Monday, February 02, 2009

Data pulse

Trying to help out a fellow regarding his investment into this firm, Datapulse. From the books that I read, either this or Datacraft was one of the hotly punted stocks way back in the dot com era. I started browsing through the statements with a skeptical eye, knowing that Datapulse was dealing with those computer, gadgety stuff (they are actually providers of total solution to CD/DVD for content distributors in Asia Pac region). How good can they be. I think I'm wrong.

I only looked at their FY08 results released in 2008, Sept.

Net profit margins: 18.2%
ROE: 16.6%
Current assets/current liabilities: 4.0x
Total assets/Total equities: 1.25
Diluted EPS: 2.25 cents
PE (based on today's price of 0.135): 6x
Dividend yield : 14.8%

Here's my thoughts:

1. They must be doing something right. I thought the kind of business they are doing are so easily replicable and with not much of a competitive edge of others. But take a good look at their impressive net profit margins of 18.2%. This could be one off of course. ROE of 16.6% is pretty impressive too, especially for the kind of business they are doing. Usually for business geared towards manufacturing, I expect to see a rather lower ROE because of the high fixed cost perhaps coupled with high borrowings too. How wrong. Their ROE is hampered somewhat by the high cash/cash equivalents they are holding, but in these times, perhaps this is what prevents them from collapsing.

2. Looking at the current ratio and gearing, it's quite hard for me to see them needing any emergency cash to tide over current liquidity issues. Their current assets (of which 74.5% consists of cash/cash equivalents) can cover their current liabilities for 4 times. They have no problems with longer term debts too, with non-current liabilities consisting only of 24% of total liabilities. If they have no problems with short term liabilities, they wouldn't even have to blink for non-current liabilities.

In fact, their cash/cash equivalents of 45 mil can more than cover total liabilities of 20 mil PLUS dividend of 2 cents to every shares they own (around 11.9 mil) and still have 13.1 mil left over. Hey, do not belittle this penny share ok?

3. Based on the above rough calculation, I would say no problems to them continuing to give dividends in the future, IF they can maintain their business. A big IF, I know. Are they able to do that? I do not have the answers, as I do not have the expertise nor interest in their area of business.

4. Cash flow wise - a clean bill of health. Cash is coming in for sure. In fact, the quality of their recorded earnings are very good. Due to the accrual nature of accounting (and the fact that business give credit), what is recorded as earnings might not materialize as cash, so we might see a case where there is superb earnings but little cash flow. However, Datapulse's earnings are very much translated into cash flow. If we take their net profit of 13 mil, add in the non-cash depreciation charges of 7 mil, we can around 20 mil, which is exactly what their operating cash flow show. No nonsense at all.

The biggest cash flowing out is actually the dividends paid out to shareholders. This drains off around 12 mil from the company's coffer. For FY08, they are spendin a fair bit (5.7 mil) investing in their assets. Not sure what their plans are for the coming year, but I'm sure they won't be putting in so much into their capital expenditure.

In my opinion, no worries in terms of cashflow.

5. Good time to buy? With PE of 6x, dividend yield of 14.8%, low debts, good cashflow to pay off all debts and dividends, it seems not a bad option at all. One of the risk is that we do not know the extent of how the recession will affect the demand, and hence, their business. If business is affected, a lot of things mentioned here will also be affected. Another risk is whether there are better use for the money. Is there a better investment around?

If you treat this as a dividend play, it's not too bad. If they give their dividends of 2 cents per share forever (another big IF), you'll get back your investment capital in around 7 years. Probably faster since this rough calculation ignores capital gain. So if the real question to ask is really how stable their business is. Answer that, and the rest will follow.


Zhanrui said...

Hi seems like datapulse not very liquid. the trading volume very low may be a bit hard to buy

la papillion said...

Hi quailmaster,

You're right, the liquidity is not there for datapulse. It's not popular at all.

Unless you're buying a lot, it shouldn't affect you though.

Patrick T. said...

Just wanna update that Datapulse had announced their results for 1H09.

Revenue - 16mil (down 8.9%)
Profit before tax - 4.22mil
Net profit - 3.59mil
EPS - 1.58c (1H09), 0.68c (2Q09)
Interim Dividend - 1c/shr

Notably, company seems to had successfully decreased overall operating costs, especially in 2nd Q even though revenue decreased when compared to the same period last year.