Review of Quarter Results (Vicom, Riverstone, ISOTeam, Colex, Sarine Technologies & Golden Agri Resources)


Actually, I am quite an impatient person. Perhaps it is because of my job, or me living in fast pace Singapore where everything is about efficiency, or it is just my character…. However, I feel that I might have mellowed down over the years.

When it comes to investing, I think I have definitely ‘mellowed down’… I seldom trade, I read more and basically just wait most of the time. Investing in a way has made me very patient – the kind of patience found in watching the ‘wall paint dry’. At some time, it can be painful (even to a grown man).

Over the past months or year, even if I find an ‘undervalued’ stock, I would pause and think what if a better opportunity presents itself. This is against the backdrop of the rising markets in the US. In retrospect, I did miss some good opportunities.

Technically, a true bottom-up investor would invest irregardless of the market conditions and base his investing decision on the company’s stock intrinsic value… In fact, I would be happy to do just that (invest in undervalued stocks) a couple of years ago.

However, at the moment, I do believe that waiting for the ‘storm’ to come and invest would do more good to my net worth (from a long term view perspective). Or to put it simply, at this moment I feel preservation of capital might be a better strategy. Not much fear in the market.

To invest when others are fearful would allow you to ‘catapult’ your overall net worth in absolute terms.


Company Quarter Earning Results

I have been reading up on the companies which I am still invested in – basically their recent earnings results. The number one reason why I feel I need to get up to date with their results and development is basically so that I know what I have invested in, and not to sell base on unfounded fear (when stock prices plunge).

Having said that, a quarter is a short period, and I would probably need to study many quarters (and annual reports) in totality to better understand the company.


1. Vicom

Basically, the 1st quarter results (read here) showed a slight dip as compared to last year 1st quarter’s results. Profit after taxation decreased by 6.4%. This is not unexpected: Due to lower business volume.

They have, in view of the lower revenue, further cut staff cost, utilities and communication cost.

In terms of outlook, things have yet to change for the better. This is as stated in the report: “The vehicle testing business will continue to be faced with the high de-registration rate although this will be offset partially by the increase in the number of Certificate of Entitlement (COE) revalidations. The non-vehicle testing business will continue to weaken with the general slowdown in the industries that we serve.”

The vehicle testing segment to me is a given – you basically know the deregistration figures before they hit.

As for the non-vehicle testing business (SETSCO), its percentage of the total revenue is more. If I am not wrong, it contributes at least 60% of the revenue.

The business of SETSCO is pretty diversified: SETSCO offers testing, training, inspection, consultancy, and product certification to a list of diverse fields in civil engineering, environment, building construction, electrical, industrial equipment & machinery. This is harder to gauge… but nevertheless, its services are critical, and I don’t foresee much adverse disruption (except for the overall economy slowdown).

Vicom has been very good at cutting cost (staff cost esp.) in light of the lower revenue and this has sort of cushion the impact. I do not foresee profit to fall off the cliff, and it is good to hold until better times come along (after all, the high de-registration rate does no last forever. And even electric vehicles need to be tested).

I do not foresee profit to fall off the cliff, and it is good to hold until better times come along (after all, the high de-registration rate does no last forever. And even electric vehicles need to be tested).

2. Riverstone

The FY 2016 result (read here) wasn’t as good as what I would have expected. There was a 4.9% YOY decline for the Profit attributable to the Equity holders of the Company (despite an increase in revenue).

This decline is mainly attributed to the 2 factors:  higher raw material prices and less favorable foreign exchange fluctuations (the weakened US Dollar against Malaysian Ringgit had yielded a negative impact on the Group’s financials for FY2016).

I don’t consider these 2 factors as fundamental weaknesses within the company itself. Nor are they permanent. Nevertheless, there was an impact on the stock price.

Moving forward, things seem to change for the better (or back to the norm) – where good quarterly earnings results are reported. For 1st quarter 2017 (read here): Net profit increased 23.7% YOY from RM27.2 million for 1QFY2016 to RM33.6 million for 1QFY2017.

Phase 3 expansion has added billions of gloves to the production output. While Phase 4 expansion has begun and Phase 5 expansion is planned. Simply put, annual production capacity might increase from 6.2 billion pieces of gloves at end FY 2016 to an anticipated 10 billion pieces of gloves by end FY 2019.

That is a whole lot of gloves and a giant leap in the expansion… with a growing revenue to show for it. The ability for Riverstone to differentiate its products in the commodity-like business with a potential oversupply (eg. customising their solutions to better suit customers’ needs) seems to be working very well.

Riverstone’s competitive advantage in its cleanroom gloves segment, which commands a much higher profit margin than the medical gloves business also seems to help.

RIVERSTONE: Stretches Limits with Breakthrough Technologies (read here)

3. ISOTeam

I sort of re-read their 3rd quarter results (read here) released on 11 May 2017 a couple of times. Reason being: the results is not that straight forward (as compared to the earlier 2 companies – Vicom & Riverstone).

No doubt it was a set of stellar result eg. there was an increase of 18.9% for the Profit attributable to the Equity holders of the Company (as compared to the previous 3rd quarter in 2016).

The thing that is unusual is that the quarter’s revenue actually dropped 17.3% yoy, while profit before tax dropped 36.1% yoy, despite the increase in the profit attributable to the Equity holders.

The decline in revenue was due to its core Repairs and Redecoration (R&R) business, which had faced intense price competition. However, this was partially offset by the performance of its Addition & Alteration (A&A) and Coating & Painting (“C&P”) segments, which have continued to gain traction in revenue generation.

FYI between FY 2015 to FY 2016, the percentage of revenue contributed by R&R declined from 67% (in 2015) to 43% (in 2016). And between HY2016 to HY2017, the percentage of revenue contributed by R&R declined from 54% (in 2016) to 24% (in 2017).

In comparison to the previous quarter last year, there was a huge decline in the tax expense ($813K in 3Q16 vs S19K in 3Q17). Without this, the Profit attributable to the Equity holders would not have increased.

As stated in the report:

“3QFY2017 vs 3QFY2016 & 9MFY2017 vs 9MFY2016

Tax expenses The Group’s tax expenses decreased by $0.8 million or 102.3% from tax expenses of $0.8 million in 3QFY2016 to tax credit of $0.02 million in 3QFY2017 and decreased by $0.5 million or 34.5% from tax expenses of $1.5 million in 9MFY2016 to $1.0 million in 9MFY2017 were mainly due to the decrease in deferred tax and income tax expenses after utilisation of tax subsidies schemes.”

I am not too sure about this tax subsidies schemes but I reckon it could be the Wage Credit Scheme (WCS) by IRAS. Note: There was an increase in non-current liabilities for this quarter, this was attributed to the increase in deferred tax liabilities of $0.8 million.

On another note (though more minor): “ISOTeam’s cash and bank balances stood at S$19.4 million as at 31 March 2017 as compared to S$34.1 million as at 30 June 2016. The decline was mainly due to the Group’s M&A-related activities and the purchase of property for Head Office. Gearing remains manageable at 0.6 times.”

Outlook wise,  the Group expects market conditions in the next 12 months to remain challenging.

Personally, I feel that the decline in the R&R (Repairs and Redecoration) revenue is a concern, as I like the segment due to its stable recurring nature. Sadly, Quarter to Quarter, there was a 45.5% decline in R&R revenue.

And it remains to be seen if these tax subsidies schemes are recurring – if it is not, the effect on next quarter’s earning results would be bad. Reading about the Wage Credit Scheme, I do believe the subsidies would end in 2017 (eg. not recurring). So unless there is an improvement in the R&R segment (and correspondingly, the revenue) — the quarters in 2018 will be impacted adversely.

The aggressive expansion in the near term is taking a toll on the balance sheet/cash hoard (though still strong) – and results are not immediately apparent. Hopefully, there are some price advantage and economy of scale as a result of the synergy via the M&A and which may help the R&R division in tendering at lower prices. Hopefully, ISOTeam uses their IPO proceeds and share capital wisely.

It is, after all, a dog eat dog world – and the stock market is not kind to lousy companies.

I may be wrong here, but I believe that the overall slowdown in the construction industry could have an adverse effect here – well at least in the R&R segment. Some of ISOTeam’s competitors could be contractors involved in the wider construction sector here (eg. doing new buildings. Not pure ‘maintenance’ contractors)… and with the slowdown overall (despite the increase in public sector projects), these companies may have resorted to price cutting (price bidding wars) in the R&R tenders, so as to have projects just to keep their otherwise idle workers occupied.

So in summary, despite the headline good news – the outlook is not really that bright and sunny. Stock price wise, year to date – there was an overall decline (overall downtrend). I have a small position in ISOTeam, and so far the stock price has risen quite significantly from my original purchase price, however, I don’t intend to add to my holdings in the near future.

Having said that, ISOTeam was only recently listed, so for me, it is baby steps when it comes to investing in this company.

4. Colex

I always find Colex’s quarter earning reports very brief, literally just one page.

The first quarter results are not good (read here):

“Segment profit (hereinafter refer to earnings before interest, tax, depreciation and amortization) of S$2.704 million for 1Q2017 decreased by 26.8% from S$3.695 million for 1Q2016 mainly due to the lower revenue and government grants.”

Basically lower profit was due to fewer contracts secured (resulting in lower revenue) and lower government grants.

It is impossible to know to actual extent or impact of the various factors by looking at Colex’s report (well, like I said earlier, it is super brief). So I took a peek at 800 Super Holding Limited’s first quarter earnings report :p (read here). 800 Super and Colex are both local waste management companies. They (800 Super) too have a bad quarter (17% drop in net profit YOY). The main culprit is:

Employee benefits expense

Employee benefits expense increased by S$1.5 million or 9.3% from S$16.4 million in 3Q2016 to S$17.9 million in 3Q2017. This was mainly due to a decrease in government grant under the Wage Credit Scheme of S$2.7 million, partially offset by a decrease in salaries and bonuses of $1.1 million in line with a lower headcount.”

I can’t say for sure if this is the main factor in Colex’s case… but I guess it won’t be far different (esp. when it comes to the extent of the government grant for these 2 companies). In both Colex and 800 Super’s case, the decrease in first quarter’s revenue is not much (2.7% and 2.1% respectively YOY).

Personally, I think Colex’s situation is the opposite as compared to ISOTeam’s situation. In Colex’s case, the fundamental business is doing ok (well – a 2.7% yoy decline in revenue due to fewer contracts – that is not much).


5. Sarine Technologies Ltd

For the first quarter results (read here), despite the increase in revenue (+5% yoy), there was a decrease in net profit (-17% yoy).

2 main reasons for the decline in net profit then:

  • In order to support continued growth and the launch of new services, higher operating expenses were incurred in Q1 2017.
  • The increase in expenses was compounded by the 5% strengthening of the Israeli NIS against the US dollar.

I do not view the above as permanent issues.


For the first quarter, net profit increase 17% yoy, while revenue increase 7% yoy (read here).

The outlook seems to be getting better: The positive business conditions in the diamond industry are likely to persist in FY2017….“We have a number of significant successes in the APAC region and the list of new customers include two new chains in Japan, K-Uno and Sadamatsu, and a large buyers’ group in Australia, Leading Edge Group,” commented Mr. David Block, the Group’s newly appointed CEO. “We intend to double the number of stones scanned for Sarine ProfileTM in 2017 and expect its contribution to account for around 5% of group sales this year,”

I always felt that Sarine Tech’s business (in comparison to the other companies in my portfolio) is more unpredictable. There are years with extreme good growth and then there are years with lousy results.

Nevertheless, the company has been good at navigating through the bad years (by promoting their products) and they did actively buy back shares when prices drop. And then there is the recurring nature of their earnings which I particularly like:

Overall recurring income accounted for approximately 42% of total revenue, with trade revenue derived from the polished diamond line of products and services representing about 2% of total revenue in Q1 2017.”

Hopefully, the current uptrend (increased capital equipment sales and higher recurring revenues) continues.

6. Golden Agri-Resources Ltd

Well, I actually read about Wilmar’s good quarter earning results (read here) before looking at Golden Agri quarter earning results (read here). So you can guess my disappointment.

There is a decrease of 60.1% in Net Profit attributable to owners of the Company yoy, despite an increase in revenue (37%) yoy. The main culprit is the loss on foreign exchange during the three-month period ended 31 March 2017 as opposed to a gain in the same period last year.

I guess that is the currency risk of investing in a company whose operations are in a foreign country (eg. Indonesia) and its monetary assets are in Indonesian Rupiah.

“The net foreign exchange gain in 1Q2016 was mainly due to translation gain on Indonesian Rupiah (“IDR”) denominated monetary assets as IDR strengthened significantly against USD during the previous period, as well as fair value gain on forward foreign currency contracts entered to hedge the currency exposure of Malaysian Ringgit (“MYR”) and IDR.”

Nevertheless, there was an overall improvement in the company and the CPO prices. The overall improvement was mainly driven by higher average crude palm oil (“CPO”) price and the recovery in palm production.

I am well aware of the cyclical nature of the business/industry.. and after many years of the downtrend in CPO prices (even before the collapse of crude oil prices) – CPO prices has marginally improved. Again, like Sarine Tech, I hope the uptrend continues. I do not consider forex risks as a permanent fundamental issue with the company.


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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room HDB flat. Check out my Facebook Page:
This entry was posted in Colex, Golden Agri, ISOTeam, Portfolio, Riverstone, Sarine Technologies Ltd, Vicom. Bookmark the permalink.

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