Last week, Challenger Technologies received an acquisition offer of S$0.56 per share for the entire share capital from Digileap Capital, a partnership between the founding family Loo family and Dymon Asia Private Equity.
Incidentally, Shares Investment has recently wrote about Challenger Technologies in January 2019 citing that the counter was undervalued and was not in the radar of most sell-side brokerage houses. While the presence of locally public-listed retailers like Courts Limited, and now Challenger Technologies are expected to dwindle, investors who are keenly looking out for other players in the similar IT field might want to turn their sights to Ban Leong Technologies (Ban Leong). Ban Leong is a local listed IT wholesale and distribution firm.
About Ban Leong Technologies
Ban Leong was founded in 1993 by an individual called Ronald Teng who is now the Chairman and Managing Director. It is listed in the SGX Mainboard since June 2005. Unlike Challenger Technologies, which deals mostly retailing of computer and other IT accessories, Ban Leong is a wholesaler and distributor of a diverse range of IT accessories, multimedia, and data storage products. Till date, Ban Leong has authorised distributorships for over 178 types of products under 52 brand names. This allows endless bundling possibilities of different products to cater to the varied needs of customers.
Ban Leong currently operates through three channels, namely B2B (Business-to-Business), B2C (Business-to-Customers), and offers a comprehensive after-sales service for its customers. The Company has also expanded overseas, and has regional offices in Malaysia and Thailand.
|Income Statement ($)||30/9/18||30/9/17|
|Net Profit attributable to shareholders||1,386,372||1,850,834|
|Net Profit attributable to shareholders||1.9%||2.4%|
|% YoY Change||1H19||1H18|
|Net Profit attributable to shareholders||-25.1%|
Source: Company’s Financials
Ban Leong’s financial year ends every 31 March, and the most recent financial statements showed that as of 1H19, revenue dipped 3.1 percent to $74.8 million. Net profit attributable to shareholders fell 25.1 percent in 1H19 to $1.4 million from $1.9 million in 1H18. Despite the shortfall in both top and bottom-lines, gross profit margins improved almost 40 basis points (bps) in 1H19 at 9.9 percent from 9.4 percent in 1H18.
Management cited the decline in revenue was due in part to the multimedia, storage segments where contributions declined by $4.4 million and $1.5 million respectively, but was offset by the improvement in accessories segment by $3.4 million. The decline in multimedia segment was due to delays in some hotel projects and storage segment’s decline was caused by the cessation of a brand distributorship in Singapore.
The Company, on a Group Level, has cash and bank balances totaling $8 million as of 1H19. This is less than $14.8 million in cash and bank balances during the start of the financial year. As of 1H19, the Company has long-term secured and unsecured borrowings and debt securities of $60,814, and $5.9 million respectively, whereas secured short-term borrowings and debt securities amounted to $170,213. An illustration of the breakdown of the debt obligations is as follows:
Source: Company’s financials
The Company currently has a deficit in net cash flows from operating activities of $4.9 million, higher than the deficit of $3.5 million last year.
Key Financial Metrics
|Return on Assets (ROA) (%)||2.8%||4.6%||3%||5.7%||5.4%|
|Return on Capital (ROC) (%)||4.5%||7.7%||5.4%||10.6%||9.2%|
|Return on Equity (ROE) (%)||3.6%||11.4%||11.1%||20.1%||18.1%|
|Gross Margin (%)||10.8%||10.3%||9.2%||10.3%||10.5%|
|EBITDA Margin (%)||2.3%||3.3%||2.1%||3.6%||3.5%|
|Net Income Margin (%)||0.6%||1.5%||2.1%||3.4%||3.2%|
|Current Ratio (times)||1.7||1.7||1.9||1.9||2.0|
Source: SGX StockFacts, Company’s financials
We noticed that most of the efficiency ratios, ie. ROA, ROC, and ROE faced some declines by a few percentage points from FY18 but still showed a general uptrend. The rest of its financial metrics look rather stable.
Ban Leong Technologies Debt Levels
Source: SGX StockFacts, Company’s financials
We noted that Ban Leong Technologies total debt-to-equity has fallen to lower levels over the past few years. As of the last twelve months (LTM) ending September 30, 2018 the ratio rose slightly from 12.9 percent in FY18 to 20.2 percent.
On the interest coverage ratio as measured by EBITDA-to-Interest Expense, the ratio has also increased from 48.4 times to 53.1 times during the same period of time. This is generally a good sign that the Company has enough operating profits to ‘cover’ its interest expense obligations.
Worth A Look But Concerns Remain
At recent trading price of $0.23, Ban Leong is changing hands at a historical price-earnings (P/E) ratio of 5.7 times, with a twelve-month historical dividend yield of 7.6 percent. The historical price-to-book (P/B) value works out to be about 0.9 times, based on data by Shares Investment.
However, despite the low debt-to-total equity ratios, and high interest coverage ratios, investors might be concerned about Ban Leong’s negative net operating cash flows which concerns over the ability to finance operations on a sustainable basis.
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