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Boustead – FY 2010 Financial Analysis and Review Part 3

musicwhiz — Wed, 28 Jul 2010 01:00:59 +0000

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In this third and final part of Boustead’s analysis, I will post the entire transcript of Boustead’s audiocast for FY 2010 results, and after that I will highlight some salient aspects of the company (coupled with insights from the recently obtained Annual Report for FY 2010) to shed some light on the future plans and prospects for Boustead. Note that the company’s AGM will be held on July 28, 2010 at 10 a.m. at its office at Starhub Green.

Part of the reason for the delay in coming up with Part 3 was because of the arrival of the Annual Report (“AR”) and the voluminous amount of facts contained within, which required some time to digest and for me to come up with some thoughts and comments. Note that the AR should be read in line with the audiocast transcript and the reader should also have some background knowledge of each division and sub-division of Boustead and its press releases in the past 1-2 years, in order to fully appreciate and understand the implications of the analysis. I trust that readers can gather this information from downloading the AR and news from either SGXNet or Boustead’s website at www.boustead.sg.

Note too that I have inserted my own thoughts and comments in brackets throughout the transcript and highlighted this in blue and square brackets [ ] for easy reference.

Boustead FY 2010 Audiocast Transcript

Question: I’d like to congratulate everybody on board for the effort in delivering such a respectable result. In fact, I think if we exclude the results from the sale of some of the assets, I don’t really see much of a trail-off at all (i.e. not much of a decline at all). Is that correct? Read more…

Sun Tzu – War On Business Part 10 (Digital Academy)

musicwhiz — Sun, 25 Jul 2010 03:25:59 +0000

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We have now come to Part 10 of this 13-part series for Sun Tzu, War On Business. So far, it’s been a good journey with yours truly learning a lot of business lessons by observing and watching this half-hour program every week. Hope readers have been enjoying the posts so far as there have not been many comments on each post (could it be people are not bothering to watch this series?). Whatever the case, I hope readers can read through each episode’s summary and glean some useful knowledge from it.

In this episode, James is back again in Mumbai, India; and this time he visits a film school called Digital Academy headed by Mr. Kartikeya Talreja (“Talreja”). It occupies about 44,000 square feet of space and has many theatres and elaborate built-up sets within the compound. Currently, though, this film school only has 600 students enrolled per year, and according to Talreja this is less than optimal as he envisions a capacity of 1,200 students per year. His vision is for Digital Academy to be a world-class brand, attract international students (i.e. not just from around India) and have branches/outlets in major international cities. James mentions that one should “Carefully Compare the opposing army with your own”, a reference to comparing the competition out there with your own business to see if your goals are realistic or not.

In dissecting the business, James first comments that the location of Digital Academy is not exactly in the best neighbourhood (no visibility). It also does not have a (main) door that welcomes you; plus it has a very small and insignificant looking signage. These are just the overall physical aspects of the building though, once inside James discovers that there are actually very good courses, talks and seminars held, whereby industry professionals (e.g. famous singers/actors) are invited to give lectures and use their own careers as examples of how the students can hope to make it big in the film industry. There are also lavish sets on the premises which give rise to the possibility of filming grandiose and colourful dramas (all in Bollywood’s style, of course!). Video-editing software is also used to slice and dice and edit the sequences to produce the final product to be displayed to audiences. Read more…

The Essence of Investing

musicwhiz — Tue, 20 Jul 2010 01:00:20 +0000

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After the trials and tribulations over the past 4.5 years, I admit I do spend an inordinate amount of time doing self-reflection, and at the same time, reading up on value investing and doing some independent thinking and analysis of my past mistakes; and how I can always improve on my investing techniques and stock selection process. Close to my heart is Benjamin Graham’s definition of investing, which bears repeating: “An investment operation is one which upon thorough analysis, guarantees safety of principle and an adequate return. Operations not meeting these requirements are speculative.” Notice that the man does not define investment in terms of making lots of money, and he also does not specify any time frame with which one should practice the above. This has led me, in recent months, to truly define and ask myself what is my purpose for investing; and what I would eventually like to achieve from it. The answer was quite clear and simple – my purpose for investing is not to “strike it rich”, but to obtain an adequate return on my invested capital which is higher than inflation. With that in mind, I focused on capital preservation and margin of safety, concepts which most readers are familiar with by now but I will discuss these two concepts from a slightly different perspective this time. In particular, the concept of margin of safety is not cast in stone and its definition is subject to interpretation by the practitioner.

Capital preservation is a concept which is not fully appreciated in the stock market. In fact, I dare say it is often downright neglected! This is because of the human being’s propensity to lunge after profits and gains, and to let the greedy side take over (I call it the “Dark Side of the Force”); while the prudent and conservative side of his brain takes a back seat. As veteran investors in the stock market probably know, NOT losing money is already quite an achievement, much less making a pile. Hence, the overarching principle involved in investing should be to protect your principle at all costs; and this can be done by undertaking a rigorous and painstaking research process to protect your downside. Before you even consider purchasing a security, ask yourself if the business can continue to grow or remain stagnant, if competition can erode the competitive advantage which a company has, or if the company has debt levels which you are not comfortable with. Read more…

Tat Hong – FY 2010 Analysis and Review Part 2

musicwhiz — Fri, 16 Jul 2010 01:00:09 +0000

Part 2 of this analysis takes a closer and in-depth look into Tat Hong’s business divisions, in terms of revenue performance, gross margin as well as proportion to total revenues. Take note though that FY 2010 is a year of the economic downturn and so the figures shown will probably be depressed and not reflecting normal economic conditions.

Business Unit Revenue Analysis

For 4Q 2010, crawler crane rental took up 32.2% of revenues, down from 34.9% a year back. The division also saw a 9.4% increase in revenues. The dip in proportional contribution can be attributed to higher equipment sales as enquiries increased post-crisis. Indeed, sale of cranes jumped 68% to S$50.2 million from S$29.7 million a year ago, and this division took up 38.3% of revenues for 4Q 2010, much higher than the 26.9% a year ago. Tower crane rentals also saw increased business year on year, as revenues increased 34% to S$8.5 million. Though this division only contributed 6.5% of total revenues for 4Q 2010, it is expected that with the new JV and business expansion which the Group is undertaking, this contribution is set to rise further in future periods. Spare parts and general equipment hire saw dips due to reasons as lined out in the financial statements announcement, but should see more pick up once the Australian side gets going with their economic boosting plans, amid progress on oil and gas projects picking up steam once again. Recall that Tat Hong owns 70% of Tutt Bryant which is their Australian subsidiary, and Tutt Bryant had also reported muted numbers as a result of the ongoing financial crisis. Read more…

Boustead – FY 2010 Financial Analysis and Review Part 2

musicwhiz — Mon, 12 Jul 2010 01:00:31 +0000

In Part 2 of this analysis, I will be dissecting and commenting on the business unit performances for Boustead and also the underlying reasons, and to see if there are prospects for each division to improve and sustain its performance moving into FY 2011.

Divisional Revenue Analysis

Sad to say, Engineering Services division saw a dip in revenues from S$438.8 million in FY 2009 to S$360.9 million in FY 2010. A further breakdown shows that this was mainly due to Energy-Related and Real-Estate divisions registering lower revenues year on year. This 17.8% fall can be attributed to a slowdown in orders for these two divisions due to the global financial crisis, and as mentioned in the Group’s press release there was also a timing difference in the recognition of the sale of an industrial leaseback asset worth S$67.8 million which will only be taken in during FY 2011. Read more…

Sun Tzu – War On Business Part 9 (Meru Cabs)

musicwhiz — Wed, 07 Jul 2010 01:00:36 +0000

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Part 9 of the very interesting and insightful Sun Tzu series brings us to Mumbai, India, where James meets up with a budding entrepreneur called Neeraj Gupta (“Neeraj”), who is tackling the bustling city’s transportation issues by setting up a luxury taxi service called Meru Cabs. Meru Cabs is a modern taxi service which relies on clients calling up the call centre at Meru to book a taxi in any part of Mumbai, and a taxi will be sent to their chosen location within half an hour. Neeraj had this idea to take advantage of India’s growing middle class population, and started the company 10 years ago as a garage centre. 3 years ago, it converted to a taxi service company. Their target market does not just include middle to upper income clients, but also corporate clients.

But first, a little background on India’s taxi industry. The state of taxis in general is in really bad shape and the Government wants to revamp the taxi service. Competition is intense only in New Delhi as there are no other major players in Mumbai (Meru is the largest player). Neeraj wants to scale up quickly and provide good service to the locals, in order to take the business to new levels.

James decided to test out Meru’s service quality himself and called the hotline for the taxi service. The call was answered within 4 minutes (James considered this acceptable as Mumbai was a very large city), and a cab duly arrived in 30 minutes to pick him up. He noted that black and yellow taxis were indigenous to India but they are mostly in very bad shape, hence will not prove to be much competition to Meru (as it could not serve corporate clientele). James described the cab as being cool (good air-conditioning), and it also had a navigation system plus a metre to clock up the taxi fare. The cab driver was well-groomed, experienced and also wears a uniform, symbolizing professionalism. In short, it had all the features of a premium service.

The call centre is named the “Subscriber Relations Centre” (“SRC”), because Meru views all its cab drivers as “subscribers”, and the Company spends US$200 on each recruit for training and testing. With this kind of money spent, it is important for employee retention as it would be a costly affair if there was high staff turnover at the SRC. But according to interviews with some of the subscribers, they felt as though their grievances were not heard. Read more…

June 2010 Portfolio Summary and Review

musicwhiz — Fri, 02 Jul 2010 01:00:03 +0000

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Call this an extremely slow and boring month, which June has traditionally been in terms of corporate news flow and updates. Add the fact that no companies are releasing any financial results this month and you can somewhat get the idea of how stagnant things can get. The World Cup, which began on June 11, 2010, has furthered shifted attention from the stock and financial markets to the television and newspapers (and maybe even the football betting outlets!). However, I have no cause to worry as I am confident that the companies in my portfolio are managed by competent managers who are adept at maximizing value for their shareholders. In other words, the businesses should be chugging along just fine even in the absence of material corporate developments.

In terms of economic news flow, the sporadic and conflicting news reports oozing out of the USA seem to paint a contradictory picture of whether the economy is slowly recovering, or still mired in quicksand (i.e. sinking slowly but surely). A huge amount of data is churned up by USA and other nations on an almost daily basis and the amount of information and news is staggering and mind-boggling. From what I gather, the psychological effects from the European debt contagion seem to have subsided somewhat, which implies that markets are acting more “rationally” now, if such a word can be used to describe it. This is not to say that the Euro Zone is out of the woods, but it simply seems to imply that people have “acclimatized” to these facts and so are not in “panic” mode anymore. Of course, if any sudden news comes out to report that another member of the Euro Zone is in dire straits, you can be sure there will be renewed panic and fear once again. Such events should be perceived by the astute investor as opportunities to accumulate shares in stable companies for the long-term.

Locally, the property market turned up rather subdued news, even though prices of resale private flats hit another new high. There seems to be a general feeling that prices are flat for now, and buyers and sellers are playing a cautious game as each does not want to budge. Caveats lodged in May 2010 was down 41% month on month and though developers are now gearing up for more launches, it remains to be seen if prices can hold up and maybe even hit new all-time highs. Even our Minister Mentor has come out to say that he believes there is “probably no property bubble here yet”, as housing prices are underpinned by real demand and foreigners still find our property here cheap. It remains to be seen if he is right on his assessment, and only time can prove if property prices are indeed “cheap”. Read more…

Tat Hong – FY 2010 Analysis and Review Part 1

musicwhiz — Wed, 30 Jun 2010 01:00:27 +0000

Tat Hong was pretty badly affected by the global economic slowdown for FY 2010, as can be seen from the recently released FY 2010 results in which revenue fell significantly, and where net profit attributable to shareholders plunged even more. Amid a difficult year though, there were some bright spots emerging for the Group; and hopefully for FY 2011, as the economy turns up, their business should also improve. One positive point is that they have managed to continue to pay out twice-yearly dividends, though of course these are greatly reduced as compared to prior years such as FY 2008 and FY 2009. Part of the reason is also because of the enlarged equity base due to the issuance of the RCPS (which are also entitled to all dividend declarations).

My analysis will take on the usual 3 parts, with Part 1 covering the financial statements, Part 2 covering the various business divisions and margins for each division, and then part 3 touching on prospects and plans as well as covering a little on Tat Hong’s crane fleet in terms of crawler and tower cranes.

Income Statement Review

The Cash Flow analysis shows a positive operating cash inflow of S$29.3 million for FY 2010, and this was a significant improvement from the S$8.8 million cash inflow registered in FY 2009. The reason was that the increase in inventories was not as high as for FY 2009, which resulted in lower negative working capital changes being reflected. Read more…

Sun Tzu – War On Business Part 8 (Skoda Cars)

musicwhiz — Fri, 25 Jun 2010 01:00:02 +0000

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Part 8 comes back to Singapore again, and James Sun tackles a very “hot” issue amongst Singaporeans – that of cars. With recent news that COE prices have sky rocketed, this has not made it easy for cars to get sold, especially the smaller, lesser known brands. Though I suspect that this episode could have been filmed some time in 2009, when COE prices had not yet increased to such crazy levels. Still, the principles as articulated in the episode still hold true.

For this episode, James pays a visit to Daniel Au, who is in charge of the distribution of Skoda cars in Singapore. Skoda has a 104-year history and their cars consist of top German engineering, yet brand awareness is weak in Singapore. Skoda gives the impression of being a second-tier brand of car even though technically, it is a continental car and other European car brands have enjoyed immense popularity here in Singapore (e.g. Peugeot and Volkswagon). James mentions that “If you are much weaker than your enemy, avoid him” – implying that Daniel should not compete head on with the stronger competitors, but should instead seek to carve a niche out for Skoda in the local market.

Daniel believes that it is a case of lack of brand awareness, which sounds similar to the problem highlighted in last episode on Zak’s Surfboards. A visit to the showroom finds it pretty deserted, and a simple chat with one of the salespeople (Peter Chin) reveals that he is not confident and the car also does not match up to what was seen on the Internet. The reviewer gave the salesman a 2/10 but the salesman complains that there is a lack of product training and they were only given 2.5 months of training, which was insufficient.

Daniel says Skoda is expanding its range of cars and is bringing in 5 new models next year (I would assume this meant 2010), including sporty ones which should appeal to Singapore’s market (this is true as I see a lot of yuppies driving 2-door model European sports cars). James conducted a simple blind testing and let several car enthusiasts try out the Skoda car (with the brand name and logo concealed), and most of them were very positive on the car and guessed it was either Volkswagon or BMW. They showed surprised when it was revealed to them that the car they had driven was, in fact, a Skoda. Read more…

Boustead – FY 2010 Financial Analysis and Review Part 1

musicwhiz — Mon, 21 Jun 2010 01:00:00 +0000

Boustead released their FY 2010 results on May 27, 2010, and followed this up with an audiocast of the results along with a presentation and question and answer session. The results were in line with what I had expected and also what the CEO Mr. FF Wong had mentioned early on during 1Q 2010, that FY 2010’s performance will not surpass that of FY 2009 and make it an eighth consecutive year of record revenues and net profit. This is part of business reality – companies do experience dips in revenues and profits as a result of economic activity which directly and indirectly affects their core business. However, if the company and run and managed well, it should emerge stronger after a global crisis and may even take the opportunity to consolidate its resources. Boustead would seem like a good candidate for this, though thus far no progress has emerged on their M&A talks.

This analysis will be somewhat in depth and broken up into 3 parts – it will tackle Income Statement, Balance Sheet and Cash Flow issues (as well as dividend), move on to divisional analysis and margins; and finally I will post up a transcript of the audiocast and discuss Boustead’s future plans including M&A and organic growth for FY 2011.

Profit and Loss Analysis (all numbers are based on FY 2010, not 4Q 2010)

Revenue for FY 2010 dipped 15% from S$516.6 million to S$438.4 million, and this was relatively modest considering the sharp downturn. Part of the reason for the dip was also due to the “lumpy” project nature of Boustead’s businesses, which means revenue may be recognized at different stages if a project depending on % of completion. Mr. FF Wong did caution that using quarterly numbers would not be representative of the Group’s performance, which was why I left out using 4Q 2010 for all my analysis and computations. Read more…