Sunday, August 26, 2012

ILB: Part 2 - Fundamental Remains Intact

As I was writing Part 2 of ILB, it announces its second quarterly report on Friday. Things don't look good at first as profit before tax (PBT) plunged 59% to RM0.54mil and profit after tax (PAT) drops into a red with a loss of RM0.356mil. This happens despite higher revenue achieved (13.4% increase).

According to the report, PBT from operation in China decrease from RM3.5mil to RM2.4mil y-o-y. On q-o-q basis, it decreases from RM1.3mil to RM0.5mil. This is caused by higher labour costs and increased financial costs. I assume labour costs make up large sum of the expenditure as financial costs only contributes RM0.2mil on the increases. Labour costs in China has been on a rise especially in the coastal area. This might post some difficulties for ILB profitability as a large sum of its profits comes from warehousing activities where payments have been agreed earlier in the contract. On the inspection of its cash flow, depreciation rose to RM1.4mil.

Higher pre-commencement operating costs of the JV warehouse in the United Arab Emirates has also contribute to the dip. However this is expected to be one-off and will back to normal in the long run.

In the near term, drama in the Eurozone could affect the still export oriented China although US data does look a little better than few months back. But still, problems are yet to be solved. Logistic business is sensitive to the macroeconomic conditions so by investing in it, we should expect the some volatility when investing in it. 

Quarterly report information as always, is never as comprehensive as the annual report. But based on my rough calculation, its NTA still worth at least RM1.08. Book value is about RM2.53 (it has jumped to RM2.50 in Q1 in fact). Decrease in cash level is used to repay debts. Its cash flow is still healthy where in fact its operating profits before the changes of working capital increases from RM9.2mil to RM9.9mil y-o-y. 

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