Earnings report card (Part 1 of 2)

Ok, I think one of my earlier post (read here) gave people the impression that I am ignoring stocks altogether. Actually I am ignoring the media ‘noise’ about the stock market rather than the companies themselves.

Finding good stocks is a lifetime endeavor. Be it during bull or bear markets, one should always search out good companies at a fair price. Well, it is also important to watch over the ‘eggs’ in your basket, and keep abreast of the development in the companies and earnings performance.

“If you invest $1,000 in a stock, all you can lose is $1,000, but you stand to gain $10,000 or even $50,000 over the time you’re patient. You need to find few good stocks to make a lifetime of investing worthwhile.” Peter Lynch

 

Despite the plunge in markets a while back, a few stocks have risen during this period (going against the tide). In the article below, 3 companies are mentioned, and 2 of these are in my portfolio (SMRT & Golden Agri) – surprise, surprise.

3 Companies That Are Saying “NO” To The Current Market Slump (read here)

With the falling oil prices, transport companies (SMRT & SIA) have benefited. In recent times, I have been concentrating on less cyclical companies – whose business tend to be less affected by economic downturns. Eg. Colex, Vicom, Riverstone, ISOTeam and Nirvana Asia. Yes boring stocks. So I reckon so far there have not been any major disappointments in the earnings of these companies.

Having said that, there are other forms of investments. So always keep a lookout.

The internet has enable retail investors to invest in many different platforms – shares of listed companies, Equity / Mandatory Convertible Bonds of startups, loans for SMEs, crowd funding / bulk purchase / pre-sales of real estates, etc. The internet has also helped to lower the cost of starting up companies in many different ways.

 

Ok back to the companies: Let’s look at the recent earnings released by the companies in my portfolio. This will be quite a long post, and I have decided to split it into 2 part posts (so if you are not into long boring earnings, this post might not be for you).

I have yet to receive Nirvana Asia interim or quarterly report. So am not including their earnings report here.

 

 

1) Riverstone Holdings Limited (read here and here)

Very good results

FY2015 vs FY2014

• Revenue increased 40.3% yoy.
• Net profit increased 78.4% yoy.

“2 Key Insights from the Chief Executive Officer of a Market Beating Stock” by Motley Fools (read here)

“Riverstone Holdings – More Room To Grow” by ShareInvestor (read here)

Second chapter of expansion is completed and our annual production capacity has increased to 5.2 billion pieces of gloves. Apart from working closely with customers to provide new solutions which address their needs, RS is also focused on improving operational efficiencies. For instance, the increased introduction of automation in their production processes has reflected an improvement in gross profit margin to 31.2% from 27.3% in FY2014.

Yes! RS has reported another stellar year end results. 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 (despite the recent volatiliy after the issuance of bonus shares).

 

Outlook wise:

On the Group’s prospects, Mr Wong commented, “The construction of Phase 3 has already begun and this will further grow our annual production capacity to 6.2 billion pieces by the end of FY2016. Apart from consistent organic growth driven by increasing demand over the past few years, we have also benefitted from favourable currency and raw material prices. Apart from these macroeconomic conditions, we maintain vigilance over operational challenges such as rising labour and fuel costs as we continue to tap on new and existing markets for growth.”

 

 

2) SMRT Corporation Ltd (read here, here and here)

Very good results

For 3Q16 vs 3Q15

• Revenue increased 4.6% yoy.
• PATMI increased 63.5 % yoy!

“SMRT Non Fare Business Saved The Day” by My Sweet Retirement (read here)

 “SMRT Corporation Ltd’s Latest Earnings: Moving Up” by Motley Fools (read here)

Marginally good results

“SHOULD YOU BUY SMRT STOCKS NOW?” Budget Babe (read here)

I think as compared to the previous quarter (when PATMI increased 1.9% yoy), there appears to be a marked improvement. Definitely much better as compared to earlier quarters.

However, there are 2 downsides:

• For this quarter, there is negative free cash flow of $13.8 million (although the company’s free cash flow had improved from a year ago when it was a negative $22.5 million).
• The Group’s Rail operations (Train and LRT) posted a combined loss of $1.1 million in YTD FY2016 as the increase in operating expenses outpaced revenue growth.

The upsides are from:

• Fare Business, particularly Bus and Train (operating profit increased 845.5% & 203.3% respectively).
• Non-Fare Business, particularly from the Taxi business. Operating profit from the Group’s Non-Fare business increased by $5.7 million in 3Q FY2016, due largely to improved profitability of the Taxi and Rental segments. YOY, the bright spot is operating profit from Taxi, which increased by 517.9%.

 

Outlook wise, the rail segment continues to be a concern.

Desmond Kuek, the chief executive of SMRT Corporation, had given the following comments in the earnings release on the company’s outlook:

“We continue our steady performance in our Non-Rail businesses but the Rail business remains challenging due to higher operating costs associated with improving rail reliability.

We are focused on our multi-year programmes to renew and upgrade the ageing rail network. While there is more to be done in reducing major train disruptions, we are encouraged that our consistent efforts in enhancing the reliability of the network have seen results. As a key reliability indicator, service delays longer than 5 minutes for every 100,000 kilometres improved from 1.80 in 2011 to 0.71 in 2015, the best performance achieved on the North-South and East-West lines in the past decade.”

The business of SMRT is not easy, however, there might be a more long term upside if there is confirmation with the authorities on the transition to a new rail financing framework.

 

 

3) Singapore Airlines Ltd (read here and here)

Good results

For 3Q2015-16 vs 3Q2014-15

• Group revenue decreased 3.9% yoy.
• Group net profits increased 35.5% yoy.

SIA Q3 net profit jumps 35.5%, helped by drop in fuel prices (read here)

Singapore Airlines’ 3Q earnings rise 35.5% to $275 million, driven by lower fuel prices (read here)

“Singapore Airlines Ltd’s Latest Earnings: Revenue Dips, But Profit is Up” by Motley Fools (read here)

The net profit was attributed to a sharp drop in fuel prices (Group expenditure was 7.6% lower) as well as higher gains from the disposal of aircraft ($56 million).

SIA said the better results also reflected “healthy expansion” at SilkAir and Scoot. FYI, the operating profit of Scoot changed from negative S$17 million on 3Q14-15 to S$18 million on 3Q15-16.

Except for SIA Cargo, all companies under SIA recorded higher operating profit compared to a year ago. SilkAir in particular saw its operating profit almost doubled to $33 million, driven by lower fuel costs and better passenger flown revenue.

However one key point to note: Revenue, fell by 3.9 per cent to S$3.94 billion, due to weaker yields from passenger and cargo operations.

Outlook wise:

The challenging operating environment is expected to persist, with travel demand remaining volatile, affected by economic forces and external events. On the competitive front, expansion of other full-service airlines as well as low-cost carriers, particularly in Southeast Asia, will continue to exert pressure on loads and yields.

While more relief could arise from lower fuel prices, which have declined to a 12-year low, fuel continues to make up a significant portion of the Group’s expenditure, with 46.6% of the Group’s fuel requirement in the fourth quarter hedged at a weighted average price of USD90 per barrel.

 

4) Colex Holdings Limited (read here)

Good results

FY2015 vs FY2014

• Revenue increased 12.5 % yoy.
• Profit increased 38.7% yoy.

The increase in Group revenue was due mainly to new contracts secured by the Group.

The increase of 39.4% in group operating profit before tax in FY2015 vs FY2014 was attributable mainly to the higher revenue and an increase in other income. The increase in other income was due mainly to increase in grant from the Singapore Government to cope with rising wage costs.

The Group had cash and cash equivalents amounting to S$9.293 million as at 31 December 2015, as compared to S$6.645 million as at 31 December 2014.

 

5) ISOTeam Ltd (read here and here)

Good results

For HY2016 vs HY2015

• Revenue increased 14.7% yoy.
• Net profits increased 11.6% yoy.

“Latest Earnings From ISOTeam Ltd: Strong Growth Ahead?” by Motley Fools (read here)

Underpinned by strong performances in its A&A, Coating and Painting (“C&P”) and Others segments, ISOTeam’s top-line grew 14.7% to S$44.7 million in HY2016 from S$39.0 million in the preceding period ended 31 December 2014 (“HY2015”). This was in spite of lower revenue from its R&R segment during the period.

However, due to the increase in the number of shares, the EPS in Dec 2015 dropped in comparison to Dec 2014 (As at 31 December 2015 and based on the weighted average number of 142,933,295 ordinary shares in issue, Earnings Per Share (“EPS”) was 2.99 Singapore cents . This compared to an EPS of 3.47 Singapore cents as at 31 December 2014, which was based on 117,595,831 ordinary shares in issue).

As mentioned in the posts in Value Buddies, the management has issued new shares at least 3 times in the past, hence diluting the existing shareholders share value.

(1) June 15…. 9 million shares for 58c apiece;
(2) Jan 15…..2.8 million shares for 50c apiece to Nippon Paint; and
(3)  Oct 14…..12,3m shares for 50c apiece to acquire four businesses (valued at 5 times earnings of each business).

So despite the increase in profit, the EPS has actually decreased by 13.8% yoy (not good for share holders). The share placement could be for strategic expansion & collaboration, but nevertheless, I have not been adding to this counter in recent times. It is after all a relatively new listed company with a relatively few historical financial data (available to the public).

I do hope management adopt a more shareholder friendly practice while moving forward with their quest for expansion.

Outlook wise:

Looking ahead, ISOTeam expects the construction related services industry to face some headwinds in the next 12 months with intense price competition and climbing foreign workers’ levies. Notwithstanding this, the Group remains optimistic of clinching new projects as the Singapore government continues to invest in the renewal and rejuvenation of older estates.

 

Refer to this link for Part 2 of Earnings Report Card.