Posted by: donmihaihai | November 28, 2010

A turnaround that never turn?

Pteris Global Limited f.k.a Interroller is having a hard time turning around. It used to be a hot favorite. I mean why not? From 2003 to 2006, its ROE increased from 20% to 37%. Even on the 2007, the year when problems started, ROE was still at 24% and its dividend payout ratio during the period was about 70%. High growth, high profitability and high dividend company has always been love by many investors. Anyone who say Pteris Global is a lousy company now must take a look at its number from 2003 to 2007.

What were the problems back then? After few years of explosive growth, orders slowed, order book dropped and revenues followed. Then NPAT followed as well. Since then, management or whoever I read focus on one single point, order book. Curing the problems equal to securing more orders. There were talks about material cost, new factory and manpower but these are secondary. I was with them since I couldn’t think of anything better. And I thought, even though cost is increasing while competition is keener, Pteris Global should able to breakeven when revenues hit 80 to 90 million range(more likely to be nearer to 80million). I was wrong.

The problem is not in getting order, it is cost or winning order with reasonable margin. The whole cost structure is upside down. I don’t know the reason for it but the number says something is wrong with the cost. Comparing FY2003 to 9mths2010 will hit the nail. In FY2003 Pteris Global was able to generate$6.5 million of NPAT with revenues of $53 million. In 9 months FY2010, it barely breakeven with $81 million of revenues which also mean it is likely to just breakeven for whole year with revenues of around $100 million.

Take a look at some number
Material and subcontract cost FY2002 to 9mths2010 in %
33.69%, 50.85%, 54.38%, 52.95%, 57.94%, 62.92%, 61.37%, 66.50%, 71.06%
Material and subcontract cost from 4Q2008 to 3Q2010(per quarter basis) in %
54.27%, 66.43%, 66.50%, 64.22%, 68.20%, 68.55%, 70.64%, 73.35%

The number move up so beautifully that looks like climbing up a hill.

And staff costs is like walking down a rocky hill
Staff costs FY2002 to 9mths2010 in %
46.92%, 26.02%, 23.56%, 20.92%, 20.06%, 20.78%, 27.18%, 21.65%, 18.50%
Staff costs from 4Q2008 to 3Q2010(per quarter basis) in %
23.25%, 23.59%, 20.15%, 26.52%, 18.10%, 21.09%, 17.25%, 17.83%.

And interestingly, Pteris Global has a harder time collecting receivables when profitability goes down.
No. of days from FY2002 to 9 mths 2010
51, 34, 19, 62, 58, 64, 102, 100, 109(annualised)

Staff cost moving downward may not be something to cheer about as say it become more cost effective or cost control. In may be just the worse thing to happen, that is lousy profit, Pteris Global is giving out lousy pay. And this can be damaging going forward.

At this point, the key question is always can Pteris Global turnaround? Some might say competition for order will cool down so profitability will goes up. But if I am the competitor and knowing Pteris Global has only one revenues source while I have more than one, I will push the price down more and throw Pteris Global out for good since it is becoming more and more of a player in this industry. But I don’t know what is going to happen.

What I do know is its turnaround haven’t started or should I say the management don’t know how to turn it back because it was profitable with NPAT of 6.5 million when revenues at around 52 million, equity at 33 million and net cash. What the current management intent to do? Fight for more project so that at one point profitability will come back?

I don’t know but why should I buy or hold it at book value when the company is unable to generate any profit and neither have they known or I know how they are going to turn it around. The substantial shareholder that purchased all the way down from over 60 cents looks stupid especially when he was an ex-management. Buying Pteris Global at 3X BV doesn’t look smart at all.

Hopefully I can get AR2007 to 2009(hard copy). The answer might be in these annual reports but I doubt it because I seldom find anything good with company having use pages after pages to do PR making their annual super thick. A waste of resources.

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Responses

  1. They changed their name. They built a new headquarter for $17m when things were rosy.

  2. you might download the annual report AR2007 to 2009 from
    http://pterisglobal.listedcompany.com/ar.html

    like to hear more about your comment.


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