Advanced Holdings

24 Feb 2009


Advanced Holdings' Q4 2008 results missed NRA Capital's expectations. SIAS Research warns that slowing demand could put a drag on the group's performance. But despite a bleak outlook from both analysts, they are still holding on to the stock.

Despite expectations of further challenges in FY2009, Advanced still painted for investors a pretty picture of itself with its financial position and final year earnings for 2008. The business gained S$16.2 million in cash from operations compared to S$1.4m last year. It bounced back to a positive free cash flow of S$5.2 m for FY2008.

Advanced also bumped up its dividend payout to 1.7 cents from 1.25 cents in FY2007. Its dividend yield stands at 15%, based on its share price of 11 cents.

Revenue for the period dipped slightly by 2.9% to S$84.7 mln because of lower sales while net profit took a bigger hit, plunging by 39.3% to S$7.5m due to higher administrative and other operating expenses.

As at the end of 2008, it had an order book of S$59m and only S$4,000 worth of debt due within the year.

NRA Capital foresees a tougher operating environment ahead for Advanced because of growing competition. It is also expecting gross margins to contract. But it still maintained its BUY call on the business in its 23 February report with a fair value of S$0.218. The analyst likes that the group has a net cash of S$55.3 mln and is in minimal debt. Advanced also offers a sustainable attractive dividend yield of 15%.

On 11 February, SIAS Research initiated coverage on Advanced with a HOLD and price target of S$0.11. The group's full year earnings were also not up to the analyst’s expectations. Despite the business's merits, SIAS Research is not entirely confident that the business will be spared from the slowdown.

SIAS Research cautions against a weaker performance due to slowing demand, adding that lumpy earnings from the company's project-based revenue limits earnings visibility.

Companies with questionable fundamentals didn't stand a chance against the economic crisis when it surfaced in September last year. Those who survived the initial weeding process are now watching their margins run into the ground.

Advanced Holdings may have gotten a grip on its business for now, judging by its balance sheet and orderbook. But the restlessness in the market is far from subsiding. Still, it may be worthwhile keeping an eye on this one when the market makes its turn.

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