Company

Source: Company

Source: Company

Source: Company

Source: Company

Source: Company

Source: Company

Source: Company

Source: Company

Source: Company

05 February 2014

Singapore Stock Market - Which Direction to Go? 5 Feb 2014

STI Index tumbled 9% in 1 year performance and remained rather flat in 2 year performance. 

However, if we look at longer period, say 26 years ++ (Since Yr 1987), STI recorded positive performance of 260%, or annual compound return rate of around 4.8%. 

To summarize, as long as we could invest in long term (e.g. 20 years and above), the result could be better compared with putting it in bank deposit. What we need to do is to always have a good asset allocation strategy, so that we could allocate more fund in equities when the market is tumbled and reduce the percentage in equities when the market is very hot. 

STI 1 Year Performance. Source: Finance Yahoo

STI 2 Year Performance. Source: Finance Yahoo

STI 5 Year Performance (+72.90%). Source: Finance Yahoo

STI Performance Since Dec 1987. Source: Finance Yahoo

04 February 2014

US Market Tumbled 300 Points / 2% - 3 Feb 2014

US. Market closed 300 points or 2.0% lower yesterday night, showing that the FY2014 would be a tougher year compared to previous year. S&P index also retreated about 6% since beginning of the year. 

However, to me it is similar to a correction after a record year last year. It is now depending on whether the latest quarterly operating results of listed companies could make it worse or better. As expected, property sector and real estate sector suffered from the speculation on increasing interest rate that may damper demands or interests from investors. 

Overall, we would see STI may experience some period below 3,000 points, a critical psychology support level, which would drive short term traders out of the market and reduce the average daily transaction volume. 

After QE tapering started to kick off since beginning of this year, we suddenly "saw" or "attracted to" a lot of negative news such as emergency market turmoils (e.g. Turkey to increase interest rate to about 12%, China Purchasing Managers Index dipped to near to 50.0 points which indicates slower pace of expansion etc). 

In my opinion, it may represent an opportunity to purchase our favorite counters at attractive price. My thought is to purchase some good counters which provide decent dividend yield as well as growth potential, as the economy would perform better after the global financial crisis ended recently. 

We would see a lot of corporate quarterly report released in this month. So, we may pick up some counters that still enjoy a strong fundamental and hopefully we could enjoy a profit in later years. Always remember not to over optimistic and over pessimistic, as the market is always there.

03 February 2014

Challenger Technologies - I.T. Giant In Making

One of my friends who is working in the company recommended me to take a look on this company. So it is time for me to do some homework on this company and share it with you guys here.

Challenger Technologies Key Summary. Source: Company's Annual Report 
Challenger Technologies Key Financial Ratios. Source: Company's Annual Report

ROE was quite stable at the range 30% to 40% with 5 years record here, and the Quick Ratio which indicates Cash over Current Liabilities was in a healthy figure. ROE was largely attributed by high asset turnover as the company was able to generate huge revenue based on low assets. 

One thing I like the company is that, the company was able to maintain the net profit margin of 5% over so many years although we knew that I.T. hardware market is actually in a very high competition now. Their main business strategy is to setup their IT stall at the convenient of their customers. 

Challenger Technologies is also having their client loyalty programme by introducing a membership programme, to encourage their consumers to spend more to enjoy more reward points. I have been purchasing a power cable from Challenger, and I also opted for their membership programme. So far, I know that this programme could actually collect clients particulars and would send A&P emails to retail clients. 

Based on the Cash Flow Statement, the Free Cash Flow (Net Operating Cash Flow minus Purchase of PPE) was about S$15M and S$6.0M each for FY2012 and FY2011. Changes in working capital was the main reason of the difference of FCF for these two years.

So to make it easier to compute the intrinsic value based on dividend growth model. The intrinsic value based on required rate of return 15%, dividend growth rate of 5%, expected dividend of 2.35 cents would be around 23.5 cents. Compared with current share price of 57c, it is a bit high to me. However, if we could increase long term growth rate to about 10%, the intrinsic value could be increased to 47c. I would consider to purchase the counter if the share price could fall below 40c. 

02 February 2014

Eratat - Default on Bond Interest Payment - Jan 2014

Eratat requested a suspension of trading last month, with latest news that the group was not able to make bond interest payment to bondholders and CEO was unable to give satisfied answer despite the fact that the group have sufficient cash in bank account. The corporate news was that CEO Mr. Lin was suspended from his duties and CFO Mr. Ho to be appointed as interim CEO.

To me, this is another bad news coming from S-Chip. It brought to a question that why the group would still want to borrow money from bondholders despite having hundred of millions of cash in the bank account.

I think it will hit the sentiment again for those who hold S-Chip at this moment. To understand what had happened, you may refer to the source below:

Source: http://infopub.sgx.com/FileOpen/Eratat-Announcement_On_Trading_Suspension.ashx?App=Announcement&FileID=272985
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