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Chasen Holdings: Will You Buy It?

by Shares Investment on October 17, 2013

Imagine this. A friend calls you up, he saw that Chasen Holdings got more than 50 percent taken off its share price yesterday and asks you what you thought of it. A sizable load of contract wins just before the trading day started doesn’t make much sense for it to be a bad catalyst to trigger such a fall now does it? And at more than 50 percent? Isn’t that reserved for something more uncommon like an investigation into the company?

I’m sorry for digressing. Let’s go back to the original question asked by my mate: What do you think of Chasen?

There are several things on my primary numbers list that I need to see met, before I would even consider digging deeper to understand the overall environment of the company, study the management, its competitors and thereafter part with my money and investing into a particular stock.

    The Financial Numbers Checklist

Consistent Performance And Reasonable Growth
One of the most important things I want to see is consistency in key numbers and of course, reasonable growth.

I looked into the financials of Chasen and as you can see from the table below, apart from FY13, as it is a loss making year, numbers such as Revenue, Gross Income and Net Income do see some form of decent growth from FY09 to FY12.

Source: Factset (numbers in $’000)

Corresponding margins such as its ROE, Gross Margin are not too shabby as well. However, Both the Operating margin and Net margin are not as consistent as I hoped, and this could probably be due to an influx of factors from higher other operating expenses to recognition of impairment charges.

Source: Factset (numbers in $’000)

Liquidity And Considerable Cash On Hand
I did however give Chasen some plus points upon looking at its Balance Sheet. As you can see from the numbers extracted from its Balance Sheet below, I have to admit that Chasen’s Balance Sheet strength is pretty strong. Its Cash On Hand alone has been consistently larger than that of its net income position for the past 5 years in comparison. Companies with sizable Cash On Hand are in a more advantageous position as they are able to not only use this to meet immediate financing needs, but also consider synergistic acquisitions or investments.

Source: Factset (numbers in $’000)

The long term debt of Chasen have also over the years shown signs of decreasing and gradually paid off as it’s transferred to the short term debt portion, which is a good sign as this translates to a gradually smaller gearing number. Even with the inclusion of the short debt to consolidate it into a total debt sum, the total assets of Chasen are still able to back it strongly, as seen from the Total Debt/Total Assets figures, which are constantly below 20 percent apart from FY13.

Cash Flow Analysis
As much as the Balance Sheet strength impressed me, I can’t exactly say the Cash Flow Statement did. Some of the most important metrics come from the Cash Flow Statement, and normally, if a company can consistently show that its “Net Operating Cash Flow” is more than that of its “Net Income”, I would be somewhat in favour of the earnings strength of the company, of course, in terms of numbers.

Source: Factset (numbers in $’000)

Other than FY09, the Net Operating Cash Flow was consistently lower than that of its Net Income position. Also, throughout the entire five years in analysis, only FY12 garnered a positive “Free Cash Flow” position. Personally, I do not really favour companies with negative Free Cash Flow position but from the Cash Flow Statement of Chasen, and the fact that it has been stepping up quite a bit on its acquisitions and joint ventures throughout the years, this could probably explain the high amount of Capital Expenditures.

Merits For Recent Contract Wins
However, it is unfair not to take into consideration of what’s going on lately in this company. Reviewing the developments of the company in 2014, one would’ve noticed that Chasen has been on quite a roll in terms of bagging contracts and that management expects FY14 to be a profitable one.

Simply combining the contract wins announced on 2 September 2013, and that announced on 16 October 2013, Chasen’s total value of contracts announced till date (FY14) stands at $16.2 million, which is approximately already 20 percent of the revenue figure of $79.4 million for FY13.

That said, at the point of writing, there’s no exactly any clear indications of the margins expected for these contracts, and in which quarters are they expected to be realised.

In short, is there a possibility that Chasen will see a profitable FY14 this year? Yes, of course there is. But the important question that I think everyone should ask is “How profitable is profitable exactly?”

Till then, I can only say based on the numbers I’ve seen, I still need some convincing. But I’ll definitely follow up and look at the quarterly earnings results of Chasen. You should too.

At the point of writing, Chasen is trading at $0.177, which is at a discount to its book value per share of $0.2088, with a price to book value of 0.85, and trading volume of 34.9 million.


About Shares Investment

Shares Investment is an investment magazine that measures the pulse of the markets, and provides readers and the investment community with facts, figures, investment analysis and insights to allow them to make better informed investment choices. Shares Investment gives its readers a unique experience by knowing what investors really want to see, and need to see.


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