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Stamford Tyres Corp Ltd’s Latest Earnings: Tough Days Ahead

Stamford Tyres Corp Ltd (SGX: S29) released its fiscal third-quarter (three months ended 31 January 2016) earnings yesterday evening.

As a brief background for context later, the company is one of the largest independent tyre and wheel distributors in Southeast Asia. Stamford Tyres, which distributes third-party brands (such as Falken and Dunlop) as well as its own brands (such as Sumo Firenza and Sumo Tire), has distribution centres in eight countries including Singapore, Indonesia, Australia, and South Africa.

With that, let’s look at the firm’s latest earnings.

Financial highlights

Here are the latest important financial figures:

  1. For the reporting quarter, revenue had dropped by 19.7% year-on-year to S$60.3 million.
  2. But, a big reduction in overall expenses (for instance there was a 24% decline in cost of goods sold and a 36.8% fall in marketing and distribution costs) had led to the company’s pre-tax profit jumping by 31.8% to S$1.6 million.
  3. After factoring in a near-doubling of taxes, Stamford Tyres’ profit attributable to shareholders for the reporting quarter had inched up by 4.6% year-on-year to S$894,000. Consequently, earnings per share for the quarter had grown by 5.5% to 0.38 cents.
  4. Stamford Tyres ended the reporting quarter with S$10.8 million in cash and equivalents and total borrowings of S$108.6 million. This is an improvement from a year ago when there was S$13.3 million in cash and S$135.1 million in total debt.
  5. In terms of cash flow, Stamford Tyres saw a big improvement from a year ago. The company ended the reporting quarter with S$15.4 million in cash flow from operations, S$839,000 in capital expenditure, and thus S$14.6 million in free cash flow. In the previous year, the firm had negative cash flow from operations, resulting in S$8.2 million in free cash flow.

In summary, Stamford Tyres had faced challenges in growing its revenue (management cited “lower sales in certain products and markets” as a reason). But, effective cost control had helped the bottom-line, with the firm turning in a profit increase.

One area of potential concern for investors is the company’s balance sheet. Despite Stamford Tyre’s balance sheet improving over the year, the company’s current net-debt position is still way higher than its profit.

A future outlook

In the earnings release, Stamford Tyres had given some brief comments on its outlook ahead:

“The global economic outlook remains uncertain. As a result, our operating environment will be challenging.

To mitigate the impact of this challenging environment, the Group will optimize its product mix and manage operating costs. The Group will continue to build on its core markets in South East Asia.”

From the above, the company sees some tough days ahead. It has done a great job so far in terms of improving its cost structure to drive profit growth – let’s see if it can continue wringing out more cost efficiencies in the future quarters.

Stamford Tyres last traded at S$0.28 yesterday. At that price, the company’s valued at 50 times trailing earnings.

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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.