Due to the numerous queries on EG’s latest Quarterly Report (QR) with some expressing concern over its latest results, we thought we address some of the concerns here.
EG’s latest QR registered a 1.45% drop in its revenue over the corresponding 2015 QR report with a 31% drop in Profit before tax. It does paint an under performance result for the company that is disappointing. However, a quick glean over its Annual Report for the financial year of 2015 revealed that there was a spike in EBITDA and Profit Before Tax suggesting an extraordinary source of income. Dissecting further into its financial results, we can see that there were more than meets the eye.
EG did highlight the cause of this drop under note B1 in the Notes to the Interim Financial Report. There was a gain on disposal of other investments of RM6.7m in Q1 of 2015. This is an extraordinary gain that projected a big decrease in profits before tax when we compare Q1 2015 to Q1 2016, i.e. from RM7.76m to the current RM5.34m. When we remove this extraordinary gain from the equation, EG’s results painted a very different landscape.
Net Profit Before Tax:
Q1 2015 (‘000) = RM7,759
Q1 2016 (‘000) = RM5,338
Profits Decreased by 31%
Net Profit Before Tax after removing the extraordinary gains:
Q1 2015 (‘000) = RM1,059
Q1 2016 (‘000) = RM5,338
Profits Increased by 404%, an approximate growth of 5 times
To highlight the growth trend of EG, the company took the extra effort in comparing the Q1 2015 to the preceding Q4 2015 and we can see that there was a healthy growth in both Revenue and Profits before Tax of 25.5% and 30.5% respectively.
This is a very impressive performance during challenging times against a backdrop of a fluid volatile environment, politically and economically, both internally and externally.
Historically, EG has been registering an average basic EPS of 2.68 sen from 2011 to 2014 before the EPS spike in 2015 of 35.39 sen. The EPS in the just released QR of 6.56 sen was calculated based on its shareholding base of 76.8m, before accounting for its rights issue. Re-calculating its basic EPS after adjusting for its enlarged shareholding base of 192m would yield an EPS of 2.6 sen.
This means that EG is maintaining its average EPS of pre 2015. It has embarked on growth strategies to enhance its bottom line by changing its product mix to increase revenue contributions from its box build segment. The box build segment moves EG up the value chain which implicitly enhances its profits margin. Thus, its successful contract for new orders for box-build products worth RM150m announced yesterday augurs well for the company and reinforces the company’s direction and growth path. It is also testimony to the good management and foresight of the company.
It is also worth noting the entrance of 2 key shareholders in 2015 into the top 10 list of the largest shareholders in EG, namely Mr Koon Yew Yin and Mr Fong Siling aka Coldeye. Investors are well aware that the presence of these key shareholders indirectly is a vote of confidence into the future of the company.
All in all, EG is well on track in its growth strategies and the future of the company looks bright. Its successful transition of up scaling in the value chain would potentially improve its future profit margins. So, to our members who were concerned about the fundamentals of the company, we believe that EG remains a good stock with no deterioration in its financial standing.
From a TA perspective, its uptrend remains intact although it did show some short term weakness. It currently enjoys good support at 0.81/0.82 with an immediate resistance at 0.88.
Source: Jay from TCB
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