Saturday 7 March 2020

Tat Seng(Sgx: T12) 4Q Results write up – A good 4Q but cut in dividend remains puzzling

(My reaction after seeing the dividend declared)

Tat Seng released its full year results on 27 Feb 2020, I appreciate the 4Q results but it seems like the price has continued to slide after the release of the results

-4Q profit came in at 5.898 million compared to 5.516 million last year. That is an improvement of 6.9%. This is commendable as corrugated paper prices have been higher last year and traditionally Tat Seng shines in the 2H of the year.

-Adding to that, the depreciation this year has been significantly higher than last year, Q4 2019’s depreciation came in at 2.736 million while in Q4 2018(which had lousier results) only had depreciation of 1.762 million. This means that the additional investment had been able to generate better profit and margins to overcome the depreciation of the capex.

-4Q 19 Gross and Net Profit Margins came in at 20.6% and 7.75% respectively 4Q 18 Gross and Net Profit Margins came in at 18% and 6.68% respectively. Selling more (Higher revenue) in 4Q 18 has not seen higher gross and net profit in terms of both margins and actual figures.

-In terms of liability to asset ratio and current ratio. As of 31 December 2019, the ratios are 0.46 and 1.72 while in 31 December 2018, the ratios are 0.54 and 1.48. Clearly the company is in better financial health.

- Borrowings have greatly dipped across the year. As of 31 December 2019, the company had borrowings of 57.477 million while in 31 December 2018, the figure was 87.169 million.

-Lastly sales volume increased 3.2% from 2018, 4Q definitely recorded a larger than 3.2% volume increase as the 1Q to 3Q increase was 2.1%. The growth is encouraging.

-Final Dividend of 1 Cent, no explanation was given for the cut in dividend. The only reason I could have thought of would be fears of Covid 19 might drive down results and its better to keep more cash in the books. Otherwise it might be that the cash might be required to fund its new factory equipment in Hefei.

You would have to go back to 2015 the last time it paid 2 cents of dividend for FY 2014 which it earned 9.6 million. In contrast, the company earned 14.8 million this year.
Also, a dividend of 3 cents was paid in 2016 for FY 2015 when it earned 13.1 million. So it made really little sense why the company is paying 2 cents this year apart from Covid 19

-Cessation of Quarterly Reporting, while such reporting might incur more cost, the scrapping of the reporting is bad in my point of view as this means that retail investors would have more lag time and unable to ascertain how the company is doing particularly when Covid 19 is affecting china and there is no mention of whether the China Operations have resumed or have been halted since the outbreak.

Final Words
If there is no delay to the AGM this year, it would be one that I have to attend at there are a lot of question marks after the results was released. I believe the current headwinds should they continue, should drive the price of the shares down as operations continue to suffer.

Meanwhile the company trades at 4.25% dividend yield, PE of 5.15, PB of 0.55.