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Thursday, June 01, 2017

Lonbisc: Puzzling Revenue Decline

Results Update

In QE31/3/2017, Lonbisc's net profit dropped by 82% q-o-q or 79% y-o-y to RM0.8 million while revenue dropped 36% q-o-q or 45% y-o-y to RM62 million. There was no explanation as to why the company's financial performance has declined so badly.


Table 1: Lonbisc's last 8 quarterly results

If we look at the segmental analysis below, we can see that the confectionery business has been on a decline for the past 4 years while the sweets & candies has been in decline for the past 3 years and the snacks business has just peak last year. Gosh, where will that leave Lonbisc next year??


Table 2: Lonbisc's segmental reporting for 9-month ended Mar for the past 6 years

The sharp decline in revenue is scary and demands an explanation!!


Graph: Lonbisc's last 50 quarterly results 

Financial Position

Lonbisc's financial position as at 31/3/2017 is deemed mixed. Its gearing ratio is fairly elevated at 0.6x while current ratio was at 1.8x. The current assets include debtors totaling RM147 million. That's equivalent to 135 days credit term- an exceptional high number for fast moving consumer products. I suspect some of the debtors may not be collectible.

Valuation

Lonbisc (closed at RM0.765 today) is trading at a PE of 10 times (based on annualized EPS of 7.9 sen). Based on this PER Lonbisc is deemed fully valued for a smallcap stock.

Technical Outlook

Lonbisc has been moving sideways for the past 5-6 years. In the past 6 months, the share price has moved up slightly with support at RM0.75 & resistance at RM0.82.


Chart 1: Lonbisc's monthly chart as at May 31, 2017(Source: Shareinvestor.com)

 
Chart 2: Lonbisc's weekly chart as at May 31, 2017(Source: Shareinvestor.com) 

Conclusion

Based on weak financial performance & position, unexciting growth prospect and full valuation, Lonbisc is a stock to be avoided. This is especially true after a sharp drop in revenue/sales which was not addressed by the company.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

4 comments:

Malaysia Stock Talk said...

Deconsolidation of Khee San's account? Note that the PPE and borrowings have come down significantly

ronnie said...

Alex,

Public Investment Bank in its report dated 1 June 2017 called an Outperform for London Biscuit. Target price of RM0.92; market price was RM0.765.

How come?

Public investment has these highly paid analysts.

Alex Lu said...

Hi Malaysia Stock Talk,


I cannot rule out deconsolidation of Khee San's account as the reason for the fall in Lonbisc's revenue & profits. The notes to the account seem to suggest that possibility. However, deconsolidation of a subsidiary would have been a great reason to give for such a drastic drop. Yet it was not offered as the reason or the excuse for the poor performance.

Alex Lu said...

Hi ronnie

Horses race because they cannot agree who is faster!!