Most of the financial statement analysis for Aspial has been done in my previous post on their previous 5-year 5.25% bond issue, which you can see here. I'll just be providing some updates on the company based on its latest financial statement (FY2015, the one used for the previous post was 1H2015) as well as changes in other factors
The company reported quite a low profit before tax, with an interest coverage ratio of only around 1.67, that was also a huge drop from the previous year. I wasn't able to see the notes to the financial statements (doesn't seem to be attached to the announcement the company made to SGX) so couldn't see what made up the other income (which has dropped a lot in particular), but in 2014, most of it was made up of fair value gains on its property. The income for the company may continue to face pressure from the not-so-good outlook of the local property market and also growth in the economy slowing, especially since it deals in jewelry which is a affordable luxury good. With the new bond issue, the company would also face higher finance costs that make it even harder for it to continue to report a profit.
The balance sheet of the company looks quite weak as well, with about $1.3 billion in long- and short-term debt. The debt to equity ratio of the company, which only measures the long-term debt, is quite high at around 1.92, which means that there is more debt than equity in the company. By taking on more debt, the debt-equity ratio of the company will only get worse and also, almost half of its assets are in development properties, which may have to have its book value written down if it is unable to be sold at their recorded prices (a possible scenario given property prices dropping a while back and no mention of a fair value loss on the properties).
The cash flow statement shows that the company hasn't been able to generate operating cash flow for at least the past 2 years and is still using money to invest in investment securities. This negative cash flow of the company may mean that it will have to raise more debt in the future to meet its working capital requirements (it's also one of the uses of the proceeds of the current debt issue).
With the interest rate environment less uncertain now, now is a better time to get bonds than it was when the company issued its 5-year 5.25% bonds and this issue is also a better issue for the investor than the previous one. I don't think I'll pick up the bonds though, due to the company having a reasonable risk of default (and we may not be able to get back the face value of the bond when it does so due to the weak balance sheet) as well as the recent depression in the stock market. While the stock market has picked up slightly and its generally more risky to invest in stocks than in bonds, however, the returns for the bonds are capped but the stock market isn't and the decrease in share prices has also created more opportunities there.
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The balance sheet of the company looks quite weak as well, with about $1.3 billion in long- and short-term debt. The debt to equity ratio of the company, which only measures the long-term debt, is quite high at around 1.92, which means that there is more debt than equity in the company. By taking on more debt, the debt-equity ratio of the company will only get worse and also, almost half of its assets are in development properties, which may have to have its book value written down if it is unable to be sold at their recorded prices (a possible scenario given property prices dropping a while back and no mention of a fair value loss on the properties).
The cash flow statement shows that the company hasn't been able to generate operating cash flow for at least the past 2 years and is still using money to invest in investment securities. This negative cash flow of the company may mean that it will have to raise more debt in the future to meet its working capital requirements (it's also one of the uses of the proceeds of the current debt issue).
With the interest rate environment less uncertain now, now is a better time to get bonds than it was when the company issued its 5-year 5.25% bonds and this issue is also a better issue for the investor than the previous one. I don't think I'll pick up the bonds though, due to the company having a reasonable risk of default (and we may not be able to get back the face value of the bond when it does so due to the weak balance sheet) as well as the recent depression in the stock market. While the stock market has picked up slightly and its generally more risky to invest in stocks than in bonds, however, the returns for the bonds are capped but the stock market isn't and the decrease in share prices has also created more opportunities there.
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