Sunday, June 8, 2014

My take on K. Fima’s quarterly results ended March 31, 2014

Please read the disclaimer here: Enjoy the article, bitches!

In this article, I will be doing a quick analysis of the quarterly performance of Kumpulan Fima’s business segments. Before I begin, let me just disclose that I do own shares in the company. I used to have a theory that an analyst would do a better job if he had skin in the game as it would force him to really try to understand the company. But after seeing how some people vehemently defend overvalued shit companies that they got stuck with (I wish my future wife would defend me the way these shmucks defend their investments), I’m starting to rethink my theory. However, I think I have enough sociopathic traits to pull off an objective analysis.

Manufacturing of security and confidential documents: Profit before tax (PBT) from the manufacturing division experienced a significant decline of 56.7% from the previous quarter. The decline was the result of lower revenue and less favorable sales mix. However, I will cut the company some slack as the manufacturing division did post strong results over the past 12 months with revenue and PBT growth of 19+%. I will be monitoring the results of the manufacturing division closely to see whether the dip was cyclical or if it is more persistent in nature.

Plantation division: The plantation division really stepped up its game in the quarter ended March 31, 2014. Revenue and PBT grew by 91.8% and 60.7% respectively from the previous quarter. The stronger performance was a result of both the higher selling price of CPO and CPKO and higher sales volume. The fortunes of this division are tied to palm oil prices, so it’s difficult to predict how this division will perform over the long-term. All management can do is to keep striving to be even more efficient and achieve a lower cost structure as that’s the key to getting a competitive advantage in a commodity business.

Bulking division: When I first analyzed Kumpulan Fima, I really liked its bulking division due to its solid profit margins. Revenue and PBT increased by 7.8% and 15.7% respectively from the previous quarter. However, the business environment for this division remains challenging as revenue and PBT are down by 13.9% and 11.39% respectively from the corresponding quarter a year ago. Hopefully the performance of the bulking division can continue to pick up.

Food division: This division sucked this quarter and has been sucking for the past 12 months. As this division generates most of its revenue in Papua New Guinea, it has been brutalized by the weakening of the Kina (Papua New Guinea’s currency). A weakening Kina would by itself cause the division’s revenue and PBT to decline in Ringgit terms. However, the situation is made worse as a significant amount of the division’s raw materials are denominated in USD. The weakening Kina makes these raw materials more expensive and causes the division’s cost structure to increase. I don’t want to write this division off yet because it did report decent profits a year ago. If I was in charge of Kumpulan Fima, I would give this division 3 years to turn itself around. If it can’t at least earn its cost of capital by then, then I would seriously consider selling it off. As Kenny Rogers once sang : “You've got to know when to hold 'em, Know when to fold 'em, Know when to walk away, Know when to run”. One of the best fucking pieces of advice given for business and investing, ever. Thank you for reading! Take care and stay rational.

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