Posted by: donmihaihai | November 11, 2007

Satisfactory results.

Halfway thru the reporting season and more than half of my holding already reported their 3Q or 1Q results. As usual, no major surprises, neither positive nor negative, most have satisfactory results. I likes positive surprise as it always mean better than expected results, while I am worry about negative surprise not because that profit dropped big time or making losses, but it just like that results hit me hard and say, “Why purchase me if you don’t understand me.”

Pfood, some surprises.

3Q2007 results were surprising good as say compared to 2Q2007 results. The nationwide pork shortage is still ongoing which basically mean that Pfood is not going to report any meaningful results and going by 2Q2007 results, the chances of Pfood reporting a loss is pretty high. But no, reported profit without Pine Agritech contribution was much higher and in each individual segment, only LTMP was making losses as compare to 2Q207 where Fresh pork, HTMP, LTMP and frozen chicken were making losses.

Beside commented from Pine that the price of pork is coming down, it is very positive to see Pfood draw down the cash and increase inventories by about 50%. It is a show of sign that commented was much by actions. In this shortage saga, it is nice to see Pfood handle it with claim, no panic, closing and opening plants and lastly the flow in cashflow inventories and trade receivables. It must be a well run company.

Associate Pine Agritech reported a dropped in profit for 3Q2007 which I thinks the public is well aware of Pine being a big supplier of SPI which is linked to pork industry. But the surprise is going to be that their star product, SOS, reported a drop in sales which I don’t think the public is going to accept it without crashing the share price. All research reports from security houses are extrapolating and projecting the sales of SOS going straight up. A company coming out with a new product, push it to the market and everyone just keep buying more and more is not in my dictionary. The reasons were not being explained clearly by the management. But this can be the reason for the super improvement of cashflow and somehow I got to say too good to be true without any reasons.

Full Apex, another small surprise

Full Apex results cannot be read with certainty due to the fact that it has a portion of it profit from paper packaging segment which Full Apex always take it as it isn’t there when commenting on all its results since it decided not to reinvest in paper packaging segment anymore. The management must improve on it but no one shout then with the new contribution from PET chip from 2008 onward, I guess paper packaging segment is going to be insignificant in term of revenues and profit proportion to PET bottle and PET chip.

Gross profit was better than expected. I was thinking high crude oil price(especially the sharp movement) is going to created trouble for Full Apex in 3Q2007 but it did not. So it seems that Full Apex management was able to get a better pricing prior to the start of 3Q2007. The increased in inventories, trade receivables, prepayment, payables and debts is not surprise. What is the increment can only be certain only after the PET plant start their operation but the increase in trade receivables is strange. The 100% double of trade receivables was explained as “in line with higher sales of PET bottle”. 1st of all, due to seasonality, trade receivables are usually higher at end of 3rd quarter but not so high. If there was a big increase 3rd quarter sales of PET bottle, then revenues of paper packaging is really bad as overall sales improved by 1.3% only.

Anyway there are no big issues that can’t be wait until FY2007 results and annual reports is out to get a better picture.

Jaya satisfactory results

Jaya tow and drag their 1Q2008 results with a dropped of 50% in revenues while PAT increased by 32%. The results as always has been “managed” by the management as they are able to manage early how they want their revenues and profit to come from charter, shipbuilding or sale of assets(vessels owned).  But a dropped of 50% in revenues is pretty strange as why they want to report such results as it may hurt share price. Well, not many understand the nature of their business. But looking at liabilities side of the B/S and notes in 2007 annual reports, it did show that many of their vessels are in commitment for sales within short period. That with the never ending surging in price of vessels could possible explain the drop, it is better to sell vessel than charter them out.

After constantly adding and selling vessels with overall net selling, Jaya left with 26 vessels as at the end of 1Q2008. Almost all are highly prize at the current situation which will results big gain when sold, like what happened in 1Q2008. With the management putting a valuation of $2billion for the vessels under construction, it come to almost there where I bought Jaya at $1.45 thinking at that price, Jaya was valued at 3 to 5 yrs of cashflow plus assets.

With 2007 as one of the biggest vessel building(for tug) in history, it seem to put a brake in how high can it go. Maybe the current high crude price can change the balance but I think it is good that Jaya keep selling their vessels.

Another quarter of satisfactory for Brightworld, MidSouth and SP Chemicals.

Brightworld was killed by raw materials in 3Q2007 but still managed to increase their NPAT. Despite that their overall results is pretty ok and the good part is that their cashflow improved. Cashflow is my biggest concern of Brightworld as I think their number was managed prior IPO and now I would love to see their cashflow stable somehow at the current level.

Other than cashflow, it is great that management acknowledge R&D one of the tools they will be using for constantly stay ahead of the market. Their action match what management said now I just wait for further progress in stamping, cutting and bending machines.

For MidSouth, there is really nothing much to say other than being another victim of raw materials plus price pressure from competition. Good Cashflow and should be pile up cash in 2008 after the completion of current expansion and with no further major expansion. It is a good time to see how the management usage of cash is. i.e. will dividend be paid? Other than that, MidSouth is not resting and like Brightworld, constantly increasing their products development efforts which are good.

For SP Chemicals, just like Mr Chan, CEO of SP Chemicals, I think the 3Q2007 results is satisfactory or commendable as Mr Chan said it despite revenues dropped by 18% which NPAT dropped by 13%. 4Q2007 results will be even worse as compare to 4Q2006 but one can’t be sure of the revenues and profit especially for company like SP Chems where they have no control and wide swing of the selling prices.

In the current industry, the only ways where above average results can be achieve are thru being a low cost operator and rational competitors. I am not sure there are rational competitors out there and what kind of operator is consider rational.

Since John D Rockefeller, Standard Oil day beginning in nineteenth century where he used all kind of ways, good and bad, which was why Standard Oil broke up, John D Rockefeller main weapon was low cost where no competitor can match it and monopolise the their industry. The current situation, no one can become Standard Oil again without the help of government but low cost is the weapon or the only way. The question is how to measure cost. Let hope that when 4Q2007 results are out, market is kind enough to punish the share price which enables me to make additional purchase.


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