How did Elsoft Research Bhd fare in FY2016?

Dear Readers

Having read Elsoft Research Bhd’s (“Elsoft“) annual report for FY 2016, after it was published 27 April 2017, I have decided to a write up which serves as an addendum to Analysis of Elsoft Research Bhd.

Let’s get right to it.

Elsoft

Finances

This is a summary of the financial performance of Elsoft between FY2015 and FY2016:

  1. Revenue increased to about 26%, from about RM49 million to roughly RM63 million.
  2. Costs of sales went up about 7.7%, from RM27 million to RM29 million, owing to an increase in staff costs and raw material consumption.
  3. Other income (indirect income) decreased about 47%, from RM7.6 million to RM4 million, because of lower contributions from other investments and lower foreign exchange gains.
  4. Administrative expenses increased about 82%, from RM3.9 million to RM7.1 million, due to an increase in staff costs, professional fees, fair value loss from other investments and recognition of shares based payments as a result of the implementation of Employee Share Offering Scheme.
  5. Lower taxation rate partly owing to 100% tax exemption under pioneer status.
  6. Inventories increased by 96%, from RM2.6 million to RM5.1 million, as a result of increasing work-in-progress to meet higher demand for FY2017.
  7. Cash or cash equivalent dropped 23%, from RM11.6 million to RM15.1 million. This is because Elsoft placed more money in money market funds with financial institutions and they are recognised as “other investments” in accounting.
  8. Trade and other payables increased 37.7%, from RM9.2 million to RM12.7 million, owing to higher purchases in FY 2016.
  9. Elsoft spent RM6.6 million or 10.4% of revenue for research and development (“R&D“).

Other salient matters worth mentioning:

  1. Elsoft employs 27 R&D engineers. Engineers work on digital and analog design, mechanical design, firmware and application software development.
  2. Elsoft has increased production and service workforce from 25 to 32 employees to keep up with demand in production.
  3. Butterfly House (PG) Sdn Bhd, a 21% owned associate of Elsoft has reopened a butterfly farm, at Teluk Bahang, Pahang, called Entopia.
Conclusion

There is no secret that FY2016 was a good ride for Elsoft. However what particularly struck me was that inventories increased by 96% owing to higher demand in FY2017.

Disclosure

I own shares in Elsoft.

Reference
  1. Elsoft’s annual report 2016

May 2017 Share Portfolio

Dear Readers

We saw a bit of turbulence in the Bursa in April 2017. Wall Street had certainly overreacted to the possibility of an nuclear war between the United States of America and North Korea. That fear crept into Bursa too.

North_Korea_Nukes.width-1024
If you hadn’t paid too much attention to the missile, you’d probably noticed that there are 16 wheels on this truck. That’s a lot of wheels.

Whilst many bought into the possibility of a doomsday scenario, cool-headed investors made the most of the unnerved market.

As stated in my article, Analysis of Elsoft Research Bhd, i would continue to accumulate shares of Elsoft Research Bhd. The scare of a nuclear annihilation created an opportunity for me to get in the market, at a bargain. Needless to say, I seized that opportunity and  increased my stake in Elsoft Research Bhd when its shares took a beating from a high of RM2.230 (11 April 2017) to a low of RM1.936 (14 April 2017). I bought in @ RM1.96. That’s a discount of about 12%.

I’ve also sold the entirety of my stake in Sapura Energy Bhd for a meager profit of 10% (excluding the meager dividend). I felt that the dynamics of the oil and gas market was impeding any meaningful yield in Sapura Energy Bhd. The profit and the capital from the said sale would serve me better through a stake in Kronologi Asia Bhd, which is making a strong presence in India with and South East Asia.

To conclude, my portfolio currently looks like this:

NO. COUNTER COMPOSITION (%) AVERAGE PRICE LAST PRICE GAIN/LOSS (%)
1. AFFIN 11.66 2.654 2.93 10.39
2. AIRASIA 29.93 2.694 3.35 24.33
3. CIMB 15.23 4.896 5.74 17.23
4. ELSOFT 23.88 1.737 2.25 29.50
5. KRONO 15.28 0.399 0.48 20.26

Cash reserve is at its lowest level, at 4.01%.

There is a lot of euphoria in the market; enough to attract the bear the lurking bear. Keep that in mind.