Challenger Technologies

[freedom]

Revenue hit a speed bump in 4Q. As a result, 2H is about the same as 1H, but profit declined 25.6%.

It should have, could have, been better.

for FY2011,

Sales reported for the first half year 158,004
Operating profit after taxation before non-controlling interests reported for first half year 7,849

Sales reported second half year 158,860
Operating profit after taxation before non-controlling interests reported for second half year 7,790


wonder where does the 25.6% decline come from

[cif5000]

wonder where does the 25.6% decline come from

From an error in my spreadsheet.

Thanks for picking that up.

[dydx]

There was a $294k forex adjustment gain and a $396k gain on disposal of quoted share investment recorded in 1H....
http://info.sgx.com/webcoranncatth.nsf/V...100167194/$file/SGXNET1H2011.pdf?openelement
and a $647k foreign exchange adjustment loss for the full year.....
http://info.sgx.com/webcorannc.nsf/Annou...endocument
- i.e. the forex gain in 1H was reversed by a $941k foreign exchange adjustment loss recorded in 2H.

If we exclude the above items, we will see the same clear unbroken historical trend that FCF from the operating businesses before forex gains/losses (which are not within the control of Challenger's management) and gains/losses on investments (again not entirely within the control of Challenger's management) continued to increase steadily with revenue in 1H and 2H, despite a slower revenue growth in 2H.

Indeed, Challenger is operating like an aircraft carrier!

[freedom]

always wonder about the line in profit/loss statement about "changes in inventories". how does challenger re-value its inventories? current market price? expected selling price? or replacement cost at that moment?

[shanrui_91]

at first, i was also rather puzzled with the "changes in inventories" and somemore that it has been fluctuating every half year. On a closer look, then i realise that they are using "cost of goods purchased" and not "cost of goods sold". A check and i found the following equation for the 2:

Cost of Goods Purchased + Beginning value of inventory - End value of inventory = Cost of Goods Sold.

Cost of Goods Purchased - "changes in inventories"= Cost of Goods Sold.

Given that COGP is a negative item on the income statement, to get the actual COGS we just need to add up the COGP and changes in inventories to calculate COGS

While I have no idea why anyone will try to do this as it confuses a lot of investor, this does explain why despite gross margin and other expenses not increasing as much as revenue increases, profit only increases by 14% though revenue increases by 31%.

Upon recalculating the COGS, Gross margin has drop from 20.2% to 19.1%, while COGS increases by 34%

[freedom]

Inventories are measured at the lower of cost (first in first out method) and net realisable value. Net
realisable value is the estimated selling price in the ordinary course of business less the estimated
costs of completion and the estimated costs necessary to make the sale. A write down on cost is
made for where the cost is not recoverable or if the selling prices have declined. Cost includes
all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to
their present location and condition.

does that mean, cost of goods purchased in income statement is using first in last out (cost of good purchased is the latest cost), but on balance sheet it is first in first out, so challenger must revalue its inventory in income statement to match its balance sheet?

[shanrui_91]

There is no revaluation of inventory given its inventory turnover ratio of 10 times. The "changes in inventories" is meant to reflect the difference between Beginning value of inventory and End value of inventory so that the Cost of Goods Sold statement is being reflected indirectly.

Using FY 2010 figure,

Changes in Inventories : + 9.793 million
Cost of Goods Purchased : -202.178 million
Cost of Goods Sold: +9.793 - 202.178 = -192.385 million

Using FY 2011 figure,

Changes in Inventories : - 0.65 million
Cost of Goods Purchased : -255.812 million
Cost of Goods Sold: -0.65 - 255.812 = -256.462 million

This is what I have learnt through searching the internet and may not be accurate. Perhaps, it will be good if any accountant can help out.

[freedom]

I believe "the difference between Beginning value of inventory and End value of inventory" is to re-align the different principle they use in income statement(first in last out) and balance sheet statement(first in first out). '


something like this?

beginning inventory: 100K

during the report period, bought new inventory 200K, sold entirely the 100K beginning inventory.

if in income statement, 200K is used for "cost of goods purchased"; as "first in first out" in balance sheet, ending inventory should be 200K. so there would be a revaluation of the inventory, add 100K in income statement, so the balance sheet will be balanced.


my guess only. not accounting-trained.

[dydx]

Challenger has managed to nudge itself into Great World City and will be opening a new store in that mall around May12.....
http://info.sgx.com/webcoranncatth.nsf/V...30021AB61/$file/NewLeaseAnnouncementInGreatWorldCity.pdf?openelement

With this, soon there will be a total of 21 Challenger Stores in Singapore, including 2 new stores to be opened in JCube (Jurong East) and Great World City within the next 2 months.....
http://www.challenger.com.sg/locations_challenger.html
In addition, Challenger operates another 8 small-format stores trading under the "Challenger Mini" and "Matrix" names.

As a proof that Challenger's management has the discipline to cull the weaker/unprofitable stores while adding new ones to continue to expand/strengthen its network of stores covering the entire Singapore market, the previous store in Sembawang Shopping Centre was closed in Jan12.

I thought it is worthwhile to highlight Challenger's exemplery dividend payment record since its listing in Jan04 (i.e. 8 years ago).....
http://www.challengerasia.com/ir-dividend_payment.html
Do note that Challenger undertook a 1-for-2 bonus issue in Mar11. Therefore, the last 2 dividends - i.e. $0.011/share paid on 31May11, and $0.01/share paid on 2Sep11 - should be multiplied by a factor of 1.5 in order to have a proper comparison with the earlier dividend payments.

It is also worth noting that since listing Challenger had only raised a limted amount of fresh capital once in Mar07, via a very shareholder-friendly renounceable rights issue of 3 new shares priced at $0.10/share for every 10 existing shares, plus 2 free warrants to subscribe for new shares at $0.10/share.

Indeed, Challenger has been a solid investment for many who believed and bought into the company early.

[Bibi]

A new shop call Digital Life, as big as challenger jurong point has emerged beside it. Same concept as challenger and I believe will pose some competition to it.