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A Quick Overview Of Cogent Holdings Ltd’s Cost Structure

Cogent Holdings Ltd (SGX: KJ9) is a logistics management service provider in areas such as transportation, warehousing, container depot, automotive and more. The company also has a property management arm and currently acts as the master-tenant of The Grandstand, the former Turf Club.

Over the past five years, Cogent has been a huge winner in the stock market with its stock up by 655% in price alone. This prompted me to better understand its business.

Now, there are many areas we need to look into to learn about a business. In this article, I will focus on just one – the company’s cost structure.

Here’s a table showing Cogent’s various operating expenses for 2015:

Cogent operating expenses table
Source: Cogent 2015 annual report

There are a few takeaways from the data above:

  1. The largest expense category for the company in 2015 was the rentals on leased premises – it accounted for around 29% of total expenses. This is largely a fixed and committed cost.
  2. Employee benefits (essentially staff costs), which are also fixed in nature, was the second largest expense category, making up about 27% of total expenses in 2015.
  3. The two points above show how Cogent has significant amount of fixed costs within its cost structure, which means that the company has high operating leverage. Given this, it is critical that the company achieve a high level of asset utilisation and efficiency in order to minimise its costs per unit of service rendered. In other words, Cogent must maintain a certain amount of business volume at all times in order to achieve profitability.

There are clearly some moving parts when it comes to Cogent’s cost structure. But by understanding this aspect of the company’s business, investors would be able to gain a clearer perspective on its future profitability.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.