That Silver Birdie.. Part II

There's really so many interesting issues regarding Silver Bird.

1. Firstly in my opinion, I felt that the research article was simply way too optimistic. When the article was written last Aug 2005, the financial data available at that time (July 2005) showed that Silver Bird was a company which earned 9.7 million for its first half of its fiscal year 2005. To project a net earnings of 32 million meant that OSK is saying that Silver Bird will post a net earnings of 22.3 million for the second half of its fiscal year. Is that possible considering the fact Silver Bird only manage a first half net profit of 9.7 million? And this is way too optimistic in my opinion.

And I cannot help wondering about the xxx factor since the article is written on the 18th Aug 2005 during a time when Silver Bird is having lots of corporate exercises involving conversion of loan stocks and rights issue of warrants. The rights issue of warrants was even more interesting since on the 8th Aug 2005, Silver Bird had applied to seek a time extension period to implement the implementation of these rights isssue.

How? Did you get the same feeling as I did that perhaps this article was written for a reason?

2. In that OSK article Silver Bird: 'Bread'ing Value to Shareholders...

• Aggressive market penetration...
  WE BELIEVE IT COULD albeit at a slower growth pace . We reckon that the company would continue to report modest if not robust growth in the next few years. The company has strategized to implement the following:-

So OSK is saying that they reckon that Silver Bird will report modest if not robust growth in the next few years. Hmm.. modest if not robust growth.

Let's take a look at earnings table again to understand what OSK version of modest if not robust growth means.

Hmm from 16.8 million (fy 2004) => 32 million (fy 2005) => 47.4 million (fy 2006), which means OSK is saying that....

1. Silver Bird earnings will grow some 90% in fy 2005
2. After growing 90% in fy 2005, Silver Bird earnings will grow another 48% in fy 2006.
3. Which means that Silver Bird earnings will grow at a compounding annual rate of 68% from fy 2004 the following 2 years.

Err.... do you like this version of modest if not robust growth?

3. Now check this out... Silver Bird's 2005 Q1 earnings was only 1.123 million. Ahem!

Ok.. an earnings is still an earnings.. no doubt... but do remember this company's debts is at some 144.99 million. A worrry?

Oh .... and if one's reasoning to invest in Silver Bird was due to the OSK write-up, at this moment of time, isn't it clear that one's investment is made because of an overly optimistic write-up?

How?

Do you reckon that it is time to seriously review the justification to stay invested in this stock?

4. Back in 2004, Silver Bird embarked on an extensive capital expansion, building a state of art bakery in Shah Alam... at an cost of over 100 million. How does one rate such an expansion? Justifiable or not?

5. Let's look at what the company has got to say about its poor performance..

• REVIEW OF PERFORMANCE
  The Group registered a revenue growth of 12% for the quarter under review, achieving RM141.3 million compared to the preceding year’s corresponding period. Sales of consumer food registered 11% revenue growth, achieving RM37.6 million for this quarter as compared to RM33.9 million for the same quarter previous year due to the strong sales performance of the daily fresh products. Multicom successfully achieved revenue of RM103.7 million and registered 13% growth as compared to RM92.1 million for the same quarter previous year arising from improved sales channel arrangement.
  The Group registered an operating profit growth of 25% for the quarter under review, achieving RM6.0 million compared to the preceding year’s quarter corresponding period.
  

Hmmm... the company is only focused on mentioned its STRONG top line growth. Sales growth lah, operating profit growth lah... but .... what about ze Moola? Where about the bottom-line?

6. Let's see what Silver Bird management has got to say next...

• MATERIAL CHANGES IN THE QUARTERLY RESULTS AGAINST THE
  IMMEDIATE PRECEDING QUARTER’S RESULTS
  Profit before tax of RM1.2 million was 73% lower than the preceding quarter due to the share of start-up loss of RM2.9m from the jointly-controlled company, Silver Bird International Sdn Bhd. The loss is our investment upfront in Singapore to secure a sizeable market share and economies of scale to contribute positively in the longer term.

Ahh... some explaination at last.

Profit before tax.. was 73% lower. (This one I do not understand. Why do folks continue to report such Profit Before tax figures? Tax issue not important meh?)

Losses of 2.9million is due to investment costs in a bid to expand in Singapore. No problem. But even if one adds back 2.9 million (ie treat this 2.9 million as a cost of investment), Silver Bird's earnings would be around 4 million.

How?

Do you believe that Silver Bird is an investment gem?

Do you believe that it will be profitable holding Silver Bird as a long term, buy and hold stock?