Techcomp (Holdings)

[RBM]

Following on from last Friday's postings on this Techcomp VB thread ........

Pursuant to the announced increase of Kabouter's holding in Techcomp, it was interesting to see what happened with trading in Techcomp's shares today - both on the SGX and the HKEX. Today was the first trading opportunity after Techcomp's multiple disclosures to the SGX regarding Kabouter's purchases..................

Well ........... on the SGX ................ not a single share of Techcomp was traded. Probably because Mr. Market deemed the Ask prices (lowest submitted was S$ 0.505 per share) as a bit OTT.

On the HKEX, 62,000 Techcomp shares were traded with a closing price of HK$ 2.94 (or ~ S$ 0.474 at the mid-point HK$-S$ exchange rate). The last-done HK Techcomp share price is now only ~ 3% higher than the last-done on the SGX. Today's Techcomp Ask prices in Hong Kong were more reasonable than those sought in Singapore - there were sellers remaining at the HKEX close at the HK$ 2.94 level.

Generally turnover volumes of Techcomp's shares are much higher now in Hong Kong than they are in Singapore.

Vested - in Techcomp's Singapore shares

[RBM]

The disparity between the share price of Techcomp's Hong Kong listed shares and its Singapore listed shares is becoming noticeable again.

At Friday's close, the counter closed at S$ 0.425 on the SGX ............... and HK$ 2.93 on the HKEX - equivalent to S$ 0.461, some 8.5% higher than the Singapore share price.

Probably more-to-the-point, liquidity of the Hong Kong traded shares is now an order of magnitude higher than the Singapore traded units. On Friday there were 260,000 shares traded on the HKEX ..... not a single share changed hands on the SGX. Not untypical - whether we like it or not, liquidity on the HKEX is superior to that on the SGX.

Vested

[JJW]

Hi RBM,

Not sure if you are still vested in Techcomp. I must say it is quite an experience to see the share price dipping lower by the day! As I write, SG price is hovering at 28 cents now and disparity between SG listed shares and HK listed shares has all but disappeared - HK bid price @ $1.75

Going by last year results schedule, full year results should be out by end of this month and I am bracing for very bad Q4 numbers due to the Sino-Japan relations factor - as guided for by management in Q3 announcement. I am hoping that stickiness (in the sense of customers not wanting to retrain staff in new instruments) will help a bit in retaining some orders but am mindful of underestimating nationalist sentiments, plus the intense competition in China's laboratory analytical instrument market - and therefore availability of substitutes. The depreciating yen may be a saving grace but I do not see much difference this will make to the bottomline, especially if orders/sales are decreasing...

With regards to the 9 months results released back in Nov - if we add back the one-off listing expenses for FY2011, 9M FY2012 net profit is already lower than 9M FY2011 despite higher revenue. Management does not seem to be on top of the escalating expenses, which I believe is partly due to the overseas acquisitions. Together with the rising receivables (which do not appear to be dropping back to 'normal' levels per management indication at beginning 2012) and increasing debt to fund working capital/acquisitions, I am beginning to think whether business fundamentals have changed to warrant selling...

Shall be grateful if you can share your views or point out anything I have missed or gotten wrong? Many thanks.

(Vested)

[RBM]

Thank you for your posting of earlier today regarding Techcomp JJW,

1. Answering your question: I have remained fully vested - and I have picked up a few more lots since the prolonged and ugly decline in Techcomp's share price started 4-5 months ago. Techcomp is my worst performer (amongst 10 Singapore equity holdings) ............. and the worst by some margin. I note that today a new 52-week low of S$ 0.275 was reached (there does appear to be demand at the S$ 0.28 level, viz. today's traded volume). This share price malperformance is against a background of a generally rallying market. Not good. During some trading sessions, the highest bid price on the SGX has actually been materially higher than on the HKEX - the SGX price no longer lags the HKEX price.

We should NOT be comforted by the absence of a profitability warning disclosure or similar - this could come at any time before FY results are reported out. I am disappointed that Techcomp's management has not issued/disclosed a trading update of any kind - I would have thought this was warranted. I have also seen nothing from long-term substantial shareholder Kabouter (not that we can have any right to expect such) - I can only presume they are asking questions.

2. I share your views regarding the impact of the Sino-Japanese spat on Techcomp's share price - one thing I had underestimated is just how important "pass-thru-agency-type" sales of Japanese equipment to Chinese customers are to Techcomp. Strong rumours are that it is currently challenging to sell anything Japanese in China. A related anecdote that I picked up: Japanese airlines have said Q4 results were adversely impacted by much-reduced load factors on Japan-China routes and they have started to cut back on flight frequency.

3. I also fear that two issues I highlighted before - reference my postings of 10th March 2012 and 7th April 2012 - are regrettably coming home to roost, i.e. a) rising receivables levels and b) persistent questionmarks regarding the success of Techcomp's acquisitions. Techcomp have done nothing (so far) to indicate these concerns are unfounded. I agree 100% with all your comments on Techcomp's 9 months results - IMHO you have not gotten anything wrong.

I don't think this response helps very much. Sorry. I'll be very interested in Techcomp's Q4 and FY results.

And I'll remain vested for the time being.

Hi RBM,

Not sure if you are still vested in Techcomp. I must say it is quite an experience to see the share price dipping lower by the day! As I write, SG price is hovering at 28 cents now and disparity between SG listed shares and HK listed shares has all but disappeared - HK bid price @ $1.75

Going by last year results schedule, full year results should be out by end of this month and I am bracing for very bad Q4 numbers due to the Sino-Japan relations factor - as guided for by management in Q3 announcement. I am hoping that stickiness (in the sense of customers not wanting to retrain staff in new instruments) will help a bit in retaining some orders but am mindful of underestimating nationalist sentiments, plus the intense competition in China's laboratory analytical instrument market - and therefore availability of substitutes. The depreciating yen may be a saving grace but I do not see much difference this will make to the bottomline, especially if orders/sales are decreasing...

With regards to the 9 months results released back in Nov - if we add back the one-off listing expenses for FY2011, 9M FY2012 net profit is already lower than 9M FY2011 despite higher revenue. Management does not seem to be on top of the escalating expenses, which I believe is partly due to the overseas acquisitions. Together with the rising receivables (which do not appear to be dropping back to 'normal' levels per management indication at beginning 2012) and increasing debt to fund working capital/acquisitions, I am beginning to think whether business fundamentals have changed to warrant selling...

Shall be grateful if you can share your views or point out anything I have missed or gotten wrong? Many thanks.

(Vested)

[RBM]

I have now had a bit of time to look through Techcomp’s FY 2012 results. I would describe these results as poor. My personal take:

+ve: Revenues up by ~ 2% ………….. but at a heavy price (see later).

+ve: Depreciation of the Japanese Yen benefits margins. Japanese manufactured products constitute the majority of Techcomp’s distribution business – I only hope that going forward a less aggressive pricing strategy is adopted.

-ve: Hefty drop in profit margins. It seems the Company has decided to embark on a heavy price discounting campaign to compensate for the impact of the ongoing China - Japan shenanigens (which show no sign of abating). On previous postings I have alluded to overloaded inventories – this issue has now very much come-home-to-roost.

-ve: FY 2012 NPAT was down by ~ 70% as compared to FY 2011. Seems to be nearly all due to the hefty margin drop.

-ve: No dividend. For the previous eight years until now, Techcomp had maintained a ~ S$ 1 cent dividend, or better. No longer. Instead of giving shareholders some solace for the Company’s poor performance, Techcomp’s BoD decided to devote funds to yet another European acquisition; none of the previous such acquisitions have been proven worthwhile, yet. And I predict FY 2013 results will show that yet again the European businesses have failed to break even. On this score, I believe Techcomp’s BoD should be more than troubled by their past flawed decision making.

-ve: Net gearing now at ~ 48%, up from ~ 35% last year. This is driven by the need to finance their acquisition campaign (Techcomp raised US$ 13 Million in various loan packages in 2012). I maintain that Techcomp has yet to prove it can successfully integrate the businesses it acquires – n.b. previous acquisitions have also resulted in subsequent re-structuring costs.

I notice that Core Pacific–Yamaichi now has a SELL rating on Techcomp, despite the shares trading at > 40% discount to their peer group. Understandable (both the SELL rating and the discount, which obviously reflects Mr. Market's view on management quality). I am beginning to have reservations regarding the ability of Techcomp’s management to a) successfully navigate the way forward for their existing business – and I’m not only talking about the impact of ongoing Japan – China relations - and b) profitably integrate their European acquisitions. And I believe Techcomp's Directors now need to take a long hard look at their recent performance vis-à-vis their decision making (I doubt they will do this). I wonder what substantial shareholder Kabouter are thinking? (and saying to Techcomp's Management?).

Vested (for now)

[CY09]

Hi RBM,

Just a novice question: what is the difference between the BoD and CEO role. Because my understanding is that the CEO is " developing and implementing high-level strategies, making major corporate decisions, managing the overall operations and resources of a company." Whereas the BoD seems to have similar role of "establish corporate management related policies and to make decisions on major company issues. Such issues include the hiring/firing of executives, dividend policies, options policies and executive compensation" To me, their roles seem to be very similar and in Techcomp's case, it seems that BoD carries more executive power than the CEO of techcomp.

As i recently started understanding finance, could you point out to me more abt the difference of a CEO and BoD. Thanks


Sources
http://www.investopedia.com/terms/b/boar...z2N1PITMF0

Http://www.investopedia.com/terms/c/ceo....z2N1OvGMHy

[RBM]

Hi RBM,

Just a novice question: what is the difference between the BoD and CEO role. Because my understanding is that the CEO is " developing and implementing high-level strategies, making major corporate decisions, managing the overall operations and resources of a company." Whereas the BoD seems to have similar role of "establish corporate management related policies and to make decisions on major company issues. Such issues include the hiring/firing of executives, dividend policies, options policies and executive compensation" To me, their roles seem to be very similar and in Techcomp's case, it seems that BoD carries more executive power than the CEO of techcomp.

As i recently started understanding finance, could you point out to me more abt the difference of a CEO and BoD. Thanks

Sources
http://www.investopedia.com/terms/b/boar...z2N1PITMF0

Http://www.investopedia.com/terms/c/ceo....z2N1OvGMHy

Hello CY09,

You asked about the difference between the CEO and the BoD. My two cents ……….. and I would welcome the views of other forummers on this…………….

The Chief Executive Officer (CEO) is the company's top decision-maker; all other executives answer to the CEO. The CEO’s focus should be strategic rather than tactical, i.e. typically the CEO delegates many of the tactical, oiperational and logistical responsibilities to other managers, focusing instead on strategic issues, such as which markets to enter, how to beat the competition, and which companies to form partnerships and alliances with. This is in contrast to the Chief Operating Officer (when such a role exists), whose role it is to oversee day-to-day operations and logistics. The CEO is ultimately accountable to the Board of Directors for the company's performance. The CEO works full time – he will almost certainly also be a member of the Company’s Board of Directors.

The Board of Directors (BoD) are elected by shareholders and are responsible for protecting the Company’s shareholders' interests, such as the company's profitability, its reputation and its stability. The BoD meets several times a year to establish long-term goals, review financial and other key results, determine dividend level and major corporate finance matters (e.g. share buy-back’s, capital raisings, financings), ensure that the key business risks are recognised and appropriate risk mitigation measures are in place, evaluate the performance and establish metrics for determining the remuneration of high-level managers, and vote on important strategic directions and moves proposed by the CEO, e.g. on acquisitions and divestments, new market entries etc. I do not pretend that this list is exhaustive.

Directors appoint-- and can dismiss - -upper-level managers such as the CEO and COO. The non-executive members of the BoD should not, in my view, play an active role in everyday management, and should be part time.

The balance of power between the CEO and the (other) members of the BoD varies widely from company to company. Because the CEO should not make major moves without the BoD’s assent, and his or her job security depends on their satisfaction, the Chairman of the BoD is technically his or her superior. And an active Chairman of the BoD may use this power to effectively become the co-head--and ultimate boss--of the corporation.

In the case of Techcomp, I believe the BoD has recently not done a good job of...................
a) recognising the key risks of the business, and ensuring the necessary corrective actions were timely implemented, and
b) in ensuring that shareholders receive an appropriate dividend - instead sanctioning proposed acquisitions, depleting funds which should have gone to shareholders and raising gearing, and
c) allowing acquisitions to continue when Management has not shown an ability to successfully (which includes profitably) integrate previously acquired businesses.

Vested in Techcomp

[dydx]

Despite having reported a 1Q loss.....
http://infopub.sgx.com/Apps?A=COW_Corpor...2013Q1.pdf
- quite normal as 1Q is the seasonally low point of this lab equipment distribution business, which traditionally peaks in 4Q - Techcomp's share price has been recovering steadily from the low of $0.235 recorded on 22Mar13.

Based on the outlook statement in the 1Q results announcement, demand for Japanese lab equipment in PRC is expected to recover, and the much cheaper JPY will bring an overall boost in the demand for Japanese lab equipment in most markets. So it looks like Techcomp's business volume and profitability are poised to improve in the next few quarters at least.

[dydx]

2Q results just out.....
http://infopub.sgx.com/FileOpen/E_Interi...eID=252477
It is nice to note that 2Q's NP (attributable to shareholders) at USD2.313m has recovered to last FY12's 2Q level.

It looks like Techcomp is poised to deliver even higher profits in 2H, in line with the seasonal trend of a stronger second half of the year - as similar to previous years. As a leading indicator, Techcomp's share price - $0.44 at today's close - has already staged a resounding recovery to the pre-Diaoyu Islands dispute level.

[dydx]

A very positive announcement today (5Sep13).....
http://infopub.sgx.com/FileOpen/E_Techco...eID=255381
Even though the new USD1.4m contract from China Food and Drug Administration (CFDA) is a relatively small one, Techcomp has said "In view of the PRC government’s urgency to ensure food safety standards and quality, the Group is expecting a continuous increase in the demand for its equipment."

CEO Richard Lo has also added a very positive last statement at the end of the announcement which is reproduced below....
"Benefited from the favorable business environment, we are confident to deliver an encouraging financial performance this year.”