Earnings report card

For the past week, markets have been trending downwards. In terms of macro economics, Singapore’s economy has just narrowly missed being in a technical recession, while Japan’s economy has fallen back into a recession again (read here).

And for the coming weeks, market could well trend lower.

Well, I will probably think more about prices (eg. valuation) when I have a bigger war-chest.

However, every time the market tanks, there is always this instinct to ‘flee’, to just sell and go away… Nevertheless, I think the true focus should be on the earnings and business narratives, not the stock prices.

I was reading the Motley Fools’ article:

Never Look Back When Investing (read here)

I do agree that one needs to be forward looking when it comes to investing. Whether the market did well or not, one must always think ahead (sometimes by studying the history – history may not repeat, but the events do rhythm). Think about what will the future be like in 2 yrs, 5 yrs or 10 yrs.

Also there is a need for a level of optimism. I read an article the Business Times a couple of days back about an interview with a Japanese Bank Head, and he was commenting that the Japanese who been through the lost decade (whereby the economy and market generally stagnant or went into reverse, deflation, etc), although they are very tech savvy, have this pessimism in them. If we do not believe in the bigger picture that the economy will eventually get better – it is hard to invest long term.

For the moment, for me, it is back to looking at my portfolio and see how the companies fared base on their latest quarterly reports. In the past, when I was a student, we had the common tests, mid year and end of the year exams. Now these companies’ financial performance are like those tests and exams results.

Ok, I am still a believer that in the long term, the stock price will reflect the earnings performance of the company. Eg. Continuous bad earnings will eventually lead to lousy stock price and vice versa. So sometimes it is good to be as far away from Wall Street (and its constant beleaguering of good / bad news), and fluctuating prices. This might be slightly different from what others would do eg. list out their paper profits or losses, or dividends received. Just in case you are wondering, my other report card (which shows the paper profits and losses), still shows an overall fail grade eg. overall loss. Darn….

I have actually listed out the various financial statistics of the companies; but will study further into these another time (see below). For this post, I will just focus on the 3Q 2015 results (see the last column on the right).

Base on an overview, there are more positive results in 3Q15 as compared to 2Q15. Only Super Group and Sarine Technologies have bad results. So overall not a bad quarter.

Of course, when we look deeper into the breakdown of the earnings, we can see that the fundamentals of some of the company may have deteriorated while profits have improved.

 

1. CapitaLand (read here and here)

Very good results

• PATMI increased 48.3% yoy.
• Operating PATMI increased 25.9% yoy.
• Group revenue increased 17.1% yoy.

In the report by UOB Kay Hian (read here), it states that higher PATMI is due to higher project sales and realised forex gains from China, including divestment gains in Japan.

Future outlook wise, Mr Lim Ming Yan, President & Group CEO of CapitaLand Limited, highlighted that, ” CapitaLand remains focused on Singapore and China as our core markets. It is noteworthy that in China, our residential sales continue to perform strongly. Looking ahead, we expect to complete over 2,000 residential units in 4Q 2015. Our well-balanced portfolio of investment properties and residential projects will continue to generate recurring income and trading profits for the Group. “

Frankly I am surprised by the good results from the Sizzling sales in China. Could there be a turn-around in the property market in China anytime soon? Your guess is as good as mine.

 

2. Golden Agri-Resources Ltd (read here and here)

Good results

• Gross Profit increased 9.8% yoy (3Q15 vs 3Q14)
• EBITDA increased 28.2% yoy (3Q15 vs 3Q14)
• Net Profit increased 261% yoy (3Q15 vs 3Q14)
• Revenue decreased 14.6% yoy (3Q15 vs 3Q14)

Ok, I know crude oil prices have recently tanked, and so did Crude Palm Oil Prices. So I am surprised that the recent quarter results of Golden Agri has changed for the better.

Indeed, I am glad that for once, there are some good news coming out from this company, it has been many months and years since I seen any. Could this be the turning point? Hard to say, since it is only one quarter, and am not an expert in macro economics especially when it comes to CPO prices. Well CPO is very volatile, when it drops it drops A LOT, and when things turns, the Net Profit of this company can also rise by a lot.

It is noted that the improvement is due to improvement in palm downstream operations and recovery in plantation output, rather than CPO price increase. The palm and lauric business has continued to show gradual improvement since last year (9 mths results better than last years’, but 3 mths show yoy drop). The oilseed business environment in China saw strong recovery. (read here and here)

As stated in the report, ” However, strong third quarter performance was not enough to compensate for lower CPO prices in the nine-month period of 2015, resulting in EBITDA2 of US$307 million, a decrease from US$441 million for the same period in 2014.”

For the whole year of 2015 I doubt the overall results will be better than 2014, but I do hope that moving forward, year 2016 will be a much better year. Perhaps we can start to see the beginning of the up cycle (in this cyclical stock).

Palm Oil Outlook: Mr. Franky Widjaja, Chairman and Chief Executive Officer of GAR commented: “Palm oil prices have started to recover from their lowest level at the end of August. We expect that supply in early 2016 will be severely impacted by current El Nino while domestic demand will increase from the biodiesel mandate. 

 

3. Vicom (read here)

Marginally good results

• Revenue decreased 6% yoy.
• Profit after taxation increased 3% yoy.

The anemic results are expected, due to de-registration of large number Old Cars bought in 2007 to 2009 (read here), plus there is no pricing advantage in the industry. The industry is regulated by the government and inspection fees for all nine centers (VICOM, JIC or STA) are the same across the board. Prices still rise over the years but not by much – read here to understand the business of Vicom better.

A Path to Forever Financial Freedom (3Fs) has written a good post on Vicom’s recent earnings. And as highlighted in the post, although the revenue has decreased, management was able to mitigate the drop by a reduction in the bottomline, most notably the staff cost, and increasing operating income.

You can also check out Motley Fool’s article on Vicom’s results. The days of really high growth for Vicom seems to be over, I just hope that future earnings will be ok, above negative.

Future outlook wise, Vicom’s management team mentioned “Demand for vehicle testing services is expected to be lower with more vehicles likely to be deregistered during the year. Demand for non-vehicle testing services is expected to fall with the slow down in some industries.”

In the much longer period (perhaps after 2019), the outlook should be better.

 

4. Super Group Ltd (read here and here)

Bad results.

• Revenue decreased 7% yoy.
• Gross Profit decreased 5% yoy.
• PATMI decreased 25.6% yoy.

CIMD did an article on the recent results.

The BC and FI divisions suffered yoy declines of 4% and 11%, respectively. This was due to weak consumer spending in key markets (Thailand, Malaysia for BC and Indonesia for FI), further compounded by falling ASEAN currencies (Ringgit, Ruppiah and Kyat).

Future Outlook:  The Group will officially launch ESSENSO – its latest range of premium microground coffees – in selected countries in 4Q15 while Owl Kopitiam Roast was rolled out in the current quarter. The Group expects market conditions to remain competitive in the next twelve months, and will keep a close watch on key input costs and currency fluctuations.

Basically, the new product will take time to gain traction, and there are no bright spots at the moment. The new product could help to differentiate the company in an otherwise commodity-type business. So far so bad.

 

5. Riverstone Holdings Limited (read here)

Very good results

• Revenue increased 46.7% yoy.
• Net profit increased 114.0% yoy.

From a company doing not well (Super Group), we move on to a company doing very well (Riverstone). Riverstone’s expansion is on track: The second phase of the expansion of its Taiping, Malaysia plant is well on track. As at 4QFY2015, total annual production will be 5.2 billion pieces. Management is not resting on its laurels as initial preparations for phase 3 of the plant is already underway.

Management also explained that the sharp 48% yoy increase in 9M15 general and administrative expense is due to an additional month of bonus paid to its foreign workers to compensate them for the weak ringgit upon the translation of their ringgit-denominated pay back to their home currency.

Well, RS has reported another stellar quarter. Hope they keep it up. Increase in production is great, but what would be better is more innovative products.

Stock price wise, this is my best performing stock. If I just consider the price when I first bought the stock (not the average price of my buys over the years), and compare that to the current stock price of RS, the current price would be more than 3 times my initial buy price.

Nevertheless I do not think RS can keep increasing earnings at this fast pace. So it would be better to pick up the stock when the earnings fall short the analysts’ expectations.. still good but not as good.

 

6. Colex Holdings Limited (read here)

Good results

• Revenue for the Industrial Division increased 13.6% yoy.
• Segment profit increased 33.1% yoy.

Colex’s 3rd quarter results report is very brief. Nevertheless the results are good. Other than that, I can’t read much into it. Brief and to the point.

 

7. Singapore Airlines Ltd (read here and here)

Good results

• Group revenue decreased 4.5% yoy (1H 15/16).
• Group operating profits increased 46.2% yoy (1H 15/16)

SIA was recently in the news for their plans to delist Tiger Airways (read here).

At first glance the results are good. However, while reading the report (and the transcript of the results briefing) , it seems that the main bulk of the profits came from the yoy reduction in the expenditure (H1 15/16) of $424M -5.7%.

We’re seeing lower yields but offset by lower unit costs. And that all came from fuel.  If you look at the ex-fuel unit costs, they actually rose quite sharply.

Going forward, there are a few key changes in SIA:

• SIA is going to restart non-stop flight to the US (read here) – given the low fuel prices and more efficient A350.
• Privatizing of Tiger Airways. This would allow it to operate Tiger and its own low-cost long-haul airline, Scoot more closely, which already sell joint tickets on each other’s routes and participate in Singapore Airlines’ customer loyalty programme. The deal will also allow Singapore Airlines to focus on its core business, the long-haul premium market that includes routes to Europe and the US, where its value proposition lies. (read here)
• The addition of the Premium Economy Class seats this year. Replacing economy seats with fewer PY seats allows SIA to stop competing for the lowest-yielding passengers, which cost-effective Gulf carriers have picked up. (read here)

Not sure how things will pan out, and frankly am not expecting SIA to outperform earnings wise (mature company with a very high valuation in a saturated industry), but do hope there is indeed some organic growth within the company not just because of the low fuel price.

 

8. Sarine Technologies Ltd (read here and here)

Very bad results

• Revenue decreased 53.4% yoy.
• Gross profits decreased 57.9% yoy.

Given the poor results in the previous quarter, and the profit guidance issued earlier (read here), I wasn’t surprised by the bad results. The reasons for the bad results remain basically the same:

• Dis-proportionally high rough diamond prices compared to diamond prices;
• High polished inventory levels resulting in significantly reduced quantities of new rough entering the midstream resulting in lower than anticipated Galaxy processing revenues; and
• Continued squeezed working capital and credit lines of manufacturing due to slower turnaround of inventories

Only one Galaxy family system was delivered in 3Q15.

In the meantime, the management is using their cash reserve to pay out dividends (cash reserve drop was primarily due to dividend payment). Management in a way has tried their best to reward the shareholders during this tough period.

Outlook wise, it appears good in the longer term base on their report. Demand seems to be picking up in US and Japan. The holiday period – Christmas, Chinese New Year, Valentine’s day may help absorb the remaining diamond inventories (which has already shrunk due to decreased manufacturing). Can also read up CIMB Research’s report (read here).

 

9. SMRT Corporation Ltd (read here and here)

Marginally good results

• Revenue increased 4.7% yoy.
• PATMI increased 1.9% yoy.

If you consistently do badly in a subject, and then during one quarter you managed to just passed the test marginally, you would probably feel very happy. In a way, when I saw SMRT’s quarterly results, there is this kind of feeling :p.

PATMI improved 1.9% to $25.7 million with contribution from the Group’s 49% stake in its associate, Shenzhen Zona Transportation Group Co., Ltd., which registered an improved performance in 2Q FY2016.

The revenue increase is broad base, however the PATMI was dragged down by the increase operating expenses.

Outlook wise, not much changes. The Group is making progress in its discussions with the authorities on the transition to a new rail financing framework. Bus operations results is expected to improve compared to FY2015 due mainly to higher revenue and lower energy prices. We are in discussion with the authorities on the contract terms for the remaining bus services beyond the license expiry in August 2016. 

 

10. Nirvana Asia Ltd (read here and here)

Good results

• Revenue increased by 10.7% yoy as compared to 1H 2014.
• Profit attributable to owners of the Company increased by 179.1% in USD terms or 209.3% in RM terms as compared to 1H 2014.

Excluding net foreign exchange gain of USD17.5 million for 1H 2015, the Group’s adjusted profit attributable to owners of the Company for 1H 2015 amounted to USD19.9 million, an increase of 13.7% in USD terms and 26.8% in RM.

The profit growth was primarily driven by (i) an improvement in gross profit margin for tomb design and construction due to the acquisition of tomb business in March 2015, and the higher gross profit margin for niches and funeral services, (ii) lower selling and distribution expenses as a percentage to revenue, and (iii) lower profit attributable to non-controlling interests.

The sales volume went up across all the product lines, whilst the average selling price (“ASP”) per unit was mixed with burial plots and niches both rising.

So far so good.

 

11. Fastenal (read here)

Good results

• Net revenue increased 1.5% yoy.
• gross profit increased 0.70% yoy.

I think this post did a good write up on their results. (read here)

Base on this article, when comparing Fastenal to its peers, the peers are way ahead of Fastenal based on the EPS. However, Fastenal outperformed its peers based on the net profit margin, current ratio, PE ratio, and PBV ratio.

 

 

Although I am not a top down investor thinking about the macro economy, there are portions of the quarterly reports that seem to infer that China’s economy in certain areas picked up last quarter.

In the case of Golden Agri, in their report , they mentioned that oilseed business environment shows strong recovery. In the case of Capitaland, there were sizzling sales in the Chinese residential market. In the case of Sarine Tech, they mentioned that data published by several of publicly traded retail diamond jewelry chains indicated that demand for diamond jewelry in China is growing, and as Chinese tourists head towards Korea and Japan – the demand for diamond jewelry has increased notably in Japan.

I am not sure if they are using the sexy word of ‘China’ for the sake of making the reports look better… but well, shall wait and see.

 

 

Ok, long report card. Shall stop here.