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Monday, August 29, 2016

Thong Guan - Brief Discussion on Q2 2016 Result (10) - YiStock

Thong Guan - Brief Discussion on Q2 2016 Result (10) - YiStock
Author: YiStock | Publish date: Mon, 29 Aug 2016, 09:44 AM



Last week, Thong Guan has released a "great" set of financial result.

For investors who focus on Y-o-Y result, you cheers :-)

For investors who focus on Q-o-Q result, you curse ;-(

For investors who focus both Q-o-Q and Y-o-Y like me, i try to interprete more carefully.

Once again, the triple excellent balance sheet need not be discussed. We will touch on balance sheet only when special item pop out.

Below the key explaination extracted from Q2 16 result:



The "not so great" Q2 2016 result are due to

1) higher depreciation charges (Q-o-Q) - amounted to approximately RM 184 k

Interpretation: Nothing to be alarmed about as it is still within normal range. In fact, it is lower Y-o-Y

3) Depreciating USD (Q-o-Q)

Interpretation: if you used quarterly rate, the USD did depretiated, but when use beginning vs end rate, the USD appreciated. In Q2 16, Thong Guan recorded a net forex gain of RM 2.15 million. This is not suprising to me as many have noted an "unrealized" forex losses of RM 2.9 million in Q1 2016. Personally i see this as positive sign as during my discussion in earlier article, i prefer Thong Guan to maintain its earning without interferrence from forex gain/losses. Its 2015 full year forex losses stand at RM 9.1 million. So far after 2 quarters of 2016, the forex has net losses of RM 0.78k only. The core earning after 1H 16 is RM 27.5 million vs RM 16.9 million in 1H 2015. I'm pleased. (Refer table below)

2) Higher Production Wastage due to testing and commissioning of new machines

Interpretation: This caught my attention! How big is the impact? Is this re-occurable event? Where is the impact in the financial statement? If this is one-off event, how it impact the core earning? Below i try to interprete.



Thong Guan has cosistantly recorded Gross Profit Margin of approximately 17.3% for past 3 consecutive quarters. However, there is a surge in COGS which causing the Gross Profit Margin retreated to 14.14%. A drop of 3.24%. If you used the RM 183.5 mil revenue as base, this 3.24% shortage is equivalent to RM 5.95 mil.

The point of consideration now are:

(1) is the wastage represented by a drop of 3.24% or RM 5.95 mil worth of profit?

(2) if it is, is the item re-occurable?

(3) or is the drop totally not related to the production testing wastage?

IF, i choose (1) as my interpretation and (2) NOT RE-OCCURABLE,

(1) the Q2 16 earning reported should be RM 20.95 million of which 16.78 mil is the Q2 16's core earning.

(2) Based on RM 20.95 mil profit, it is equivalent to 19.9 EPS which make the TTM EPS 57.7 sen

(3) Q1+Q2 16 Core Earning become RM 33.4 mil. Which make it possible to hit full year 2016 core earning above RM 66 million

This is a remarkable result!

AGAN, I believe these are up to individual investor to interprete.

Note: The revenue recorded are largely influced by the price of resin. i.e. a drop / increase in revenue should not be interpreted as it is because when resin price decreases, the selling price will follow suit. Therefore, for Q2, 2016, the slight increase of 2.1% does not means it increases at that quantum.

Conclusion:

LET WAIT Q3 2016 to verify

Cheers!

YiStock

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