(11-10-2014, 12:26 AM)Yoyo Wrote: AR days seem to deteriorate. AR bal increase 50% more than 30% increase in sales. Also explanation for other receivable increase is inadequate given that srap metal sale for the quarter is 880k ( unlikely that long credit term is given to scrap metal customer). Other than these, happy for the results and interim dividend.
Vested
Hi Yoyo,
Yes, AR balance increased by 53% and Sales increased by 34%. But we shouldn't infer much from the % because the bases are different, so of coz the % are different. We should probably be looking at the absolute movement and try and draw links between P/L and B/S items.
Beg. period A/R balance = $11,144k
add: half year sales = $40,315k
less: collections during period = $(34,459) (balancing figure)
End. period A/R balance = $17,000k
Or if you prefer to limit discussion to Q2 only: AR increases +5.9 mil and sales in same period +21.2 mil, it does not cry a red flag to me. How I read it is: A significant portion must have been collected, otherwise AR should have ballooned much more.
Also, given the results announcement is six months into the year, is it a bit premature to infer anything from AR days outstanding?
Next, trying to understand your comment on scrap metal.
When mgmt explains other receivable movement - they are specifically referring to the change occurring between 28 Feb 2014 and 31 Aug 2014. In other words, $1,056k ($2,498k - $1,442k).
This increase should be viewed in the light of HALF year sales of scrap metal which stood at $1,655k (see page 3 of announcement). Which makes mgmt's comments pretty in line with what actually happened, where is the inadequacy?
To make it even simpler, the following is the likely movement of the balance sheet position...
Beg of the year for other receivables = $1,442k
add: half year scrap metal sales = $1,655k
less: collections = $(599)k (balancing figure)
End of half year balance = $2,498k
If your concern is on sufficiency of collections (in the sense that Q1's scrap metal sales should have been FULLY collected by Q2), bear in mind that the difference between Q1 scrap metal sales and above collections amount is only $156k ($755k - $599k). Assuming your concern is valid and the difference is not collectable, $156k still doesn't seem material whether you compare it to the half year bottom line (write off) or cash balance.
Should we perhaps switch attention to bigger issues such as sustainability of the good results? Maybe we should ask ourselves the following:
P/L:
- is increase in turnover / gross profits sustainable? [contributed $3.5 mil increase to bottom line compared to last year same period] hint: sure HDD picked up, to what lengths? underlying drivers?
- why other operating income increase and can it be sustained? [contributed $1.3 mil increase to bottom line compared to last year same period] - hint: nearly $1 mil of it doesn't seem to be recurring (fx gain is one)
- is the drop in General and admin XP sustainable? [contributed $1.3 mil increase to bottom line compared to last year same period] - hint: yes it likely is, but do we know why? ans: non-recurring one time retrenchment benefits last year.
If we are able to sufficiently address the above few questions, we should be pretty pleased with how we interpret the results of Cheung Woh for this half year, don't you think so?