Review of $Excelpoint(BDF.SI) 's quarter results:

A few plus points:
1. Revenue increase of 17%. Even though profit margin didnt increase much, revenue is still growing steadily. This means that they are getting more and more business from their customers.

2. FINALLY, cash flow generated from operating activities!! 3 million generated compared to 21million used in the same quarter last year. This is despite rising revenue and profits. I see this as a MAJOR plus point as they are improving their cash flow.

3. Usage of placement shares proceeds. 5million of the 7 million is dedicated to Investments and Acquisitions. With this, Excelpoint will be able to possibly ramp up distribution/production and increase their profitability.

4. Strategic partnership with Analog Devices ADI is an american semiconductor company with 5.4 billion USD in revenue in 2016. Hopefully Excelpoint will be able to leverage on this relationship to boost their revenue. Even with just a small percentage of revenue clinching, i believe they will be able to increase their profit manyfold.

A few negative points:

1. Increase in interest expense due to borrowings.

2. Increase in borrowings.

3. A slight drop in EPS because of the increased number of shares.

Overall, this is a great set of results, and the major plus points being the improved operating cash flow of the company and the strategic partnership with ADI.

With this set of results, Excelpoint is on par to record an EPS of 7.36 US Cents for the full financial year if we compare with the previous year. This means that, the current price represents just 6.5x PE.

If Excelpoint just grows to a PE of 10, it is worth at least $1.00. Excited for what this company has in store!

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24 likes 74 comments
bgting

My thoughts on this business ...

1. Low margin, or at least low gross margin, is a characteristic of this business. It is sort of a trading business, ie, trading electronic components. It buys and keeps stock from its suppliers and sell to customers, making the difference.

2. The products are somewhat like commodities. Customers will try to buy the same part from the lowest cost supplier. However, the main source of competition is not only related to the same part but rather another solution that can achieve the same function from another supplier. For example, the customer may choose to design-in a solution from TI rather than ADI. It could be due to cost, sales support or design support etc. Then the business could have gone to, say, Serial System or even TI itself.
http://www.excelpoint.com/products
http://www.serialsystem.com.sg/index.php/e...

3. If the customer gets big enough, the suppliers may wish to handle the sales and support by themselves.

4. It's stated in the announcement that its relationship with ADI goes back to 1987, so this doesn't look like something new. It isn't very clear what the improvement in the relationship is about and what the impact is. Probably an expansion in territory? Or maybe ADI is outsourcing more tasks to Excelpoint? However, ADI is just one of its numerous suppliers.

5. If a salesperson can book a sales for 1 million parts, it doesn't take two to book a sales for 2 million parts from the same customer if business is booming. So during an up-cycle, the top and bottom lines should grow faster than expenses. This means the net margin and hence profits should improve substantially. This is a characteristic of a marginal business.

6. During an up-cycle, larger orders from customers come in. With larger orders, cash is required to build up inventory to hold for customers. The company uses credit from suppliers and short term loans to fund the inventory build up. This causes current liabilities to increase. As goods are delivered and customers are billed but payments are not received yet, accounts receivable also increases. Thus, cash flow appears negatively impacted. This seems to be what is happening.

7. As conditions stabilize, the inventory build up should slow. As payments from customers come in, payments to suppliers are made. The leftover are cash earnings. The high leverage will make the ROE look good as net margin improves. Gross margin may stay low or may go even lower because customers will request for lower prices for higher quantities.

8. As the cycle turns down, orders falls. If the company is alert to this, it will wind down the inventory level. This would mean cash build-up as inventory is converted into cash. This will make the cash flow look good.

9. However, if the company is not alert enough or the cycle turns suddenly, we can imagine all sorts of risks such as counter party risks due to late payments from customers and customers defaults, inventory obsolescence that needs to be written down resulting in losses etc.

10. The competence of the management lies in management of these risks while deriving an adequate return.

11. For such a cyclical business, it is quite usual that market gives a larger discount to the share price. The lack of interest in the stock could be because there were those who were caught out in previous cycle peaks and learnt the lesson the hard way. Some may even be hoping to exit when share price goes up. However, if the business expansion and bull market lasts long enough, net profit and dividends should start to look good. This may garner market interest, until the cycle turns yet again. Long term shareholders who are willing to ride through the ups and downs have to depend on dividends for returns over the years.

From the look of it, it does imply that we're probably in an up-cycle. However, by looking just at one company is not good enough to pass such as a strong judgement. Hope this cycle lasts a bit longer. These are just some of my thoughts and I am not from this industry, so can't be sure how correct I am. I'm currently not vested. DYODD. :-)

fiftysevenbucks

Reply to @bgting : could not agree more with you. I have divested my holding the next day after the result out due to low margin.

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seanie

@salvatore what are ur plans for excel

seanie

Reply to @Salvatore : Seems like a lot of people selling out... as the price slides day by day.. just like the last results

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lt_investor

Looking at how Venture, AEM, Hi-P, Fisher Tech, valuetronics and even Jadason had been rising but not excelpoint, i started to be aware. Like what i mentioned previously, if under a bull market the price is not moving up, what do you think will happen in a downturn? Currently i am still vested with 40 lots which i am looking at opportunities to sell within the next few days. Somehow my fear and not confidence in this stock grow everyday. Just my view.

seanie

Reply to @lt_investor : Nice one... excel facing much selling pressure.. think not good at all

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wellhandy

Judging from TTI comments, Albert and friends are honest and focused people who concentrate on biz more than valuations. This is test for long term value and growth investors who are believers.

seanie

Reply to @lt_investor : Ouch... guess the pressure will be on excel then

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J_Chou

I think I have learnt a valuable lesson with regards to SGX today.

LevelUp

Reply to @J_Chou : Perhaps it's more of instant gratification rather than impatience. I am sure most people will prefer to gain x% within one month, as opposed to having to wait 1 year to get the same returns.

It's good to exercise different levels of patience for difference scenarios (be it investing or in life) ... learn to enjoy the process while waiting, but don't procrastinate when a good opportunity strikes!

As for the dividends, I have not really checked for Excelpoint but I guess the senior management probably owns a sizeable chunk of shares too. By declaring dividends, they are getting some good dividend income too ;-)

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korryan

Maybe we need to pool money to invite some analysts to do a well coverage on them. Haha.

lt_investor

Reply to @korryan : Should propose this to company management instead.

uncle178

This stock is so under-radar that even good results don't move it!

lt_investor

Good analysis and the write up. However like what i mentioned previously, as long no recommendation from the bank or brokerage this stock will not fly. Good examples are AEM, Best World etc.

Opportunistic_Investor

cash flow personally doesn't meant much to me if earnings wasn't increasing a lot.

in fact need to worry when cash flow jumps but profit dint jump. :P

handsomeuncle

Reply to @Opportunist : As an auditor before. I worry more if profit jump but cashflow does not.

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$Excelpoint(BDF.SI)

ADI is an american semiconductor company with 5.4 billion USD in revenue in 2016. Time for Excelpoint to gain recognition!!

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Good read about $Excelpoint(BDF) , steady revenue growth over the past 5 years.

http://www.smallcapasia.com/2-small-cap-st...

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Expiry:
Target Price
$0.9
(+40.62%)
NOW:

1. Laggard in the electronics sector.
2. Growing revenue/profits over the last few years.
3. Use of leverage to grow company.
4. Entering into the Internet of Things (IOT) segment, which is the next big thing in the next 5 years.

This stock has much upside. Bringing light to this counter.

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Good for $Excelpoint(BDF) investors.

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MotleyFoolSg MotleyFoolSg 's post

For many investors, high debt levels are viewed in a negative light. After all, they mean there is a greater risk attached to the company in question. If it is unable to pay its debts due to underperformance, it could become bankrupt.
However, high debt can also be a good thing. It can equate to higher rewards, which in some cases more than makes up for the higher level of risk.
Improving profitability
The main reason why debt can increase overall reward is that it costs a lot less than equity. A company can be financed either through debt or equity, with the former generally being cheaper than the latter. This means that it is logical for every company to maximise their debt levels in order to generate higher returns on equity. Doing so can mean higher profitability, higher dividend growth and stronger share price performance.
The right circumstances
Obviously, maximising debt levels is not always a prudent move. Companies which are highly cyclical and dependent upon the performance of the wider economy could enter into major problems if their balance sheets are highly leveraged. During leaner years, they may struggle to cover debt-servicing costs, which may lead to an even more challenging period.
In contrast, companies operating in industries which offer stable, consistent and robust returns should increase debt to relatively high levels in order to improve the return for equityholders. For example, it makes sense for utility and tobacco companies to increase debt levels, since they have a high level of earnings visibility and enjoy relatively consistent demand from their customers.
Economic cycles
It also makes sense for companies to borrow as much as possible during periods of time when interest rates are low. The last decade has been a good time to be a borrower, rather than a lender. Interest rates across the developed world have been at historic lows and this has allowed companies in a range of sectors to reduce their overall borrowing rates.
Looking ahead, a higher rate of inflation is forecast and this may prompt higher interest rates. While this may mean the cost of servicing debt increases, it should be offset somewhat by higher prices being charged to the end consumer. Furthermore, a higher rate of inflation will help to erode the real-terms value of debt. This means that higher amounts of borrowing may remain popular in future years.
Takeaway
While increasing balance sheet leverage raises overall risk, it can be a profitable move in the right circumstances. While interest rates are low, companies with stable business models may improve overall returns by increasing debt levels. While higher interest rates may mean the cost of servicing debt rises in future years, higher inflation may erode the real-terms value of borrowings. Therefore, Foolish investors may wish to buy stocks with at least moderate debt levels in order to maximise their overall returns in the long run.

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$Excelpoint(BDF)

Overall, I am 90% contented with Excelpoint's results.

Positives (Other than 61% increase in profit):
- The company actually managed to reduce their sales and distribution costs even though revenue increased! This is a BIG PLUS to me because they are capable of increasing their profit margin.
- They managed to increase the amount of cash they are holding from 11m to 14m.
- EPS increased by almost 40% to 1.62c in this quarter.
- Book value increase 2+% to 83c.
- They have $7.8million in net proceeds that have not been utilised. Whether this will be used for share buyback, special dividend, or just repayment of their debt, all are HUGE positives to me.

Negatives:
- Because of rising interest rates, their interest expense rose by 60+%.
- They used cash flow and borrowings to fund their working capital.

Overall, very satisfied with the company's ability to generate revenue, keep costs low. Confident in the management. However, a risk is still the amount of money they use to fund their working capital. I am confident that the management will be able to come up with a solution for this in the long term.

a plus point -
Today, the management replied me on a query of their rising debt.
The reply: We are conscientiously exploring all avenues to support our business growth, either through debt or equity.
Very similar to what @prescientsuper has been mentioning!

To all who are holding. Huat ah!

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