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Profits Slashed in Mewah International’s Latest Quarterly Earnings

Mewah International (SGX: MV4) is a rather unique company within the palm oil industry. Unlike other palm oil related plays like Golden Agri-Resources (SGX: E5H), Wilmar International (SGX: F34) or Indofood Agri Resources (SGX: 5JS), it focuses only on the midstream and downstream parts of the industry and does not own any upstream assets at all.​

For a quick diversion, upstream assets for the palm oil industry would mean palm oil plantations and mills, the latter in which crude palm oil is extracted from the fruits. Meanwhile, midstream and downstream activities would include the refining and processing of crude palm oil into other industrial and commercial products like edible oils.

Back to Mewah, the company purchases crude palm oil from suppliers and refines the oil to either sell it in bulk or repackage into the company’s own brands for the consumer market. It announced its first quarter results just yesterday.

Operating results

For the quarter, Mewah saw a 6.6% year-on-year drop in its sales volume to 915,000 metric tonnes (MT). With the slide in volume, Mewah’s revenue declined correspondingly by 5.2% to US$814 million. Given the lower refining margins for the quarter, its operating profit dropped even more by 22.2% to US$23.1 million.

Refining margins had suffered in the quarter due to a combination of higher CPO prices and excess refining capacity in Indonesia. The reduction in margins and operating profit cascaded to the bottom-line such that net profit for Mewah got slashed by 75% to just US$1 million.

Mewah’s bulk business

Mewah’s bulk business – the sale of refined and processed palm oil in bulk – is the primary revenue driver for the company. Sales from the segment had decreased by 7.5% year-on-year to US$571.5 million. Meanwhile, operating profits for the segment had almost halved from US$19.3 million to US$10.4 million.

Mewah’s consumer pack business

Meanwhile, the consumer pack segment has had a much better time with revenue stable at around US$243 million.  The relatively stronger performance of the consumer pack business was also evident from its 22% increase in operating profit to US$12.7 million.

Mewah’s financial position

With a net debt to equity ratio of only 26%, the company had ended the quarter with a balance sheet that remains strong. In fact, Mewah even managed to bring down its leverage with its net debt to equity ratio having come down from 36% just three months ago.

Going forward

During the quarter Mewah International had started investing in dairy products facilities and a biofuel plant in Westport, Malaysia. The company had also invested into more refining facilities in Sabah.

The company did share some concerns of “El Nino developing in the third quarter of 2014 which would cause drought in the Asia-Pacific region thereby affecting palm oil production.” However, with Mewah’s diversification plans, the company “remains positive about its long term prospect.”

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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 Stanley Lim owns shares in Wilmar International.