YHI International

[bargainhunter]

http://infopub.sgx.com/FileOpen/YHI-FY20...eID=490556

1.5c dividend

[bargainhunter]

http://infopub.sgx.com/FileOpen/YHI-FY20...eID=490556

hi bargainhunter,
please follow good posting ethics by at least elaborating something with the link.

Moderator

oh...ok...because bro/sis Squirrel had been doing such a good job, i felt that i just wanted to update the results here as soon as i saw it on sgx.  i didn't know that it was unethical to do so.

[Mushy]

Ok, I try to contribute some comments. Just type my thoughts no edit.

Been building up on YHI over past few years it has now become the biggest single component of my portfolio, hence very vested.
I see it as a business waiting for turning around (Wheels distribution and manufacturing). While waiting over past few years, company has been tidying things up internally. Many of these had been highlighted in this thread. Example:
- Paying down debts
- Consolidating
- Selling off some spare capacity (equipment and land/building), or renting out (Shanghai plant).
- 3R, abit stale cos they been repeating this for years, but seems to work

The business environment for their business hadn't been good, but not that bad. Even then, they could still make a profit, generate cash and give some dividends. Assuming business remains stagnant for the near term, the bottom line should still improve due to their internal efforts. Get ready for the upturn. Will the upturn come eventually and when, this i am still researching. But the wheel business is not a sunset industry even with the disruptors like autonomous cars and ride hailing apps. Vehicles still need wheels. Wheels refer to rims and tyres. Unless another mass transport technology comes mainstream or teleporting is invented.

On the current FY results. The results are in line with my expectations. I expected 4th quarter net profit to be slightly higher than 3q as the top and middle line should be quite stable. Then there is more contribution coming from the rental. It seems to be more than what I expected though the contribution should have been less than 12 months. There is still restructuring costs (approx 3M) mentioned in current FY which should die down next FY. Hence going forward to FY18, assuming the revenues remain stable, net profit should progressively be higher, estimate around 15M +/-.

Company usually pay out around 40 to 50% of net profit for dividends. So can expect around 2 to 2.5c div next FY.

I had been attending their agm over past few years and expect to do so again this april. Really enjoy listening to chairman gives his comments. Being a car enthusiasts I think I understand this company's products. They do carry some of the good brands in the industry.

[Squirrel]

Thanks bargainhunter for the compliments.

FY results have been released as highlighted earlier

http://infopub.sgx.com/FileOpen/YHI-FY20...eID=490556

Adding on some thoughts on the report to what Mushy has highlighted to far

Income
- Revenue down year on year for FY2017 mainly due to cessation of production at the Shanghai Factory
- Full year distribution revenue stays relatively flat year on year
- Full year profit is up a staggering 113.5% year on year, not even considering the one time charges on compensation and impairment costs
- Gross Profit Margin has been improving, to a final 23.4% on the year with quarterly breakdown looking like what's shown below

• FY2016 -> 21.6% 
  
• 1Q2017 -> 23.4%
  
• 2Q2017 -> 24.1%
  
• 3Q2017 -> 22.2%
  
• 4Q2017 -> 24.0%
  

- Gross Profit Margin has been steadily improving with the consolidating of China production
- And here comes the most anticipated part of the report, contribution from rental income. Total rental income comes in at $2.164m in FY2017 vs $0.885m in FY2016, an increase by $1.279m for the year
- Full year EPS came in at 2.99 cents a share, and as per anticipated 50% dividend payout, a 1.5 cent dividend is declared, giving the counter a nice 3.49% yield on the last traded price of $0.043

Balance Sheet
- Another $7.6m of borrowings has been paid down in 4Q2017 itself
- Receivables has been reduced from $97.1m last quarter to the current $91.4m
- Cash hoard reduces to $54.3m, going towards repayment of borrowings
- NAV: 84.88 cents per share
- NCAV: 54.06 cents per share 

Thoughts on 2018
- Earnings would be expected to be materially different from what we are seeing in the current year mainly due to the following reasons, even though it was already up 113.5% for 2017

• One time expenses - stated in the report, admin expenses is $49.3m in FY2017, but if were to remove " expenses relating to the cessation of production", final admin expenses would be $45.0m, an expected bump up of +$4.3m in 2018 just assuming admin expenses stay flat at $45.0m
  
• Rental Income - "As previously announced, the Group had successfully leased out its Shanghai factory and the tenant had taken vacant possession of the property on 1st November 2017. The rental income from the Shanghai property is expected to contribute positively in 2018.". The financial reporting of the firm reports rental income only in 4Q reports and not in earlier reports, hence the bump in other gains which is mainly due to rental income. It would be extraordinary if all +$1.279m came from 2 months of rent on the Shanghai property, but lets assume that partially this came from other operating leases (leasing out equipment) and only $0.9m came from 2 months of rent (which is still way higher than what I expected), we would still expect a bump of +$4.5m from additional 10 months of contribution in rent.
  
• Financing costs - Interest on borrowings is likely to come down with repayment of more debt. Current outstanding debt of $85.376m is likely to come down when the company is generating $29.6m operating cash flow before working capital changes. This is further supplemented with the rental income from the Shanghai property. However with a rising rates environment, lets just assume this stays flat
  
• All in all, its expected that earnings will go up by $8.8m, and with a 25% taxation rate in China (China segment reported losses of $1.5m), that brings it nearer to additional $7.0m. A base case profit of $16.5m for 2018. EPS of 5.6 cents
  

- Dividends

• Dividends would be expected to be $2.8 cents assuming maintaining of 50% of profits distributed, yield of 6.5% on current price of $0.43
  

- Balance Sheet

• NCAV would probably continue rising with the cash generating capabilities of the firm
  
• Would the firm consider selling the Shanghai property on the market? It's currently held at $11m as of 2017 on the books, but in reality it should be worth much more than that. Assuming as above that rental comes in at a total of $4.05m per year (post 25% tax), DCFs with an assumed discount rate of 10% and no change in rental rate over the years, would give the property a value of $38.4m for its life till 2049 and $23.3m for the current 10 year lease until end 2027. This would seem out of this world given the market value that the company is holding the property at. It could improve the overall NAV by between 4.2 cents per share to 9.4 cents a share with the calculations above, and NCAV by between 8.0 cents per share to 13.1 cents per share. There is still need to delve deeper into this aspect given how incredulous the figure looks.
  

Main point of discussion from this financial report hinges on how much the Shanghai property is getting in terms of rent. From the report, it states that "Other gains increased by 28.8% (or $1.0 million) in FY2017 to $4.4 million compared to $3.4 million in FY2016 mainly due to lease rental income from Shanghai factory. " So I would think that the assumption of $0.9m is not too far from what they receive. I can't think of any way for the company to realise rental income more than the 2 months of occupation by the lessee (maybe recognise deposit upfront? But accounting wise that's not allowed), so a full year rental income of $5.4m in rent is being expected for 2018. Unfortunately, rental income is lumped up and reported only in 4Q reports, or else it would be easier to segregate out how much rental the property is yielding. It would be interesting to attend the AGM and probably ask them how much exactly came from the property itself. I guess that's one of the ways to find out. Please update us if anyone is attending! I would try to myself.

With the above, I would definitely hold onto this stock with its expected 6.5% yield, 0.507 P/B ratio and its turnaround in its businesses, with hopes that one off events would propel the figures further such as sale of Shanghai property (they didn't hesitate to put the Australia one on sale) or even a delisting proposal from the Chairman!

[weijian]

http://infopub.sgx.com/FileOpen/YHI-FY20...eID=490556

hi bargainhunter,
please follow good posting ethics by at least elaborating something with the link.

Moderator

oh...ok...because bro/sis Squirrel had been doing such a good job, i felt that i just wanted to update the results here as soon as i saw it on sgx.  i didn't know that it was unethical to do so.

hi bargainhunter,
There is a world of difference between "good posting ethics" and "unethical". Thanks for taking the effort to update your post and contribute towards making VB.com a better community for all.

Moderator

[Squirrel]

Annual Report has been released

http://infopub.sgx.com/Apps?A=COW_CorpAn...AR2017.pdf

The report is rather comprehensive and somehow managed to answer a lot of queries in mind! With the new information available, we can now more accurately map out what lies ahead in 2018.

Referencing the last post made regarding thoughts on 2018 would make this an easier read

Updated thoughts on 2018

- Earnings would still be expected to be materially different from 2017

• One time expenses - same as prior, expected bump of +$4.3m.
  
• Rental Income - the AR has released figures on rental for the Shanghai Factory. A net $1.191m rental income has been recorded for 2017 after costs directly relating to the rental. The AR states that "The Group had successfully leased out its Shanghai factory, with the tenant taking possession of the property on 1st November 2017. The rental income from the factory is expected to contribute positively in 2018.". This translates to an annualized figure of +$7.146m. However in the commitments under Note 27, it states that there is a commitment on the lease of $3.274m (including buggies lease) one year out and about $3.2m on average 5 years out. This is significantly lower than the $7.146m shown. The AR also states that "future minimum lease receivable under non-cancellable operating lease contracted for at the balance sheet date but not recognised as receivable". We probably need to reconcile this against the point of valuation of the property to be discussed below. Safe to say, additional bump from 2017 will be between +$2.1m to +$5.9m
  
• Financing cost - diving deeper into the AR, as of end of 2017 a total of $42.5m in short term loans and $14.8m in long term loans is outstanding, attracting financing costs of $2.724m. Assuming as prior that the trust receipts is in the natural course of business and can't be repaid, the company can easily pay down the loans by $20m with operating cashflow given the costs required for closing down operations in the Shanghai factory is over and done with. This reduces the financing costs by a third, +$0.9m
  
• additional profit with 25% tax rate (China segment $1.5m of losses) will result in a bump in the range of +$5.9m to +$8.7m. Base case profit of +$14.6m to $17.5m attributable to shareholders, EPS of 4.99 cents to 5.99 cents. Assumptions on rental income would drive the difference.
  

- Dividends

• From calculations above and 50% payout, dividend yield would be between 5.6% to 6.7% on 2.5 cents to 3 cents dividend payout (currently last trade at $0.45)
  

- Balance Sheet

• There is a very interesting disclosure in this year's AR on the Shanghai property. The book value its carried at is $11m, and it has carried out a fair valuation on the property valuing it at $31.1m! That's $20m upside to it, 6.88 cents per share revaluation if it ever gets sold. However this valuation also leads me to think the lower of the range for the rental income is probably more likely, which is probably best clarified during the AGM to be held on 26th Apr.
  

Still think this is a gem to hold onto. Anyone going to the AGM this year?

http://infopub.sgx.com/Apps?A=COW_CorpAn...Notice.pdf

[Mushy]

Hi Squirrel, I should be going next Thur morning. U wanna meet up?

[Squirrel]

Hey Mushy, unfortunately I would likely not be able to attend this AGM due to work commitments. Do let us know how it went! Am interested to hear what's their direction going forward even though the AR covers some of it. And of course clarification on how much rent the Shanghai investment property is generating.

[Squirrel]

Anyone who attended the AGM, could you please update on what happened?

Thanks

[Mushy]

Anyone who attended the AGM, could you please update on what happened?

Thanks

 
Just sharing some of the things learnt during the AGM. Those who know please correct if I understood incorrectly and share also. 

- Shareholder asked on the shanghai property rental. It is approx 3M per year. Ref AR page 107. The rental income of 1,559,000 is for 6 mths. The property was rented since July 2017 but there is a “rent free” period of 4 months for the other party to do reno etc.

- Shareholder asked about the recent disposal of an australian property. CFO said cannot reveal figures as not announced yet. In AR page 111, it says the sale was completed on 26 Feb 2018 above its carrying amount.

- Focus going forward will be on ASEAN and Aus/NZ. It has been very difficult to do business in China as there is huge overcapacity there. There are many factories there churning out products by volume and not making profits.  There is some action seen from the central govt to force the loss-making factories to shut but no big impact anytime soon.

- There will be some consolidation in the logistical arrangements in Malaysia, which will further yield efficiency / cost saving. This is linked to the recent creation of a logistic company in Malaysia. Malaysia is an impt market / manufacturing base for YHI. The coming elections and outcome might have an impact on business.

- More efforts and resources catered on dealers education.