The Good And The Bad: What Investors Should Know About Dutech Holdings Ltd’s Latest Earnings

Dutech Holdings Ltd (SGX: CZ4) is in the business of manufacturing ATM safes, banking safes, commercial safes, cash handling systems, parking machines, and ticketing and vending machines.

Its production and service facilities are based in a few countries, namely, China, the Philippines, Germany, the UK, and the USA.

In early August, Dutech released its 2017 second quarter results. There are both positive and negative takeaways from the company’s latest earnings that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:

1. The overall result

Here’s the income statement of Dutech for the second quarters of 2017 and 2016:

Source: Dutech 2017 second quarter earnings announcement

Although Dutech’s revenue grew significantly during the reporting quarter, its net profit declined by 57%. The company’s increase in revenue was driven mainly by an acquisition (of a company named Metric), and to a smaller extent, organic growth. Dutech’s net profit was pressured by higher raw material costs, and selling, distribution, and administration expenses.

2. The negatives

Firstly, as mentioned earlier, Dutech’s costs grew significantly faster than revenue in the second quarter of 2017, resulting in a 57% decline in net profit

Secondly, the company’s inventory value grew by 96% from RMB 200.9 million in 30 June 2016 to RMB 393.8 million in the reporting quarter. This was much faster than the revenue growth rate of 26.4% for the same period. The company attributed the increase in inventory value from end-2016 to 30 June 2017 to a stock up in order to mitigate the impact of rising steel prices and to meet the needs of its growing German business.

Thirdly, operating cash flow for the reporting quarter was a negative RMB 15.6 million, a sharp decline from the positive operating cash flow of RMB 32.2 million seen a year ago.

Lastly, Dutech’s borrowings increased significantly compared to a year ago. In the second quarter of 2016, the company had RMB 94.0 million in total debt; in the second quarter of 2017, the self-same number was RMB 212.5 million. This resulted in Dutech’s net-cash position dropping from RMB 199.6 million to RMB 84.8 million.

3. The positives

Firstly, Dutech managed to achieve organic revenue growth in the reporting quarter.

Secondly, the gross margin for the company’s Business Solution segment increased from 21.4% a year ago to 22.3%. It’s worth noting too that the High Security segment’s gross margin decline (from 32.9% to 28.7%) was due to an increase in raw material costs, which is not something within the company’s control.

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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.