SCGM (7247) - SCGM: Growth Not So Sure




  • Sales in the last three quarter flatten while productive assets is historically high
  • Historically low asset productivity (EPM assets turnover is estimated to be 3.73 only)
  • Something is very wrong and SCGM management should tell us more about this
Much discussions on recent financial results of SCGM have been focused on material costs and gross profit margin. While these metrics are very important in measuring financial performance, they are not really under control by the management in the short run. In the long run, material cost increase will gradually pass to the consumers. When Maersk Line raises shipping rate driven by bunker price surge, consumers have to prepare to pay more for their goods. Rather, I would concern more on sales growth of SCGM.
Sales growth not materialized
Last summer, I applied a capacity-led growth model and attempted to project future sales of SCGM based on its guidance on capital expenditure on equipment, plant and machinery (EPM). The estimated sales of FY2018 is RM 283.2m. Since then, three quarters have passed and its sales did not pick up as projected. Something is very wrong. But what is it?
Historical low EPM assets turnover
Sales was projected based on a simple relationship. In particular,
Sales (FY2018) = EPM assets (FY2017) * EPM assets turnover
From the balance sheet of FY2017, EPM assets was RM 57m. For EPM assets turnover, Hau’s view assumed it to be 5.0 in last July. Accordingly, sales was projected to be RM 283.2m. However, the last three quarter sales flatten; if this trend continues, EPM assets turnover would be estimated to be 3.73 only! It is much lower than the historical low of 4.48 in the past ten years.
We can expect SCGM management should tell us more about what has happened in the coming final results announcement. Meanwhile, I will try to analyse and list the possible causes of so low asset productivity in my next post.
 
 
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