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Tuesday, June 24, 2014

Financial Statement Analysis - APOLLO


Below is the summary of the analysis and you can click here for the detail analysis.

Income Statement Analysis

[1] To check the revenue, cogs, profit margin growth based on horizontal analysis.

APOLLO's revenue grew by 86.44% from 2004 to 2013 (CAGR of 7.17%).  And, the cost of sale grew at slight lower rate (82.31%) resulting in higher growth in gross profit (97.92%).  The more important operating profit and net profit grew at a higher rate of 118.63% and 98.04% respectively.  The profit growth is in tandem with revenue growth and the quality of growth is hence considered good.

[2]    To check how the revenues and the spending on different types of expenses change from one year to the next based on vertical analysis.

The profit margin (gross, operating, and net) was reduce dractically in year 2008 (due to economic crisis), and it have been recovered since 2010 and now it is on a steady up trend.
The management’s ability to contain the total operating expenses to about 10% each year.
The growth in profit margin is in tandem with the revenue growth. On the latest financial year, the gross profit margin, operating profit margin and net profit margin is 28.11%,  18.30% and 14.40% respectively.
The good result here give us more confident on APPOLO's growth quality.

Balance Sheet Analysis

[1]    Does business generate cash?  
APOLLO's cash and cash equivalent grew by 41.38% on 10 years, or a CAGR of 5.35%.
This indicate that the business is generating cash.
This is despite it have been giving reasonable good dividends (> 4% D.Y.) every year.

[2]    Does business increase equity value?
APOLLO's equity increases by 55.99%, or a CAGR of 5.38%. Including the 6% dividend  yield, the total value created in term of book value and dividend yield is 11% a year since 10 years ago.

[3]    Revenue vs Inventory
APOLLO’s inventory increased 93.79%% (CAGR 7.27%), while the revenue increase 86.44% (CAGR 6.80%). However, the inventory is 7.76% of the total assets and it is align with its previous years records. In view of the revenue is growing up, I believe the inventory increased is due to higher anticipated sales. Anywhere, investor need to monitor closely on the revenue growth and inventory level on next financial result to confirm the assumption.

[4]    Revenue vs Trade Receivables
APOLLO’s Trade receivables on year 2013 is 12.31% of total asset is slightly higher compare to its historical range. It may mean its customers are taking a little bit longer to pay. However, the  growth in trade receivables at 80.50% (CAGR 7.85%) and is lower than the revenue growth rate of 86.44% (CAGR 6.80%). This show us the sales proceeds are collected and converted to cash, as evidence from the increase in cash and cash equivalent.

[5]    Core Business Asset
The Core Business Asset is increasing on 38.52% with  a CAGR of 3.60% and the growth rate is much lower than the revenue growth rate of 86.44% (CAGR 6.80%).
It show that the the company need lower CAPEX to increase sales, and it able to turn the net profit to free cash flow easily.

And, the CAPEX was funded by Opg Cash Flow in view of the positive free cash flow in 10/10 on the pass 10 years.

[6] Owner's Capital & Debt
APOLLO’s share capital is constant and thus, there is no dilution of its earnings per share. And, there is no long term debt on APOLLO, it show that APOLLO is using it’s own generated fund to sponsor the growth.  This shows there is little risk in  investing in its stock.

APOLLO experience net cash (to) owners on the pass 10 years indicate that the Company's owner have been collecting net income in the form of dividend each year.

[7] Asset breakdown

Above pie chart depicts the breakdown of the total assets of APOLLO.
It is made up of 28.00% cash & short term investment, 13.17% of Short Term Receivables, 7.37% of inventories, 43.72% of Core Business Assets and 7.19% of Long Term Investment.
The quality of asset is good in view of 28% of asset is hard cash.

[8] Liquidity Risk
APOLLO has excellent liquidity ratios with current ratio 13.77 times and a quick ratio 11.48 times

It has no problem at all to pay its short term obligations.

[9] Long Term Financial Strength

APOLLO debt/equity ratio is 0 (< 2) and financial leverage ratio is 1.11(< 3), and in fact APOLLO has no short-term nor long-term loan at all. APOLLO hence will have no trouble paying creditors as well as obtaining additional long-term funding when needed. Instead it has excess cash of about 56m, or 70 sen per share which can be distributed to shareholders without any significant adverse effect on its operations.

Cash Flow Statement Analysis

[1] Net Income vs Operating Cash Flow
OCF is above NP in 8 out of 10 years. This is a good sign as the net income was able to convert to the cash most of the times.

In 2013, OCF of 31,595 is about the same of net income, 32,083. This shows the good quality of its earnings which is translated to hard cash, rather than consumed in the build up of inventories and receivables.

[2] Capital Allocation and Earning Quality
The revenue was growing from 119.47M to 222.75M and it is equivalent to a 86.44% growth rate. The growth was achieved by a total of 115.56M of capex  and the CAPEX has been modest, average at about 7.15% of revenue for the last few years and the trend is decreasing. This results in more of the OCF, after deducting capex, translating to free cash flow (FCF) for the equity shareholders.

For example last year, after utilizing 6.4m in buying and upgrading PPE, FCF was at 25.2m. This FCF is equivalent to 11.30% and 15.36% of revenue and invested capital respectively, way above the benchmark of 5%. This again shows the good quality of its earnings.

[3] How the company being financed?
From the pass 10 years, the CAPEX is lesser than the OCF and the firm able to generate Free Cash Flow from 10/10 years. It mean that the firm  able to generate enough cash from its operating activities to meet its capex requirement. Owing to this, we can see the firm not only need not to acquire cash from owners or creditors, but it able to pay dividends to owners with the free cash flow.

The CAPEX provides a good yield to its shareholder in view of the average FCF/Revenue and FCDF/IC is very high which is  11.30% and 15.36% respectively.

Analysis of Return on Capital

[1] ROE DuPont Analysis
The ROE is above the WACC (13.94% vs 12.00%) and it have been grew in 26.96% with a CAGR of 2.88%.
The ROE was achieved with a net profit margin of 14.40% and this is the most desirable way to achieve a higher ROE.
The sales turnover is verly low and APOLLO should able to achieve a higher ROE if he able to increase the sales turnover.
Furthermore, it have a very low equity multiplier - 1.1133 and it can increase the financial leverage and improves its ROE. However, financial leverage is a double edge sword it can hurt ROE badly in the bad times. And, high leverage can make a company’s balance sheet unhealthy and become risky during economy downturn.

[2] ROIC Analysis
APOLLO Invester Capital grew by a CAGR of 4.00% while the NOPAT growth at a much higher rate at CAGR of 8.77%.
And, owing to this the ROIC was improving from 14.03% to 18.81% with a CAGR of 4.00%. And this is above the WACC of 12%.

[3] ROCE and CROIC
ROCE and CROIC is above WACC.


[1] Price to Book Ratio
We evaluate APOLLO based on earning power.

[2]    Price to Earning Ratio
The P/E is increasing. Let's examine PEG                                                                      

[3]    Earning Yield
Earning Yield (Joel Greenblatt) 13.50% > 10 % - Pass.

For the pass 10 FY, the EBIT grew with a CAGR of 8.76% while EV grew with CAGR of 6.26%, owing to this the Earning Yield was improved from 15.59% to 19.22%.
If we look at the T4Q result, the EY was dropped to 14.39%, and this might indicate that the stock valuation is relatively expensive in view of the share price have been increased from 3.810 to 4.980

[4]    PE/Growth Ratio
 PEG of 1.81 is way above of 1.00. It indicate that the price is on the high range.

[5]    Price to Free Cash Flow
P/FCF = 12.112 < 20  is reasonalbe   

[6]    Price to Sales Ratio
Not Applicable                                                         


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