AP Oil International: Company Analysis Part II

After studied the financial statements of the group, next will be the segment reporting. 

The group successfully converted into manufacturing based from trading oriented during the early days as seen from their revenue contribution. 

Currently, manufacturing division contributed the most to the group in terms of revenue and operating profit. While the gross profit margin of the group is stabilized at around 20% throughout the years, but operating profit margin for the manufacturing division showed a downward trend. 

For trading division, raw materials such as base oils, additives and chemicals used for the group's manufacturing plant constitute the bulk of the group trading segment.

Franchising segment consists of international licensing and franchising scheme for the group's two lubricant products brand names, "SinO" and "AP Oil". Bulk of revenue comprised sales of raw materials to the group franchisees for producing lubricants under the brand names. Drop in revenue in FY2013 was due to slowdown business activities in Bangladesh due to political instability. 

Majority of the group's revenue go to local but part of the sales to Singapore included marine lube delivered to foreign vessels at Singapore ports as well as specialty chemicals sold to Singapore-based multinational companies and subsequently re-exported to other countries

It was followed by Vietnam and Bangladesh. Sales to Vietnam was done through the joint venture with AP Saigon Petro while sales to Bangladesh was mainly through franchising. 

AP Oil group basically managed by a group of family. 

Ms Lau is one of the founders of the group and she is the spouse of Dr Ho who is the chairman and managing director currently. And their son currently also the group deputy CEO. 

Their total shares holding of the group is around 50%. The top 20 shareholders are holding around 72% based on AR2013. 

For the 6 months result end June 2014, the group recorded higher revenue but slightly lower net profit. The drop in gross margin was due to higher portion of trading activities. 

One thing to note is the cash dropped a bit while trade receivables increased a lot.

Another thing to note is that the group adopts US dollars as functional currency while the financial presentation here is in Singapore dollars. A 10% strengthening of USD against SGD will have some impact on the group performance. 

So to me, overall I can say that AP Oil is a fundamental good and stable company. You would not expect a tremendous growth of its business based on its historical record. 

In terms of valuation, the most attractive point of AP Oil of course is the cash on hands. 

Based on AR2013, the group had SGD26mils cash on hands which equivalent to 16cents cash per share while the current share price is SGD0.21. 

With that amount of money, it translates into

Net current asset value (NCAV) = SGD 0.20

Graham Net-Net Working Capital (NNWC) = SGD 0.18

Enterprise Value Multiple = 1.9 or earning yield of 53%

While the group may not look so attractive to me, but I will keep it in my list to see whether simple & defensive valuation like NCAV and NNWC workable here :)

AP Oil International: Company Analysis Part I

AP Oil International Limited, is a one stop solution provider for lubrication needs. It manufactures and markets lubricants and specialty chemicals products to some 20 countries.

Some brief history. The group started as lubricant distributor in 1975, ventured into manufacturing in 1981 and listed in 2001. It acquired A.I.M Chemical Industries in year 2000 to expand into specialty chemicals who operates a chemical blending plant providing toll blending and contract manufacturing.  

The group has R&D facilities to provide customised lubricants for specific needs of customers and improve operational efficiency of cost effectiveness.

Application for its lubricants are automotive, industrial and marine industries. Did you encounter any of the lubricants produced by the group before?

The group currently operates 6 manufacturing plants. (3 for lubricants and 2 for specialty chemicals). Two lubricants plants are equipped with terminals and a private jetty.

Acquired a lubricant plant with a fully equipped laboratory through established 30:70 JV company, AP Saigon Petro in Vietnam in FY2008. The plant has an annual production capacity of about 25,000mt, products being distributed through Saigon Petro's network of about 400 petrol stations and exported to neighbouring countries.

Revenue of the group throughout the year was in upward trend but not a smooth one and dropped significantly in FY2013. Net profit was in the region of SGD4-5mils for the past 5 years.

Gross profit margin was between 15-25% while operating profit margin and net profit margin were in the region of 7%. Typical chemical manufacturer with single digit profit margin.

Dividend for the past 4 years were 0.5 cents. No increase no decrease. Payout ratio was below 20%. 

The group is in net cash position ever since FY2009.

As in AR2013, all cash, receivables and payable are denominated in Sg Dollar. 

Cash balance is so high that it contributed around half of the group’s total assets. In addition, the group liabilities mainly contributed by the shareholders’ equities, in the region of 80%. Thus, all the invested capital comes from the shareholders themselves. 

Current ratio is also high at 4 to 5 times. The group balance sheet is so strong that able to survive any potential crisis and also make any acquisitions when opportunity arises. 

The group's operating cash flow was quite strong throughout the years. In the mean time, the group only need very minimal capex expenditures yearly (~1mils). Capex/Sales ratio was less than 3% yearly. Thus, depreciation is also low accordingly.  

So, it’s not hard for the group to generate positive free cash flow year and year.

FCF/Sales was good. Averagely >5%.

Net cash flow from operation/net profit also more than 1 for the past 3 years. Very genuine cash generation from its revenue

So what to do with the positive FCF every years with the dividend payout still <20% and no borrowings? 

Keep in the bank and waiting for opportunity. 

AP Oil's control on its inventory, trade receivables and payables has been quite stable at which the cash conversion cycle recorded was between 35-55 days. It takes less than 2 months for the company to convert its products into cash through sales. 

In terms of returns, ROE was above 10%, dropped to 11.7% in FY2013 due to lower profit recorded. If breakdown using DuPont analysis, assets turnover and equity multiplier had been quite stable due to stable growth of its shareholders' equities and assets. Thus, the performance of ROE highly depends on its profit margin. 

ROIC was quite high throughout the years, it recorded 34.3% in FY2013 which is far higher than its cost of equity which is a good thing as it generated value to its shareholders on paper. 


AP Oil seem like a good fundamental, sound and stable company. Will evaluate more on next post.