Tuesday, February 05, 2008

Comments on Informatics and Aztech

Quite a number of companies are giving their reports today. I'll comment on a few which I found interesting:

1. Aztech

Turnover 2007: S$268.31 million (up 12%)
Gross profit margin: down 7.5%
Net profit 2007: $18.18 million (down 9.3%)
Net margins: down 1.6%

From this 3 figures alone, we can see that Aztech faces rising COGS even though the turnover is increasing. They mentioned it's the twin effect of rising labour costs over at China and the appreciating RMB that causes the cost to spiral upwards. This eroded their gross margin from 50.11% to 46.33% and their net margins from 8.4% to 6.8%.

Looking at the turnover by region, north and south america takes up 38% of their turnover, which makes their situation slightly precarious. Given the situation at US now, consumer demand might not be sustainable in the near term, hence I would expect their turnover to slow down after rising for 4 years with a CAGR of 20.8% since 2004 to 2007.

I saw their capital expenditure rose up 166.1% from FY06, so I did some checking. Realised that they had spend 8.9 million on a Shenzhen office, 3.8 million on cost of new SMT lines. These two costs chalk up most of the increment in capex in FY07. To improve their margins, they can do a lot to trim down on COGS. The latest high speed SMT lines are more automated, hence less reliance will be on workers (with their rising RMB wages). They are also hedging some fixed amount of US dollar against SGD and RMB. I don't know what is meant by that though.

I still remember that Aztech is venturing into construction materials. At that point in time, I was thinking that perhaps the margins are eroding (due to the nature of the industry)...and so it is. I suppose that is how they plan to maintain or improve their net margins.

2. Informatics

Informatics achieved break even in 3Q FY08 with a net profit of $0.03 million for the first time in the last seventeen quarters (5.25 years). The 3 financial statement are depressing.

- operating revenue drop by 5% comparing 9 mths
- staff costs reduced by 11% comparing 9 mths

Seems like informatics is reducing cost to improve its margins. There is only so much we can do to reduce the cost, eventually the margins have to come from improving revenue. They mentioned that their revenue is affected because of ongoing consolidation of M'sia operations. UK operations is showing growth, and they are opening new recruitment centres in M'sia, Vietnam and China. It remains to be seen if their strategy is able to pull more students in to increase their revenues. Until then, let's watch.

Haha, wanted to do some comments on Tiong Woon, who achieved a half year net profit which is 49% up from previous year. However, reading financial statements is soo tiring. After just browsing informatics and Aztech, I think I have enough for today. I do hope my hardwork will be rewarded one day. I still remember the pain when I first started on TA, reading countless articles and books before starting to see some light. Well, I'm going to repeat that for FA.

Wish me luck :)