Friday 12 July 2019

Powermatic Data (SGX:BCY) - Stellar 2H and Key Observations

Powermatic Data released its annual report on 9 July 2019, its full year results was released some time ago back in May 2019.

A very stellar 2nd half of the year was the main contributor to its 46% jump in Profit before tax. A final dividend totaling 8 cents was declared. At its closing price of $1.80 on 12 July 2019, this translates to a dividend yield of 4.44% and a PE of 9.

The following are my key observations from the results and annual report.

1) Gross Profit Margins fall well offset-ted by revenue growth.

Even though gross profit margins lowered, the company achieved $12.2 million revenue in the 2nd half of the year, roughly 48% growth compared to 2H 2018. Furthermore, Powermatic Data has shown growth across each half of the year, which is definitely pleasing to the eyes.

2) Inventory growth in tandem with revenue growth.

-As inventory is only sold after the reporting period, the right way of looking at the table will be comparing inventory of prior half year to the next half year's revenue growth.
As such, a 3.43% growth in inventory in 2H 2018 lead to a 5.42% growth in revenue in 1H 2019, similarly a 38.47% growth in inventory lead to a 40.6% growth in revenue.
While i am not gonna plug any numbers from the sky, but a 39.8% increase in inventory this year will result in what kind of revenue growth in the upcoming half will be interesting point to take note of.

-Do note that there will always be a risk that higher inventory values might lead to higher write-offs.

-The counter argument will be that Powermatic Data has kept is inventory at a range of 17-19% of its next half's revenue.

3) Growth in fixed deposit and interest- earning balance

-Both fixed deposit and interest earning balances have seen a close to 50% increase this year.

-This would contribute to its bottom-line under 'Interest Income' which has already seen a 75% increase from 2018 to 2019.

4) Dividend Income would likely be lower this upcoming year.

-Powermatic has sold some shares of the Thai companies it has held for quite some time. While it is not disclosed that which company it has dumped, its not really a top secret that it has held shares in Synnex (Thailand) Public Company Limited  as well as Thai British Security Printing.

-Thai British Security Printing in particular has performed badly in its recent financial year and has omitted payment of dividend. Therefore it is very likely dividend income will fall.

5) Property Valuations improved

Its freehold property, a key point of attraction for many value investors, stood at $17.1 million on its balance sheet while its fair value was $31.5 million. The fair value improved from $30.2 million to $31.5 million on the back of higher transaction prices around the area.

-The company has 78 cents of cash after deducting all its liabilities coupled with an investment property that is worth 90 cents on its balance sheet as well as Thailand equity worth 18 cents, the company is trading virtually business free at current price of $1.80.

-Perhaps if the company continues to record a 30-40% revenue growth in this coming financial results, this company might attract investors to start believing that the current valuations are way too low.

-However, even if it does not record such growth, a investor in for the long run should be quite pleased that they are getting good value even at such prices.

The upcoming agm should be quite an interesting one in my view as the company did remarkably well in the 2nd half of the year coupled with a new factory in Malaysia, it would be interesting to hear from the management.

This would be my last / 2nd last post for the month as i would be taking a break and would likely return in August.

Signing off with a k-pop picture as usual