Will Second Chance Properties Ltd Get A Second Chance After Falling By As Much As 7.9% Today?

As of the time of writing at 2:15 pm, Second Chance Properties Ltd‘s (SGX: 528) shares have fallen by as much as 7.9% to S$0.35 since trading started today.

Given the price drop and the fact that Second Chance had announced its fiscal second-quarter results for the year ending 31 August 2015 (FY2015) yesterday evening, it appears that the earnings release has a huge role to play in the company’s price decline today.

Let’s take a look at some of the highlights from the company’s results.

The business of Second Chance

But before we start, here’s quick introduction of Second Chance’s business to give you some context on the numbers I’m running through later. The company runs Malay apparel stores, owns and rents out real estate, operates a gold-retail business, and also has a sizeable portfolio of bonds, stocks, and real estate investment trusts.

For some perspective, Second Chance’s portfolio of financial assets (stocks, bonds, and REITs) total some S$111.25 million as of 28 February 2015; that’s nearly a third of the company’s total assets of S$365 million.

Financial highlights

Coming to Second Chance’s results for the first half of FY2015, the company experienced a 4% drop in revenue to S$18.9 million compared to a year ago.

Interestingly, there was a drop in most of its expenses (such as distribution, property operating, and gold operating expenses). But, increases in apparels operating expenses and administrative expenses had more than offset declines elsewhere, causing Second Chance’s overall operating expenses to jump by 4.4%to S$5.33 million. This in turn resulted in a 2.7% drop in the company’s operating profit for the period to S$6.09 million.

As we move further down the bottom-line, we can see that Second Chance’s net profit for the first-half of FY2015 had fallen by 35.8% to S$4.23 million as fair value losses on the firm’s financial assets and higher finance costs had weighed down on the bottom-line.

Moving ahead

At first glance, things are not looking too great for the company at the moment. Its Apparel, Gold, and Properties segment had all suffered a drop in their revenue for the first half of FY2015.

In particular, the current negative outlook on the Malaysian economy and the declining Malaysia Ringgit is hurting Second Chance’s Apparel business, which counts Singapore’s northern neighbour as an important geographical market.

The Apparel segment had recorded a loss of S$1.13 million for the first half of FY2015; this is in contrast to the profit of S$0.1 million seen in the same period a year ago.

In Second Chance’s statement about its future outlook, the company warned that it’s facing labour issues due to the tight labour constraints set by the government. Second Chance also expects to see rents from its properties “continue their downward trend.” To compound the problem, the company also thinks that its interest expenses will climb given that interest rates “are expected to gradually move upwards.”

Amidst the gloom in Second Chance’s outlook lies a few weak bright spots – the company expects its Gold business “to remain profitable” and thinks that its Apparel business can turn around its losses when the festive period kicks in during the fourth quarter of FY2015.

Foolish Takeaway

The somewhat bleak outlook and poor results might have played a hand in the company’s price decline today, but the main trigger for the selloff could perhaps have been the lack of a dividend for the first six months of FY2015; Second Chance had announced a S$0.02 per share dividend during the second-quarter of FY2014 but there was no dividend this time around.

In Second Chance’s fourth-quarter earnings release for FY2014, the company had given guidance that it will be paying out a total dividend of S$0.0355 per share for the whole of FY2015. It’d be interesting to see if Second Chance can meet its earlier dividend-promise at the end of the current financial year.

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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 Writer Stanley Lim doesn’t own shares in any companies mentioned.