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Friday, November 27, 2015

APB: Earnings soared on forex gain!

 One of the gainers this morning is APB. It is up 18 sen to RM1.48 as at 11.00am.

The reason for this sharp rise could well be the "good results" announced (see the diagram below). There is no doubt that APB did well in the last quarter as well as the full financial year. However a cursory glance will reveal two concerns:
  • Full-year revenue dropped by 21%. Why?
  • While full-year PBT jumped by RM8.7 million, half the amount was recorded in QE30/9/2015. Why the sharp rise in QE30/9/2015?

Diagram 1: Results announcement from Kentrade

I have extracted & tabulated the results for the past 10 quarters from ShareInvestor.com. I added in the latest results for QE30/9/2015, as this has not yet been updated by ShareInvestor.com. We can see that, APB's net profit rose 159% q-o-q or 182% y-o-y to RM9.1 million while its revenue rose 14% q-o-q or 40% y-o-y to RM42 million in QE30/9/2015.

From a reading of the Notes to the latest results, we know the reason for the jump in profits. It is due to forex gain of RM8.0 million. As this is unlikely to recur, we should exclude the amount from the accounts. If we do that, we can see that APB's profits are pretty ordinary.


Table: APB's last 11 quarterly results

 
Chart 1: APB's last 11 quarterly results

Next, we address the question of the drop in revenue. If the company could benefit from favorable forex movement, then surely the revenue would have benefited from the same movement. How would you explain the drop in revenue? If you studied the Notes to the accounts for QE30/6/2014, you will see this comment on the drop in revenue for that quarter.


Diagram 2: Notes to the Account for QE30/6/2014

With that, we can come to a conclusion regarding APB's financial performance: APB's revenue & profit did improve in the past 5 quarters (since QE30/6/2014). However, the improvement is not spectacular. If the forex gain of RM8.0 million is excluded from the results for QE30/9/2015, the adjusted net profit for FY2015 would be RM10 million. That's a drop from RM12 million for FY2014.

With that, I believe that APB's recent price run-up should prompt you to TAKE PROFIT on the stock. This is especially so if you look at the chart below where you would see a horizontal resistance just ahead at RM1.60.


Chart 2: APB's monthly chart as at Nov 27, 2015_10.30am (Source: ShareInvestor)

Conclusion

The second message of this post is that you need to study the accounts of the stock that you wish to invest in. There is no substitute for simple analysis to back up your conviction to invest in a stock. Investing requires commitment and that can only come from conviction in a stock after we have done our homework. 

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, APB.

2 comments:

Jim said...

Hi Alex,

Can you comment on recent TROP financial results (Tropicana posts 3-fold increase in net profit) ?

The company said cash proceeds received totalled RM1.07bil year-to-date, arising from the strategic disposal of non-core assets and investment properties undertaken over the past year. Beside that, Trop chalked up new sales of RM1.3bil, with unbilled sales at a record RM3.1bil for the nine-month period.

Thanks.

Alex Lu said...


Hi Jim

TROP's result is good at first glance. Its PBT jumped due to the one-off gain in disposals of investment properties and a subsidiary amounted to RM161.0 million. If this is excluded, its PBT would drop to RM14.0 million. See link below.

The other thing that I disliked about this company is the rapid turnover of its top managers. I understand that these experienced people had difficulty working for the major shareholder, Danny Tan or his son. As a result, this company may not amount to much until it can settle on a management team that will work on a long-term strategy for success.

This may come about if Danny Tan or his son adopt a hand-free approach and leave the execution part of management to the management team OR they take over the management of the company. Until then, Trop will remain an attractive company that the market shuns.

Go to Page 7 of the Notes to the Account: http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=189400&name=EA_FR_ATTACHMENTS