Steep Drop in Profits for Stamford Tyres

Tyre and wheel distributor Stamford Tyres Corporation Limited (SGX: S29) released its third quarter results yesterday evening. The company operates internationally with a distribution network in more than 30 countries and also provides supporting value added services. It represents international tyre brands such as Falken, Continental, and Toyo for various types of commercial vehicles.

Some Basic Numbers

For the three months ended 31 Jan 2014, Stamford Tyres posted a 3% year-on-year drop in revenue from S$73.9 million to S$71.7 million. This was mainly due to weaker contribution from Sumo Firenza tyres and mining tyres.

As a result of the drop in sales, the company’s gross profit for the quarter also dropped 2.3% to S$16.8 million from S$17.2 million a year ago. This came about despite an improvement of 0.3 percentage points in Stamford Tyre’s gross profit margin from 23.2% to 23.5% on the back of higher contributions from value-added services at its Stamford Tyres Mart retail chain and truck tyre centres.

The company eventually ended the quarter with a 63% decline in profit to S$0.84 million from S$2.24 million a year ago. While most expenses had decreased, the steep rise in “Other” operating expenses from S$1.36 million to S$3.52 million had hurt Stamford Tyre’s bottom-line.

A deeper look into the company’s financials seemed to unveil some areas that highlighted the company’s difficulties with its Indonesian operations:

1) The allowance for doubtful receivables of S$1.6 million was recorded due to collection issues in Indonesia.

2) There were foreign exchange losses of S$1.2 million in the quarter, attributed to the weakening of the Indonesian rupiah against the Singapore dollar.

3) Slow moving inventories have also resulted in a cause for concern, with the firm increasing allowance for inventory obsolescence of S$0.5 million, though the geographical origins for the obsolete inventory weren’t given.

Financial Position

As of 31 January 2014, Stamford Tyres had S$117.1 million in total debt comprising of trust receipts, revolving credit, short-term and long-term secured loans against a backdrop of S$13.8 million in cash and cash equivalents. This translates into a net debt position of S$103.3 million, which is almost unchanged from a year ago when it had net debt of S$103.2 million.

Shares of Stamford Tyre closed at $0.395 on 11 March 2014 with a trailing price-to-earnings ratio of 7.85. It had declared a dividend of S$0.015 per share and that converts to a 3.8% 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.