Creative Technology : Q4 FY05 Results

SGX Announcement dated 10-Aug-05,

CREATIVE ANNOUNCES Q4 FY05 RESULTS
Revenues up over 50 Percent Year-Over-Year on 260 Percent Increase of MP3 Unit Sales; Company Reports Loss Primarily Attributable to Lower-than-Expected Selling Prices and Inventory Write Downs

SINGAPORE – August 11, 2005 – Creative Technology Ltd. (NASDAQ: CREAF), a worldwide leader in digital entertainment products, today announced financial results for the fourth quarter and fiscal year 2005, ended June 30, 2005. All financial results are stated in U.S. dollars.

Sales for the fourth quarter were up 51 percent year-over-year, coming in at $305.4 million, up from $201.8 million in revenue for the same quarter last year.

Sales for the 2005 fiscal year were up 50 percent year-over-year, coming in at $1.224 billion, up from $814.9 million for the 2004 fiscal year.

For the fourth quarter, net income was a loss of $31.9 million with EPS of a $0.38 loss per share, including an investment gain of $9.3 million. Excluding the investment gain, net income for the fourth quarter was a loss of $41.2 million with EPS of a $0.49 loss per share. This compares to net income for the same period last year of $6.6 million with EPS of $0.08, including an investment loss of $0.2 million.

Net income for the 2005 fiscal year including investment gains of $74.4 million and a noncash impairment charge on 3Dlabs of $65.2 million, was $0.6 million with EPS of $0.01. Net income for the 2005 fiscal year excluding investment gains of $74.4 million and a non-cash impairment charge of $65.2 million, was a loss of $8.6 million, EPS of a loss of $0.10 per share. Net income for the same twelve months last year including the benefit of a $12.2 million tax write-back and investment gains of $72.6 million was $134.2 million with EPS of $1.61. Net income excluding the benefit of a $12.2 million tax write-back and investment gains of $72.6 million was $49.4 million with EPS of $0.59.

“Our Q4 unit shipments of MP3 players were up more than 260 percent year-over-year. However, this high growth was below our aggressive expectations for the period,” said Craig McHugh, president of Creative Labs, Inc. “We had set our targets higher for unit volume and average selling prices for our MP3 players than we achieved in the period. Missing our targets caused us to miss our revenue goals and we were not able to reduce our inventory levels as rapidly and as much as we had expected. During the quarter, there was a decline in the value of certain components in our inventory, including flash memory and hard drives, so we needed to take an inventory write down. Even though we increased overall revenues 50 percent year-over-year, the lower-than-expected selling prices for MP3 players and the inventory write-downs negatively impacted gross margins in the period. These factors combined with currency losses resulted in our loss in the period. While we are very disappointed that we reported a loss for the fourth quarter, we believe we can get closer to break-even in the current quarter and that we can return to profitability by the end of this calendar year. We plan to return to profitability by continuing to grow our MP3 business and growing our audio business following the launch of the new Sound Blaster® X-Fi™ and the new Xtreme Fidelity™ audio standard, which we introduced this week.”

“While we continue to work diligently through our inventory position and are very focused on returning to profitability, we are not hesitating in driving our company forward,” said Sim Wong Hoo, chairman and CEO of Creative. “Just this week, we introduced what I believe will be the future direction of audio – the new Xtreme Fidelity audio standard and its first incarnation in products, the Sound Blaster X-Fi sound cards. Over the last month we have toured the world demonstrating the new Xtreme Fidelity standard and the Sound Blaster X-Fi to the press, and the response has been phenomenal. The new Xtreme Fidelity literally wowed people as we clearly demonstrated how the Sound Blaster X-Fi family of ultra high performance sound cards can dramatically enhance MP3 and CD music, virtually any music or audio, accelerate gaming, and provide an amazing headphone experience.”

“Over the past seven years we have relentlessly and painstakingly built our EAX standard to become the unified audio standard for the PC platform,” continued Sim. “Xtreme Fidelity will be the fifth generation of this well-established PC audio standard, where virtually all existing games and media content under the Windows platform can be instantly enhanced without any modification.”

“We also showed the press the award-winning Zen™ Micro Photo MP3 player and the new Zen Vision, our music, photo and video player, due to be released soon,” continued Sim. “We received overwhelmingly positive responses to these exciting new products from some of the toughest and most astute reviewers. With the Zen Vision, you can now carry all of your music, all of your photos and all of your favorite videos in the palm of your hand. I believe we now have the sexiest, most appealing and most versatile digital music, photo and video player in the world. We believe that we will greatly strengthen our product offerings in our key product categories in time for this holiday season. By next year you can expect the Xtreme Fidelity standard to be included in some of our high-end digital media players. With our huge arsenal of audio products, technologies and intellectual property, you can expect Xtreme Fidelity to proliferate into all kinds of audio products going forward.”

Comments - Much worse than expected. More losses expected this quarter before it return to profitability next quarter. I expect share price to continue to drop then. Will re-evaluate again after next quarter results, unless price drop below $10 :D

Reports (added on 12-Aug)

• DBSVickers dated 12-Aug,
  CREAF’s 4QFY05 earnings would be within expectation if we exclude the S$20m inventory write-down. If we also exclude investment gain, net loss would be US$12m. No specific guidance was offered but the Group targets to breakeven this quarter and return to profitability in the Christmas quarter. The fall in its investment value has resulted in a lower historical BVPS of S$11.40. New products were announced and we see a potential blockbuster in X-Fi, an audio chip processor that could have numerous applications. With the stock trading near book value and the Christmas quarter approaching, we believe downside risk is limited while earnings momentum should pick up from the trough. As such, we upgrade the stock to a HOLD but trim our DCF derived price target to $14.00.



• CIMB-GK dated 12-Aug,
  We believe Creative will continue to face ferocious competition in MP3 products. We understand that Apple’s new iPod mini and iPod are due for release this Christmas. Other players such as Samsung, Sony, and iRiver have also been launching new products. Another threat may come from MP3-enabled handphones. Creative is now pinning its hopes on its new audio product, the X-Fi, which provides a more realistic surround experience with headphones or multi-channel speakers for all types of digital entertainment. However, we are more cautious and have modelled moderate growth. We have slashed our FY06-07 net profit forecasts by 76-79% to reflect lower gross margin assumptions. Our unchanged target price of S$8.45 is based on 0.8x P/BV, which appears to be the trading support in the last five years.

Previous Post on Creative

Disclaimer : The above info is for reference only, not an inducement to buy or sell.

CapitaLand

Temasek has sold 200 million shares in CapitaLand at $2.90 per share. The share is mainly sold as a placement to investor. Temasek is selling around 7.5% stake in CapitaLand and after this sale, Temasek holding still has around 44.5% stake in CapitaLand after this sale. This amount is around 4% discount to the closing price of $3.02 at Friday.

Previous Post on Capitaland

Comments: This is the second sale done by Temasek holding. The first was SMRT. Before this sale, I was thinking that Temasek will be doing a placement share on Singtel but they decided to do a placement on SMRT and CapitaLand. Nevertheless, this should have a some minimum impact (limited movement in share price) on other Temasek Linked Companies (TLC) share price these few weeks as investors do not know whether Temasek will be doing another round of sale on other TLCs. This is due to the fact that Temasek has history placing the placement price lower then the current market price to generate interest for their placement exercise. Sometime, I am wondering why must they do it this way. So unfair to the investor that hold the share. If those private investor feel that the company is worthwhile investing then they should pay a slight premium instead of getting discount. So unfair to small time investor. If Raffles holding can sell their asset at a premium, why can't Temesak sell their share at a premium too? The only case that I can think that company are selling their company share at a discount is when they need fresh fund or they are facing problem, which is normally not the case for TLC. This comment is my personnel view on this share and I do not have any vest interest in this counter.


Disclaimer: The above information is for your pleasure reading only. USE THE INFORMATION AT YOUR OWN RISK. Make your own decision for any investment.

Super CoffeeMix : 1H05 Results

Fm SGX Announcements, 1H2005 Press Release,

Super’s net profit increases 57% in 1H2005 to S$12.7 million
- Declares inaugural interim dividend of 0.6 Singapore cents -

Singapore, 8 August 2005 – Super Coffeemix Manufacturing Ltd ("Super"), a leading diversified manufacturer of instant convenient food and beverages that are marketed and distributed globally, today announced that its net profit attributable to shareholders for the first half of financial year ending 31 December 2005 ("1H2005") rose 57% to S$12.7 million from S$8.0 million in 1H2004.

The increase in its half year net profit was driven by a combination of factors including substantially lower interest expenses and taxes during the six months, as well as a gain of S$1.3 million from negative goodwill arising on the acquisition of the remaining shares from minority shareholders in Super Food Investment International Pte Ltd and PT Super Aneka Foods & Beverages.

For 1H2005, Group revenue was higher at S$85.4 million from S$82.4 million a year ago chiefly on higher sales in markets such as Singapore, Indonesia, Myanmar, Philippines and Thailand. This was, however, partially offset by lower sales in Malaysia due to the restructuring of distributorship there to enhance Super’s presence.

In line with its Malaysian expansion strategy, the Group has entered into an agreement with Munchworld Marketing ("Munchworld") of Malaysia in June 2005 to distribute Super’s range of products through Munchworld’s network of more than 10,000 retail outlets nationwide including hypermarkets, supermarkets, mini-marts and convenience stores.

On a quarterly basis, revenue grew 8% in 2Q2005 to S$40.9 million (2Q2004: S$37.8 million) while net profit grew a corresponding 15% to S$5.0 million (2Q2004: S$4.3 million) during the comparative period.

Earnings per ordinary share rose to 2.57 cents for 1H2005 from 1.62 cents a year ago while net asset value per ordinary share increased to 33.38 cents as at 30 June 2005 from 31.07 cents as at 31 December 2004.

Teo Kee Bock, Chairman and Managing Director, said: "Our growth over the past few years has been compelling leveraging on our sound growth strategies. This includes our aggressive marketing strategy, vertical integration strategy, strategic alliances and partnerships. We will continue to seek new opportunities to enhance Super’s market reach in both existing and new markets."

To reward its shareholders for their support, the Board of Directors has declared a gross interim dividend of 0.6 Singapore cents for 1H2005. This is the first time Super is declaring an interim dividend since its listing in 1993.

Commenting on Super’s inaugural interim dividend declaration, Mr. Teo said the initiation is a reflection of the Group’s positive growth prospects and is in line with its overall strategy to reward its shareholders.

"On behalf of the Board of Directors, I would like to thank our shareholders for their continual support. Going forward, the Board believes that Super is poised to continue to make interim dividend payouts to reward its shareholders for their support."

The Group is optimistic that it will be able to match its final dividend, if not exceed, with its interim dividend for FY2005, barring any unforeseen circumstances.

Comments

It's not as good as it sounds, my comments as fllws,

Comparison of Quarterly Results 2004 vs 2005

• Revenue +8% but Cost of Sales +14%, thus Gross Profit No Change
• Net Profit +15% due to Minority Interest -85%

May be worrying sign as cost is going up more than the revenue resulting in no increase in Gross Profit. The Net Profit +15% is thus misleading as it's due to the big reduction in minority interest of -85% (ie. fm acquisition of the minority shareholders). General and Admin Expenses has also gone up a lot +16% but this was mitigated by lower Interest Expenses and Taxation.

Comparison of Half Year Results 2004 vs 2005

Results are flat with Revenue +4% and Cost of Selling +5% for Gross Profit +1%. Total Operating Expenses -1%. The bulk of the Net Profit +57% comes fm Other Revenue (mostly negative goodwill on consolidation plus some fm Interest and Foreign Currency Gains). Other contributor to the Net Profit are fm lower Taxation and reduction in Minority Interest.

So, why I said it's not as good as it sound is because the big increase in Net Profit has nothing to do with the Operations. I'd be very concerned if this continues as it means the co. have stopped growing.

NOTE : Am vested, so read my opinion with extra care :D

References

• SGX - 2Q05 Financial Statements
• Blog StockPick - Case Study

Disclaimer : The above is my own opinion. Pls do not rely on it for your investment decisions.

Property Bubble - A pessimistic view

House-price bubble set to hit semis, warns analyst

Peter Clarke, EE Times


LONDON - Malcolm Penn, chief executive of market analysis firm Future Horizons, warned that a house-price boom that has taken hold across the developed world is set to be biggest bubble in global economic history. When it bursts it will almost certainly trigger a collapse of the semiconductor market, just as the stock market bubble of 2000 did, Penn said.

Penn, writing in a monthly newsletter, acknowledged that such bubble trigger points are almost impossible to forecast, and, in the absence of such as burst, stuck to his previous prediction for semiconductor market growth in 2006 of 6.0 percent.

Penn said that at the present time semiconductor equipment purchase was moderate and that indicated the chip industry would avoid serious overcapacity in 2006. "Our big worry is the economy," Penn wrote saying that he is starting to lose confidence in the economic forecasts of the International Monetary Fund (IMF). "Right now the IMF is remarkably bullish, with a growth forecast of 4.4 percent, up 0.1 percent on 2005."

Penn argued that after three years of growth above the long-term average, it was time for some below average growth. The alternative would be a more catastrophic change later. "The economy is currently full of uncertainties, not the least being the current slow down in overall consumer spending, and the inevitable bursting of the (global) house price bubble," Penn wrote.

Penn cited an article in The Economist and reported that the total value of residential property in developed countries had risen by more than $30 trillion over the past five years, to $70 trillion, an increase equivalent to 100 percent of those countries' combined GDPs.

Soft landing possible

Penn went on to say that such rapid growth dwarfed the global stock market bubble of the late 1990s which demonstrated an increase over five years at 80 percent of GDP, and the Wall Street crash (55 percent of GDP). Penn also observed that the stock market crash of 2000 triggered a 32 percent decline in the semiconductor market in 2001.

Penn said that if the global economy grows at 4.4 percent in 2006, the semiconductor market would go through the roof with already tight capacity triggering shortages and price rises.

"If the economy slows, however, it WILL take the semiconductor market with it," Penn wrote. "It will cause demand for boxes to drop, and with it chips, which means automatic overcapacity, a collapse in ASPs, and a global market slowdown, the extent of which will be governed by how much the economy slows."

Penn added that current restraint in fab building by the chip makers should allow the industry to accommodate a moderate slowing in demand without a major crash, provided this triggers further conservatism in capital expenditure.

"Under such a scenario, a soft rein-back scenario is entirely plausible, hence our 6.0 percent 2006 market forecast number, the same as we were postulating in January 2005," Penn concluded.

Union Steel Holdings : IPO

Issue statistics

• Offer size: 75m new shares + 14m vendor shares Public Tranche - 4.2m shares Placement Tranche - 84.8m shares
• Price: S$0.20
• NTA per share (post-IPO): 10.00 cents
• Historical PE: 5.73x (FY04)
• Market Cap (post-IPO): S$69.4m
• Open: 2 August 2005
• Close: 11 August 2005, 12.00noon
• Trading: 15 August 2005 (on "when issued" basis)
• Lead Manager: OCBC

The company is principally engaged in the recycling of ferrous and non-ferrous scrap metals, the trading of steel products and the provision of other services, such as waste collection and management, demolition works, rental of steel plates and car scrapping. The Group has more than 500 customers spread across Japan, China, India, Indonesia, Malaysia and Singapore. The company believes global demand for metals is likely to rise as China and other Asian nations continue their economic and infrastructural expansions. Its directors believe China will continue to be a major consumer of steel and other metals in line with its economic expansion and infrastructural expansion plans, such as projects relating to the Three Gorges, the Olympics and the Shanghai Exposition. Its directors also believe India and Indonesia may undergo further infrastructural development. Revenue jumped 30% from S$86.3m in FY03 to S$112.1m in FY04. Earnings more than doubled from S$4.6m in FY03 to S$9.5m in FY04.

Estimated net IPO proceeds of S$13.2m will be used for the following:

1. S$5.0m for its expansion plans in China and Indonesia, failing which the net proceeds will be used for other possible acquisitions, strategic partnerships and/or JVs in China, Indonesia or elsewhere.
2. S$5.0m to pay down certain bank borrowings from United Overseas Bank Limited and Sing Investments & Finance Limited.
3. The balance as working capital.

Comments
From the prospectus,

• Page 79
  For FY2005, our Directors observed the following trends:
  (i) Our Directors expect our revenue in FY2005 to be relatively similar compared to FY2004. This is primarily a result of our Company maintaining our sales margins in light of higher direct costs.
  (ii) As a result of the increase in the international prices of fuel in 2005, our Directors expect expenses on fuel, gas and diesel for our Group to be higher in FY2005 as compared to FY2004. As a result of the increase in oil prices, our Directors expect distribution costs (primarily carriage and freight charges) and our direct costs (primarily fuel costs) to be higher in FY2005 as compared to FY2004. Given the above and barring any unforeseen circumstances, our Directors believe that, for FY2005, our Group will remain profitable but the level of profitability in FY2005 will likely be lower as compared to FY2004.
  
  
• Page 62 under Note (2) in small prints,
  Had the proposed Service Agreements been in force at the beginning of FY2004, the estimated total remuneration for Messrs Ang Yu Seng, Ang Yew Lai and Ang Yew Chye and the profit after taxation for FY2004 would have been S$1.9 million and S$8.7 million, respectively. Please refer to the section entitled “Service Agreements” for a description of the Service Agreements.

From the info provided in these 2 pages, what is clear is that EPS will for sure be lower in 2005 compared to 2004 as Revenue will be flat and Expenses, Costs and Salary (Net Profit $9.5Mil in 2004, so $1.9Mil salary in 2005 for the 3 directors will result in a very significant reduction in 2005 profit) will go up. Thus,

• 2004 EPS = 3.49cts (272Mil Shares)
• With the new shares issued fm IPO, 2004 EPS = 2.74cts (347Mil Shares)
• Best Case 2005 EPS = 2.74cts (if same as 2004)
• Therefore, Best Case Dividend = 30% of 2.74cts = 0.822cts (stated in prospectus that they MAY pay 30% of net profit as dividend)
• Thus, Best Case Net Dividend Yield at $0.20 = 4.11%

However, due to the above statements, Dividends will be significantly less than 0.822cts and Net Yield significantly less than 4.11%.

• Page 83
  Mr Lim Chen Wei, Jonathan is our Group Financial Controller in charge of the finance functions of our Group. From 1998 to 2000, Mr Lim was a senior associate with PricewaterhouseCoopers. From 2001 to 2002, he became the internal audit supervisor of Kuok Oils and Grains Pte Ltd. From 2002 to 2004, Mr Lim was the finance manager of Digiland International Limited where he managed, amongst other matters, the daily financial operations, the monthly consolidated financial statements and operating performance and the credit risk exposure of Digiland International Limited and its subsidiaries. Mr Lim is a certified public accountant with the Institute of Certified Public Accountants of Singapore and a certified internal auditor of the Institute of Internal Auditors. He graduated with a Bachelor’s Degree in Accountancy (Merit) from the Nanyang Technological University in 1998.

For the important post of Group Financial Controller, the staff (age 31) was hired only in 2004 or 2005, likely for the purpose of this IPO.

• Pg VI (Appendix)

The audited financial statements can be found here for the 3 companies under the Union Steel Holdings group,

1. Union Steel Pte Ltd
2. YLS Steel Pte Ltd
3. Yew Lee Seng Metal Pte Ltd

The Net Profit Margin is dropping for (1). The Group Margin is however going up, due to YLS Steel Pte Ltd increasing margin. But, as the revenue contributions of (1) and (2) are almost equal, in the longer term, the declining margin of (1) may be bad for the group as a whole.

My Action

May be good for a stag as issue size is small and easily 'cornered' but I'll most likely give it a miss. Mid term, not very attractive due to flat revenue and reducing profits and low yield. Long term, big question mark, so better to re-look after the 2005 results.

References

• IPO Prospectus

Disclaimer : The above is my opinion only. Pls do not rely on it for your investment decisions