A-Sonic Aerospace

[karlmarx]

A-Sonic Aerospace IPO-ed back in 2003 and posted 3 years of nice profits. Since FY07, things started going downhill and the company never truly recovered. From its last AR, there are still some 5,720 holders of this stock. After being down some 90% since IPO, most shareholders probably just decided to leave it as it is. If this bring back bad memories, I apologise.

Here is a short write-up from way back:

http://www.asonic-logisticsolutions.com/...ep2003.pdf

Its IPO prospectus can be found here:

http://repository.shareinvestor.com/rpt_...file/35853

A-Sonic posted combined comprehensive losses of US$24.7m over the past 10 years. Only in 3 of those year was its comprehensive income positive. Given the heavy loses, dividends for the past 10 years totaled US$3.7m, and was paid out over 4 years. Its poor record make A-Sonic a recalcitrant member of the watchlist. Always escaping the gallows by posting some profits when time is almost up, and then returning to its loss-making way immediately after release. 

Comprehensive Income (US$)
FY08:    (14,972)
FY09:    (1,153)
FY10:    8,029 
FY11:    (2,186)
FY12:    (5,618)
FY13:    4,059 
FY14:    105 
FY15:    (9,926)
FY16:    (2,512)
FY17:    (521)


Currently, A-Sonic has a book value of US$26.3m (approx S$35m) and market value of S$11.4m. This translates to a p/b of about a third. Has A-Sonic become a value-for-money buy?



Lets start with its cash flow. A-Sonic has produced a total of $21.1m FCF over the past 10 years. Looks good, yet strange. How can it be posting almost as much losses as it produces FCF? There are 2 reasons why its cash flow statement looks good. The first is that its interest expenses are accounting under 'financing cash flow.' The second and main reason is that it has been delaying the settlement of its trade payables longer than the collection of its trade receivables. In other words, it is borrowing more from suppliers to do business. In FY08, there was more trade receivables than payables. In FY17, it is the reverse. As a result, its cash remains more or less intact.

Trade Receivables, Trade Payables, and Cash (US$)
FY08:    32,134           21,443              26,644
FY09:    41,626           28,868              20,360
FY10:    44,497           28,634              30,080
FY11:    45,740           35,078              29,237
FY12:    53,373           43,065              22,716
FY13:    43,756           37,919              20,718
FY14:    39,725           35,885              16,601
FY15:    29,293           28,181              18,993
FY16:    34,672           33,973              18,354
FY17:    40,365           45,237              23,782


Meanwhile, its working capital is decreasing, in step with the comprehensive income. Clearly, their business model is not working. 

Working capital and comprehensive income (US$)
FY08:    28,196
FY09:    25,812            (1,153)
FY10:    37,981            8,029 
FY11:    33,126            (2,186)
FY12:    25,834            (5,618)
FY13:    18,677            4,059 
FY14:    20,924            105 
FY15:    17,819            (9,926)
FY16:    19,375            (2,512)
FY17:    17,377            (521)


Let's say the Tan sisters (I assume) have had enough, and decide to halt all operations and liquidate the company. Let's say it can get back US$15m out of the US$17.3m of working capital. And for its PPE, let's say it can get back US$5m out of the US$7.2m. That's a cool US$20m (or approx S$26.6m), more than double the market cap! So the question is, will the Tan sisters liquidate the company?

Directors and Key Management Compensation (US$)
FY08:     2,401
FY09:     2,658
FY10:     3,312
FY11:     2,969
FY12:     2,680
FY13:     2,849
FY14:     2,998
FY15:     2,748
FY16:     1,622
FY17:     1,638


Between the two sisters, they make about US$1m per year. The exact figures are not known since it is not disclosed, but you can arrive at an estimate after subtracting the salaries of the others executive officers and independent directors. It is only during the past few years where the compensation shows some alignment with the direction of the business, i.e. down. Even then, it is still high for a company that has not been able to demonstrate making sustainable earnings. Apart from the comfortable salary, A-Sonic was also founded by these sisters. Having been with it for more than 20 years now, it is likely that they will try to turn thing around. Giving up on it will mean giving up a major part of their identity. 

Since liquidation is unlikely, the next question is how long can the company last. Unfortunately, I cannot offer any insight to predicting its future. Assuming that it continues to make small losses, A-Sonic should be able to continue as a going-concern for the next 5 years or so. If things get really bad and it is unable to exit watchlist, shareholders may just continue holding onto shares of a delisted A-Sonic. If the Tan sisters are nice, they may just give a low exit offer. 


For all the Annual Reports:

http://www.shareinvestor.com/fundamental...ter=BTJ.SI

[jh_sw]

A-Sonic Aerospace IPO-ed back in 2003 and posted 3 years of nice profits. Since FY07, things started going downhill and the company never truly recovered. From its last AR, there are still some 5,720 holders of this stock. After being down some 90% since IPO, most shareholders probably just decided to leave it as it is. If this bring back bad memories, I apologise.

Here is a short write-up from way back:

http://www.asonic-logisticsolutions.com/...ep2003.pdf

Its IPO prospectus can be found here:

http://repository.shareinvestor.com/rpt_...file/35853

A-Sonic posted combined comprehensive losses of US$24.7m over the past 10 years. Only in 3 of those year was its comprehensive income positive. Given the heavy loses, dividends for the past 10 years totaled US$3.7m, and was paid out over 4 years. Its poor record make A-Sonic a recalcitrant member of the watchlist. Always escaping the gallows by posting some profits when time is almost up, and then returning to its loss-making way immediately after release. 

Comprehensive Income (US$)
FY08:    (14,972)
FY09:    (1,153)
FY10:    8,029 
FY11:    (2,186)
FY12:    (5,618)
FY13:    4,059 
FY14:    105 
FY15:    (9,926)
FY16:    (2,512)
FY17:    (521)


Currently, A-Sonic has a book value of US$26.3m (approx S$35m) and market value of S$11.4m. This translates to a p/b of about a third. Has A-Sonic become a value-for-money buy?



Lets start with its cash flow. A-Sonic has produced a total of $21.1m FCF over the past 10 years. Looks good, yet strange. How can it be posting almost as much losses as it produces FCF? There are 2 reasons why its cash flow statement looks good. The first is that its interest expenses are accounting under 'financing cash flow.' The second and main reason is that it has been delaying the settlement of its trade payables longer than the collection of its trade receivables. In other words, it is borrowing more from suppliers to do business. In FY08, there was more trade receivables than payables. In FY17, it is the reverse. As a result, its cash remains more or less intact.

Trade Receivables, Trade Payables, and Cash (US$)
FY08:    32,134           21,443              26,644
FY09:    41,626           28,868              20,360
FY10:    44,497           28,634              30,080
FY11:    45,740           35,078              29,237
FY12:    53,373           43,065              22,716
FY13:    43,756           37,919              20,718
FY14:    39,725           35,885              16,601
FY15:    29,293           28,181              18,993
FY16:    34,672           33,973              18,354
FY17:    40,365           45,237              23,782


Meanwhile, its working capital is decreasing, in step with the comprehensive income. Clearly, their business model is not working. 

Working capital and comprehensive income (US$)
FY08:    28,196
FY09:    25,812            (1,153)
FY10:    37,981            8,029 
FY11:    33,126            (2,186)
FY12:    25,834            (5,618)
FY13:    18,677            4,059 
FY14:    20,924            105 
FY15:    17,819            (9,926)
FY16:    19,375            (2,512)
FY17:    17,377            (521)


Let's say the Tan sisters (I assume) have had enough, and decide to halt all operations and liquidate the company. Let's say it can get back US$15m out of the US$17.3m of working capital. And for its PPE, let's say it can get back US$5m out of the US$7.2m. That's a cool US$20m (or approx S$26.6m), more than double the market cap! So the question is, will the Tan sisters liquidate the company?

Directors and Key Management Compensation (US$)
FY08:     2,401
FY09:     2,658
FY10:     3,312
FY11:     2,969
FY12:     2,680
FY13:     2,849
FY14:     2,998
FY15:     2,748
FY16:     1,622
FY17:     1,638


Between the two sisters, they make about US$1m per year. The exact figures are not known since it is not disclosed, but you can arrive at an estimate after subtracting the salaries of the others executive officers and independent directors. It is only during the past few years where the compensation shows some alignment with the direction of the business, i.e. down. Even then, it is still high for a company that has not been able to demonstrate making sustainable earnings. Apart from the comfortable salary, A-Sonic was also founded by these sisters. Having been with it for more than 20 years now, it is likely that they will try to turn thing around. Giving up on it will mean giving up a major part of their identity. 

Since liquidation is unlikely, the next question is how long can the company last. Unfortunately, I cannot offer any insight to predicting its future. Assuming that it continues to make small losses, A-Sonic should be able to continue as a going-concern for the next 5 years or so. If things get really bad and it is unable to exit watchlist, shareholders may just continue holding onto shares of a delisted A-Sonic. If the Tan sisters are nice, they may just give a low exit offer. 


For all the Annual Reports:

http://www.shareinvestor.com/fundamental...ter=BTJ.SI

As the company is now showing a profit, will it automatically be removed from the watchlist at the end date of the "cure period" in June 2020? Anyone familiar in how to process usually works in these types of situations?

[ghchua]

As the company is now showing a profit, will it automatically be removed from the watchlist at the end date of the "cure period" in June 2020? Anyone familiar in how to process usually works in these types of situations?

Unfortunately, there are two types of watch-lists and A-Sonic entered into both of them - i.e. Financial Criteria and MTP Criteria. To be removed from the watchlists, the rulebook on this is quite clear:

An issuer on the watch-list may be removed from the watch-list if it satisfies the following requirements, where applicable:—

(1) Financial Exit Criteria

The issuer records consolidated pre-tax profit for the most recently completed financial year (based on the latest full year consolidated audited accounts) and has an average daily market capitalisation of S$40 million or more over the last 6 months.

(2) MTP Exit Criteria

The issuer records a volume-weighted average price of at least S$0.20 and an average daily market capitalisation of S$40 million or more over the last 6 months.

Source: http://rulebook.sgx.com/en/display/displ...48&print=1

Let us see where A-Sonic is currently with respect to each of the watch-list exit criteria:

(1) Financial Exit Criteria

A-Sonic delivered pre-tax profit for FY2018 (FY2019 numbers not out yet, but from my observations based on their 9M19 results, they should be on track for another year of consolidated pre-tax profit, barring unforseen circumstances), so this part is satisfied.

Average daily market capitalisation of S$40 million or more over the last 6 months - Average daily share price of A-Sonic for last 6 months had been around 20cts plus until it shot up recently to more than 45cts. Taking 58,479,296 outstanding shares out there, A-Sonic would need at least to be trading near 70cts for the last 6 months in order to achieve a market cap of more than S$40 million. So, this criteria is not met.

Conclusion - Financial Exit Criteria not met.

(2) MTP Exit Criteria

Average daily share price of A-Sonic for last 6 months had been around 20cts plus until it shot up recently to more than 45cts. So, I think A-Sonic records a volume-weighted average price of at least S$0.20, so this part is satisfied.

Average daily market capitalisation of S$40 million or more over the last 6 months - Average daily share price of A-Sonic for last 6 months had been around 20cts plus until it shot up recently to more than 45cts. Taking 58,479,296 outstanding shares out there, A-Sonic would need at least to be trading near 70cts for the last 6 months in order to achieve a market cap of more than S$40 million. So, this criteria is not met.

Conclusion - MTP Exit Criteria not met.

From the above, A-Sonic will remain in both watch-lists.

[jh_sw]

Many thanks for the reply ghchua! So it looks like A-Sonic definitely will not be lifted off the watchlist in June. So the next question is, what usually happens in these situations? Can they just "roll over" another 3 year period on the watchlist? Or do they get to move to a smaller stock exchange? Or de-list and become a private company?`I understand it is different in each case, but what would you say, given the current circumstances in A-Sonic, is the most probable outcome?

[ghchua]

Many thanks for the reply ghchua! So it looks like A-Sonic definitely will not be lifted off the watchlist in June. So the next question is, what usually happens in these situations? Can they just "roll over" another 3 year period on the watchlist? Or do they get to move to a smaller stock exchange? Or de-list and become a private company?`I understand it is different in each case, but what would you say, given the current circumstances in A-Sonic, is the most probable outcome?

Previously, there is an option to downgrade to the Catalist board while in the watch-list, but SGX has since tighten the rules and it will be difficult for companies in the watch-list to "escape" by just downgrading.

I guess for A-Sonic, the most probable outcome is to ask for extension to buy more time to meet the exit criteria for both watch-lists.

[Coco]

thanks for yr post, ghchua.
Can you provide some source for your info on SGX tightening the rules so companies cannot move to Catalist?

[ghchua]

Hi Coco,

Maybe you can refer to the news article below:
https://www.straitstimes.com/business/co...nboard-sgx

[jh_sw]

ghchua,

Thanks for your swift reply. Given the positive momentum in earnings/upward valuation of the company, it makes sense to try to extend the watchlist period - and they can also make a good case for it towards the stock exchange. Will read the link posted to Coco as well - thanks!