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.


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