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Thursday, October 01, 2015

Hiaptek: Losses multiplied

Results Update

For QE31/7/2015, Hiaptek reported a loss before tax of RM64.65 million due to share of loss of jointly controlled entity of RM26.12 million and a provision for impairment of investment in the jointly-controlled entity of RM55 million.


Table 1: Hiaptek's last 8 quarterly results

From the chart below, we can see that Hiaptek's bottom-line slipped into the red 3 quarters ago. However, its top-line continued to inch higher due to domestic demand from construction sector. This has not translated to better earnings due to intense competition from cheap import. This challenging environment is not likely to improve in the near term.


Chart 1: Hiaptek's last 44 quarterly results

Financial Position

Hiaptek's financial position as at 31/7/2015 is deemed adequate with current ratio at 1.35x & gearing ratio at 0.73x. However there is some concern about the quality of its trade receivables. Hiaptek split up its Trade & Other Receivables totaling RM686.5 million to normal Trade & Other Receivables of RM302.8 million (classified as current assets) and Trade & Other Receivables of RM383.7 million (due from a jointly-controlled entity). In term of assessing the quality of the receivables, the global approach is more accurate. It gives a debtors' collection period of 199 days (against revenue of RM1257.6 million).

Let's compare this with another steel producer, Annjoo and pipe-maker, Engtex. Based on latest quarterly results, Annjo had a debtors' collection period was only 62 days (6-month Financial Statement) while Engtex had a debtors' collection period was only 110 days (here). Thus, Hiaptek's debtors far exceeded the normal credit term in its industry. It could be partly due to favorable term granted to the jointly-controlled entity and partly due to slow collection which could translate to bad debts.

Valuation

Hiaptek (closed at RM0.26 yesterday) is now trading at a Price/Book Value of 0.2 time (based on NTA of RM1.20 p.s.). With losses per share of 11 sen for the past 4 quarters. we are unable to compute its PER.

Technical Outlook

Hiaptek has broken below its long-term trading range (with a downward bias). This breakdown led to an accelerated decline that had finally found a base. We will have to wait & see whether the share price will recover from here or will just stick to the bottom.

 
Chart 2: Hiaptek's monthly chart as at Sep 30, 2015 (Source: ShareInvestor.com)

Conclusion

Based on poor financial performance and bearish technical outlook, Hiaptek is a stock to be avoided unless your investment time horizon is very long. However, if you are invested in it, you might as well hold onto it.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Hiaptek.

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