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Challenger Technologies Limited’s Q1 2019 Earnings: Net Profit Falls

Challenger Technologies Limited (SGX: 573) is an operator of the Challenger chain of information technology (IT) retail stores and online IT marketplace, Currently, the company has a total of 39 stores, which consists of one flagship Challenger store, 25 Challenger superstores, one PIT.Money store, one Musica Boutique and 11 small format stores.

On Friday, Challenger announced its financial results for the first quarter ended 31 March 2019. Here are some of the highlights.

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  1. Revenue for the reporting quarter grew 4% year-on-year to S$80.9 million largely due to higher trade show sales.
  2. However, net profit attributable to shareholders fell 22% to S$4.1 million. The poor performance was mostly on the back of “lower gross profit margin brought on by the need to react to competitive pricing in the difficult IT retail market, as well as an increase in operating expenses”.
  3. The net profit margin for the quarter stood at 5.0%, down from 6.7% a year ago.
  4. Consequently, earnings per share fell from 1.51 Singapore cents in the 2018 first-quarter to 1.18 Singapore cents in the latest quarter.
  5. As of 31 March 2019, Challenger had S$66.2 million in cash and cash equivalents and no debt. In comparison, at the end of last year, its cash position was lower at S$63.2 million.
  6. The company’s cash flow from operations more than doubled from S$2.3 million to S$6.3 million. In both the first quarters of 2018 and 2019, Challenger had negligible capital expenditures. Therefore, the IT retailer’s free cash flow for the latest quarter also surged more than 100%.
  7. Challenger said that the “operating environment in the retail sector has remained challenging”. Despite that, by the second half of this year, Challenger will open three new stores at Jewel Changi, West Coast Plaza, and Paya Lebar Quarter. It will shutter the stores at Great World City and Thomson Plaza by the second half of 2019 as well. The company wants to capture sales in new locations it is not present in and rationalise underperforming stores.
  8. At the end of March 2019, Digileap Capital Limited made an offer to buy out Challenger at a price of S$0.56 per share. Shareholders have to approve the exit offer at an extraordinary general meeting to be convened.

Challenger continues to face headwinds in the retail sector as seen from the huge fall in net profit for the quarter. However, it is still generating copious amounts of free cash flow, and its cash position on the balance sheet remains healthy. At Challenger’s closing share price of S$0.565 on Friday, it had a price-to-earnings ratio of 10 and a dividend yield of 5.5%.

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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 Sudhan P doesn’t own shares in any companies mentioned.