Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.

Friday, November 29, 2013

The Fall of SKP Resources 星光资源

SKP Resources Berhad was once one of my favourite companies as I wrote a post about the group before. But that's not the case anymore with the group recent performance as it's today. 

Above table copied from malaysiastockbiz which in my opinion is quite good as it provides the major fundamental statistic but some of the data is incorrect like for this case, the group declared dividend for its latest quarter but the the table shows zero. But overall, it's good platform that provides a quick glance through.

Back to the post, the revenue and net profit for the group for the last 4 quarters were not as good as it was earlier. (p/s: Do not look at the EPS column as the group had a bonus issue at Q4FY12). One of the poorest thing about the management team is that they did not provide much reason why their revenue was deteriorating. I looked back on the 4 quarter reports and almost all the comments were basically the same as below. 

Q3FY13: The revenue had reduced by 25.3% from RM121.17 million to RM90.47 million. Mainly due to lower sales orders from customers during this quarter. However, the Group recorded higher profit margin due to different products mix. Both revenue and profit are sustainable mainly due to continued demand for certain manufactured plastic products and components.

Q4FY13: The revenue had marginally reduced by 2.6% from RM90.47 million to RM88.11 million. Mainly due to reduction in sales intake by customers during the festive season as well as the increase in labour costs as a result of implementation of minimum wage policy during this quarter.

Q1FY14: The revenue had increased by 22.9% from RM88.11 million to RM108.29 million. Mainly due to increase in sales intake by customers during the period.

Q2FY14 (latest): The revenue had reduced by 2.0% from RM108.29 million to RM106.15 million. Mainly due to drop in revenue during the period as well as different products mix.

Lower revenue because of lower sales orders. Bloody hell I also know that lower revenue of course was due to lower sales recorded, but what the investor want to know is why. Is it due to quality problem or lost the business to competitors. No idea and no answer. There is rumours that its main customer, Dyson is not doing well in China which indirectly affect the group business, but nobody can confirm with that.  

One thing for sure is its operating cost is getting higher due to the minimum wages implementation that reduced its profit margin. If the tariff hike really comes by next year, its profit margin probably being squeezed further. However, it still remains debt free and in net cash condition. ROE still able to stay above ten, amid in deteriorate trend. 

Furthermore, if you look at the insider trade. You will found out that the managing director and some of the executive directors quite actively deposed and acquired their company shares in market. If they are really that free, it's better for them to use it to look for ways to improve the company performance. 

Back to quote from some investment guru, you really need a good management to run the company even it's just a mediocre company. And being a shareholder, one need to evaluate the company performance from time to time, at least look through its quarter reports once in 3 months. 

Perhaps one day, the group's performance improves and back to its best. Who knows. 


  1. I saw this post surprisingly when I wanna look for more information about this stock. I also dissatisfied about the company bloody hell explanation on decreasing in sales. If you look closer, you will find out company give the same reason (different product mix) for increasing margin in Q3FY13 and decreasing margin in Q2FY14.

    I believe the poor performance in gross profit margin was the main problem for unpleasant outcome. Minimum wages has impact on profitability, but I think the impact is relatively small as it increase the cost around 1 million to 1.5 million yearly. I hope company could explain more on the margin.

    Anyway, good post.

    1. Thanks, JK Lim. Too less information we could get from its quarter reports as well as their website. Perhaps, one day the management able to turn over the table and improve their performance.


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