Tug Of Fools: Vibrant Group Ltd – The Bull Argument

I am James Yeo and this is my Bull Case for Vibrant Group Ltd (SGX: F01).

Vibrant Group, with its small market capitalisation of S$260 million and recent name change (it was known as Freight Links Express Holdings until November 2013), would likely not be a well-known name amongst investors.

But, I have three main points that lend credence as to why Vibrant Group might be a company that’s worth a deeper look.

1. A 3-pronged growth approach

Vibrant Group started life in 1981 as a freight forwarder before gradually expanding its operations overseas with more services like logistics and warehousing. Starting from 2007, the company underwent further transformation – it had begun to deploy cash to make certain investments and to take part in strategic alliances, resulting in fast growing business segments involved with real estate and financial services. In fact, the name change to Vibrant Group was made partly to better reflect the switch in the company’s direction.

Some of Vibrant Group’s notable moves in the real estate space include being the sponsor of Sabana Shariah Compliant REIT (SGX: M1GU); the company owns 6.8% of the REIT as well. Elsewhere in financial services, Vibrant Group has a US$30 million investment in the Sentosa Asian Credit Fund.

Late last year, Vibrant Group also amassed a one quarter stake in commercial and industrial facilities developer Figtree Holdings Ltd (SGX: 5F4) and both companies are jointly developing a high-tech industrial park in Changshu, China, and a resettlement housing project in Jiangyin, China.

The shift in business focus seems to have worked well for Vibrant Group. The company currently has three main business segments, namely Freight & Logistics, Financial Services, and Real Estate. For the financial year ended 30 April 2014 (FY2014), the Freight & Logistics segment was far and away the most important sales driver for Vibrant Group with a 90.1% slice of the company’s total revenue pie. But, the segment contributed to just 56.7% of the company’s total pre-tax profit, with Financial Services providing the other big chunk at 41.1%. It’s noteworthy that Financial Services has such a big slice of Vibrant Group’s pre-tax profit despite making up only 8.6% of total sales.

The Real Estate segment is still tiny – it made up only 1.3% and 2.2% of Vibrant Group’s total revenue and pre-tax profit, respectively, for FY2014 – but there are promising developments there. For instance, Vibrant Group had just bought a 35% interest in Equity Plaza, a commercial space located in the heart of Singapore’s central business district. The company’s also redeveloping a 6-storey chemical warehouse at Gul Circle which is expected to be completed in 2016.

2. An engaged and capable management team

The provision of freight forwarding and logistics services can be very competitive – price wars and business failures are common occurrences in the space. Thus, the ability of Vibrant Group’s management team to continually expand the segment’s operations – revenue had grown from S$150 million in FY2011 to S$172.7 million in FY2014 – is by no means an easy feat in itself.

Furthermore, Vibrant Group’s reach into the more lucrative Real Estate and Financial Services segments shows that management is not complacent.

Vibrant Group’s management team also has a big interest in seeing the company succeed – Mr. Eric Khua Kian Keong, Executive Director & Chief Executive of the company, has a huge 56.1% stake in the firm.

3. Commendable financials

One of the bed-rocks for a share’s long-term success is the company being able to consistently grow revenue and profits. On that front, Vibrant Group has aced it – the company’s been steadily growing its revenue and profits over the past five years, with profits almost tripling from S$ 13.85 million to S$42.65 million.

tug of fools vibrant 1

Source: Vibrant Group’s website

While Vibrant Group’s growth may have come on the back of increased borrowings (as seen in the chart above, total debt has increased by almost four-fold from FY2010), the company’s net debt ratio still stands at a fairly conservative 0.38 as of the end of FY2014.

Vibrant Group has also pleased income investors with its steadily growing dividend. As of 30 September 2014, the company sports a juicy historical dividend yield of 5.2%. That’s comparatively higher than the SPDR STI ETF’s (SGX: ES3) yield of 2.7%. The SPDR STI ETF is a close proxy for Singapore’s share market barometer, the Straits Times Index (SGX: ^STI).

Foolish Summary

All told, Vibrant Group is growing on three fronts; has a capable management team whose interests are aligned with shareholders; and it has a strong set of financials. These reasons make me think the company would be worth a deeper look by investors.

I think I have made my bullish case. You can read Share Investment’s bear argument here.

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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.