Firstly, I would like to congratulate all loyal shareholders of AGESON BERHAD (KLSE:AGES) for your dedication and trust in the company for the company had finally delivered super normal results for its shareholders!
However, despite the outperformance of the company, I understand that the company’s stellar result was being questioned by some “investors”. Hence, as a ex-auditor and someone who have great insight in the construction sector, please allow me to dissect the quarterly report on your behalf.
The company registered a revenue of RM 44.68 Million & RM 12.38 Million in net profit respectively. This results to a abnormal net profit margin of 27.71%, which of course outperforms all its peers!
However, some investors had noted that this quarter’s profit consists of some abnormal item, which was categorized under the “Other Operating Income” who contributed RM 7.83 Million to the company’s net profit. So, what is this “Other Operating Income”?
In short, it was some income outside of the company’s ordinary course of business. For example, AGES was specialized in construction using Industrialised Building System (“IBS”) and had great exposure in the property development sector. The company had recently passed its EGM on inclusion of sand trading business into their core daily business dealings. But this other income was something beyond the scope of any of these mentioned items.
Under Note 16 of the financial report, the company did actually mention that there was a increase in profit comparatively to last year was mainly contributed by a one-off disposal of subsidiary of in the current quarter as well as realization of foreign currency reserve, which contributed to RM 4.58 Million & RM 3.4 Million respectively.
Based on my understanding and in-depth study on their corporate structure, it was noted that one legacy subsidiary left by the previous management has been haunting the company’s profit, margins as well as cash flow for a great period of time. But due to several factors, the sale were only able to be finalize in this quarter. Under my rough calculation, for the past 3 financial years this subsidiary has been draining approximately RM 5.00 Million to RM 6.00 Million each year worth of profit from the company. Remove this, and actually we might see a better AGES in the near future!
By normalizing the company’s current quarter profit by removing the one-off foreign reserve income, and divide RM 6.00 Million by 4 (Each quarter contributed approximately RM 1.5 Million) of additional profit from the future, AGES actual profit in this quarter would be around RM 6.05 Million!
The figure of RM 6.05 Million was comparatively better than FY 2021 Q1’s RM 5.07 Million in net profit, which signals a 20% increase of the company’s profit under quarter on quarter basis. Meanwhile, AGES’s close peer – INTA BINA GROUP BERHAD (KLSE:INTA) had only registered RM 1.41 Million in net profit despite having a huge revenue of RM 84.85 Million! I do not want to comment negatively on other companies, but it seems like AGES in the clear winner here.
Nevertheless, there would still be investors who “misunderstood” the quarterly report representation and sell on a mistake. I would personally allocate 30% additional funds to buy the dip, anywhere around 12.5 cents to 13.0 cents is a bargain to me!
Remember, AGES’s true value is round 50 cents. Do not get affected by sharks who wanted to buy cheap!