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This One-of-a-Kind Company Just Saw Its Net Profit Crash By 75%: What Happened?

down arrowDo you know that Singapore is well-known for exporting ornamental fish such as “Dragon Fish” (a.k.a. the Arowana)? In fact, one breeder of such fish, Qian Hu  (SGX: 552), is a publicly-listed company in Singapore. The company breeds and exports ornamental fish and related aquarium accessories internationally.

Qian Hu has had it tough over the past half a decade and more. The company’s business had been remarkably resilient during the Great Financial Crisis of 2007-09 with its profit growth shown below:

Year Year-on-year profit growth
2007 89%
2008 22%
2009 8.3%

Source: S&P Capital IQ

But unfortunately, after seeing its profit hit S$6.54 million in 2009, things started going downhill; Qian Hu’s earnings declined steadily and it earned a meagre S$300,000 in 2013.

With the company announcing its second quarter results just yesterday, it’s unfortunate to say that there were no signs of any sustained revival.

The worst is not over

For the three months ended 30 June 2014, Qian Hu’s revenue slipped by only 0.6% from S$21.2 million a year ago to S$21.1 million. However, the company suffered a 37.6% year-on-year decline in quarterly operating profit to S$206,000 that were brought about partly due to a 20% and 8% jump in selling & distribution and general expenses, respectively.

All these trickled down to the bottom-line and Qian Hu’s net profit for the quarter dropped a staggering 73.5% to just S$22,000.

Interestingly, Kenny Yap, Qian Hu’s Executive Chairman and Managing Director, made the following comment regarding the company’s third quarter results for 2013:

We are glad that the worst is over for our Dragon Fish business   and prices have begun to stabilise. What’s more assuring is the continued robust demand that we are seeing in Northeast Asia, particularly in China, for our Dragon Fish.”

Although Yap was proven right about the turnaround of the fish business (in the first quarter of 2014, Qian Hu’s Ornamental Fish business segment saw its quarterly profit surge by 151% to S$304,000), the company’s businesses has other moving parts.

Qian Hu has three main business segments: Ornamental Fish; Accessories; and Plastics. In the second quarter of 2014, Ornamental Fish and Accessories both grew by single-digit-percentages in terms of operating profit. But, revenue and operating profit for Plastics tumbled by 30.6% and 51.8%, respectively, compared to a year ago.

During the quarter, Qian Hu also saw its balance sheet weaken as its debt to equity ratio rose from 0.49 as of the end of 2013 to 0.51 currently. Cash-flow wise, the company was still able to generate positive free cash flow of S$366,000 in the first six months of 2014.

Foolish Summary  

Qian Hu’s management is still optimistic about the future of the company’s businesses. Qian Hu is preparing to launch new accessories products that might help bring in a larger customer base for the company.

Yap also believes that Qian Hu has a strong research program for Dragon Fish and the company might soon be the first Dragon Fish farm in the world “to genetically produce a unique Dragon Fish in the next few years.”

Although all the new initiatives seem great,  what might be most important now for the company would be control over its costs so that it would not fall into losses in the future.

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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 doesn’t own shares in any companies mentioned.