Samko Timber

Despite Indonesia's notorious reputation for illegal logging, Samko Timber enjoys a spot in the Russell Singapore Value Index as its business looks as sturdy as the logs it processes.

But at the same time, the company could also be a time bomb waiting to happen as a closer inspection of its cash flow hints of rot from within.

Samko Timber's stock debut at only half a cent above its issue price of S$0.55 in February 2008. Since then, it has been a downward slide. The stock meets our P/B criteria of less than one at 0.37 times, so its a tick here.

Given the current air of uncertainty in the markets, transparent communication between company and shareholders is crucial in maintaining investor confidence. While Samko Timber highlighted a handful of specific issues in its outlook such as higher operating costs rising in line with higher selling prices and the need to fork out more cash for employee benefits in the third quarter, it failed to reassure shareholders of its future performance. For that, the business gets a question mark for outlook.

This timber processing company did not pay out a dividend for FY2007, however, it's forgivable considering that it only listed a month before the release of its earnings.

Samko Timber may be a recently-listed company but it isn't a new business. In fact, the company has been recording growing revenues since 2004.

While net profit has been falling over the four years, earnings for FY2007 still came in at Rp47.12b, or about S$1.43b. It could have paid a dividend if it wanted to. The company gets a cross for dividend yield.

Samko Timber's 2nd quarter performance for 2008 was certainly impressive. Revenue jumped 60% to Rp 776.81b. Net profit went up 98.4% to Rp 51.37b with Rp 58.5b in cash generated from operations.

However, a look at its past year's performance revealed a dark secret. Beneath the sturdy exterior, Samko Timber has been spending copious amount of cash on itself. Even its cash generated from operations every year were insufficient.

We just have to take a look at FY2007 for an example. The business generated Rp129.62b in cash from operations but invested Rp474.68b in itself, resulting in a negative free cashflow of Rp345b.

Samko Timber has been in a negative free cashflow position for the past three years. For that, it gets a cross for cashflow.

The company is not featured in the BT Corporate Transparency Index, so management gets a question mark.

To recap, Samko Timber gets only one tick for P/B; a question mark for management and outlook and a cross for outlook as well as dividend yield. Samko


Please seek professional advice before making any investment decisions.

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