Saturday, 23 August 2014

My Portfolio – 2Q14 Post Findings and Views (Part 2)

Last week, I evaluated companies within my portfolio for their result announcements the week before. You can find the article here “My Portfolio – 2Q14 Post Findings and Views

Similarly this week, I will provide analysis of companies who announced their quarterly or half-yearly results last week. Companies on microscope are Super Group, KSH Holdings, Overseas Education, Courts Asia and ComfortDelgro, where I had tabulated results and Rolf’s views below. For KrisEnergy and ASX listed Coca Cola Amatil (announced result this week), I will only provide a brief review of their latest results for reasons explained as you read on. Croesus RTr will announce financial results coming Thursday. 

In the consumer sector, Super Group and Courts Asia underperformed facing with cost pressures. Aside from overheads, both Super and Courts also suffered slowdown in South East Asian and Singapore markets respectively. Both companies have strong brand and long track records. I am quite certain that the current sets of poor results will be short-lived. Both companies’ share prices are at their all-time 52 weeks low, which may present good buying opportunities.  

Coca Cola Amatil (CCL) is throbbed by the slowdown and competitions in Australia market, but this is within expectation. What is outside expectation is the dismal performance in Indonesia, intensified by currency depreciation, cost of inflation and competitions. Overall, EBITA fall 10%. Interim dividend also decline to A20c (75% franked) from 24c last year. On a positive note, net debt declined by A$34m to 1.9b. I am not too concern about CCL financial performance for now, instead I am confident that CCL is currently undervalued and its iconic brand and track records will see it through in the long run. This is also why I have not gone into the details of the financial results.  

Construction and property based KSH Holdings also underachieved compared to a year ago, grieving over the effect of sector slowdown. However I reckon that its strong project wins and gradual diversification of business into property sectors both locally and regionally, supported by strong balance sheet tide it over in the medium to longer term.

Overseas Education reported flattish top-line but declining bottom-line as a result of higher operating expenses. It is expected that there will be higher expenses going forward. It includes higher interest expenses from net proceeds received from the issuance of bonds earlier as well as continual rise in operating cost. Good news being its new and bigger campus construction is on schedule to be opened next year.

Despite aforementioned companies reported dismal results, one of my favourites and larger holding - ComfortDelgro provided some optimism. The company continues to grow both organically and inorganically with encouraging top and bottom lines performances. What appears inescapable too is the rising cost environment which erodes its margins. To me, the future is bright for Comfort Delgro with growth potentials in Singapore (DTL and Govt Contract Model for bus) and particularly in China where urbanization and growing population will be the main drivers. I shall keep vested as long as I could.  

KrisEnergy constitutes less than 1% of my portfolio, therefore I shall not go into financial details. KrisEnergy is an upstream Oil and Gas Exploration and Production (E&P) company. E&P companies hold stakes in offshore producing assets with initial capital outlay into exploration and development of oil wells. Once the oil wells is deemed suitable for production, Rigs, FPSO and other offshore vessels will be chartered and deployed for the drilling operation to extract the “first oil”. If wells start producing oil, the company will become income-generative and returns will multiply. On the contrary, any unsuccessful work to reach production stage may well mean that capital expenditure going to drain. On a different note, Keppel is currently the second largest shareholder in the company with a stake in excess of 30%. Since my investment in the company is just pint-size, I am ready for this high risk/ high return sector. Since KrisEnergy results announced, its share price rose by ~4% to S$0.78.

Results FY Ending Jun 2014

Super Group

• 2Q14 net profit down 58% to S$15.6m; 1H14 net profit down 43% to S$34.2m yoy. Drastic decrease also due to 2Q13 one off gain of S$17.1m from disposal of Sun Resources.
• 2Q14 Revenue down 5% to S$131.7m; 1H14 rev down 5% to S$256.3m (1H14) yoy.
• 2Q14 Op profit down 27% to S$17.5m (2Q14); 1H14 Op profit down 22% to S$37.2m yoy.

• 2Q14 gross profit margin dipped 3% points to 36% yoy, due to a higher composition of FI sales which carry a lower GPM and higher raw material costs, particularly palm kernel oil cost which seen rise of >60% yoy

• Healthy balance sheet with cash position of S$77.7m
• Declared interim dividend of 1.0c per share.
• Total dividend for the year at 7.0c almost same as 7.1c last year.

Rolf’s Views

Like: Solid balance sheet. FI growth potential. Stable dividend payout.

Dislike: Significant dip of operating profits due to rising costs. Instability of core market – Thailand.

Outlook: Lacklustre result may continue in the short term, mainly due to lower Branded Consumer sales from slowdown in Southeast Asian markets worsen by unstable political outlook and currency depreciation. However Food Ingredients sales are still growing and account for higher percentage of total revenue i.e. 36% of the total revenue in 2Q14.

KSH Holdings

1Q15 net profit down 18.0% to S$9.6m yoy.  
Revenue down 14.6% to S$62.5m yoy. Decrease in revenue mainly due to slowness from construction business.
Cost of construction down by S$12.5m offset by personnel expenses increased by S$1.5m. Construction cost down in line with revenue decline. Personnel cost up mainly due to staff salary/bonuses increase.

• Strong balance sheet. Low gearing of 0.02x and strong cash position of S$104.5m
Strong order book of >S$490m as at 31Jul14 for next two years.
Many New projects. S$147.8m public sector project.
Acquisition of Prudential Tower with partners. Condo developments at Fernvale Road in SG. Residential development in Brisbane with partners of A$150m with KSH holding 4.95%.

Rolf’s Views

Like: Company diversification of business from construction to property. Further regional diversification within property sector. Strong balance sheet and order backlog.

Dislike: Soft property outlook and increase labour/ material costs.

Outlook: Many new projects. Still confident in the local property market on a longer term.   

Overseas Education

• 2Q14 net profit down 14% to $5.49m; 1H14, net profit down 4.3% to S$11.0m yoy.
• 2Q14 and 1H14, revenue up 0.3m and 0.6m respectively. 1.2% improvement yoy
• Higher revenue from increase in tuition fees offset by higher operating expenses.

• Property, plant and equipment rise to S$75.3m from S$22.3m end Dec13. Cash position is S$201.1m up from S$124.7m.
• Both increases are due to the new school’s capital expenditure and net proceeds from the issuance of bonds in Q214.

Rolf’s Views

Like: New bigger campus on schedule to be opened Apr15.

Dislike: Increasing staff costs. Future interest expenses from its bond issuance.

Outlook: Personnel costs and interest expense will continue to increase. Confident that there will be tuition fees hike and expected higher revenue from the expanded student base when the new campus starts.


• 2Q14 net profit up 9.9% to S$75.7m yoy
• Revenue up 11.9% to S$1.02bn yoy.  Revenue rise contributed by all business segments, notably buses and taxis. Bus segment reported operating profit increase of S$9m.
• Operating profit up lesser by 6.5% to S$119.9m yoy.
• This is due to increase in staff costs, fuel & electricity, and premises costs.
• Operating margins slipped slightly to 11.8%, from 12.4% a year ago. 
• Strong balance sheet with net cash of S$48.1m and gross gearing of 24%
• An interim dividend of 3.75 Scts was declared vs 1H13 of 3 Scts, equating to 57.6% payout ratio.
• Recent acquisition of Blue Mountain Bus Company from Sydney for A$26.5m (S$30.8m).

Rolf’s Views

Like: Stable growth, increasing dividend payout, diverse revenue of which 50% is outside Singapore. SBS starts to be more profitable.

Dislike: Cost challenges and weakness in Australia transport segment. 

Outlook: Short term will continue to face cost pressures offset by fare hike in April this year for local market. Government contracting model will only come into effect after End Aug 2016. ComfortDelgro expected to have an advantage supported by experiences in overseas market.

In the long term, China has great growth potential due to urbanisation and population growth. Singapore fare will continue to rise with inflation. DTL MRT will add further revenue.  Lesser private vehicles from higher COE also mean more business for public transport.

 Courts Asia

• Q1 FY15 Net profit down 27.9% to S$5.1 million yoy
• Q1 FY15 Revenue down 1.5% to $194.1 million yoy
• Decrease net profits were mainly due to lower Singapore store sales and increase in operating expenses of 14%. 
Strong cash position of S$101.2m.

Rolf’s Views

Like: Discounted PE/ PB. Strong brand and strong management. Growth potential in Indonesia.   

Dislike: Cost challenges. Continual reduction in Singapore store sales.

Outlook: Bleak outlook in the short term with reduced earnings due to high cost, softer property outlook and reduced rate of population growth. In the long term, positive about Indonesia continual growth with Jakarta branch open by Sep this year. Mass furniture demand in Singapore could also come in 2016 due to more HDB completed then.

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