Stamford Tyres 1Q Results Wear Off

stamford tyres logo From a humble tyre retailer cum petrol service station established in the 1930s, Stamford Tyres Corporation Limited (SGX: S29) has transformed to a regional distributor of tyres and wheels with supporting value-added services. Today, it operates an international distribution network in more than 30 countries and represents international tyre brands such as Falken, Continental, and Toyo for various types of commercial vehicles.

Stamford Tyres posted a 7.5% drop in revenue for its 1Q FY14 results from S$82.5 million to S$76.3 million as compared to the previous year. This was mainly due to weaker Sumo Firenza tyre export sales contribution.

The actual drop in sales was higher as the revenue for 1Q FY14 included a one off compensation of S$1.55 million from a principal in respect of the Group’s exit from China. Deducting the extraordinary gain would mean that the revenue declined 9.39% instead.

Net profits, however, tumbled 93.86% to a bare S$0.42 million from S$6.8 million in the preceding year. The drastic fall in profits was mainly attributed to the exclusion of the one-off gain on disposal of an associated company amounting to S$11.2 million in 1Q FY13.

As of 31st July 2013, it had S$117.6 million in total debt against a backdrop of S$18.8 million in cash and cash equivalents. The gross profit margin increased slightly by 2 percentage points to 22% due to lower cost of sales and higher contributions from value-added services at its Stamford Tyres Mart retail chain and truck tyre centres.

In addition, an exorbitant inventory level at S$109.5 million is cause for concern when the sales are declining. There is also an allowance set for inventory obsolescence of S$0.4 million mainly in respect of slow moving inventories. It is usually a bad sign with excessive inventories as they chalk up storage costs and Stamford Tyres may have to reduce prices to get the stocks moving, hence trimming its profit margin.

The shares closed at $0.40 on 6th September 2013 with a Price-to-earnings ratio of 18.18 trailing twelve months. It has declared a dividend of $0.015 and it converts to a 3.75% dividend yield.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.   Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.