chart11.14Serial's share price (13.5 cents) could be re-rated if it continues to deliver profit growth. Chart: Yahoo!AFTER RELEASING its 2013 results in Feb this year, Serial System's stock traded in the 13.3-13.5 cents range. The PE was 8.65X.

Despite 3 quarters of strong results this year, the share price currently trades at around 13.5 cents.

The trailing PE now is 6.5X.

And the book value has inched up to US$0.1322, higher than the stock price of 13.5 Singapore cents.

NRA Capital has a target price of 19 cents based on 8X this year's earnings per share (or a forecast US$16.1 million in net profit).

Serial -- whose core business is the distribution of electronics components -- has just announced that its 3Q2014 net profit jumped 50%, outpacing its revenue growth of 32%.

For 9M2014, net profit grew 40% while revenue, 28%.

Thus, in both the 3Q and 9M results, the all-important net margin expanded to 1.5% and 1.5%, respectively (from 1.3% and 1.4%, respectively).

And, with 9M sales totalling US$768.4 million, the company said it is on track to exceed sales this year of US$1 billion for the first time in its 26-year history.

Derek_AGM14CEO Derek Goh at Serial's AGM this year: "We are aggressively striving to improve margins, especially through deeper integration of our internally-developed business intelligence IT systems that have significantly improved our cost controls, inventory management and operational efficiencies.”  File photo.Here are key takeaways from a results briefing by CEO Derek Goh and CFO Alex Wui:

1. Serial's sales in Greater China grew 55% in 3Q -- thanks in part to big business from smartphone producer Xiaomi which accounted for double-digit percentage of the Greater China market sales for Serial in the first nine months of this year, compared to less than US$10 million a year ago.

The surge in the Xiaomi business volume, however, came with lower margins, which helps explains why the Group's gross margin declined to 8.4% in 3Q2014 from 8.8% in 3Q2013.

Other notable new clients in the smartphone sector acquired by Serial were Lenovo and Meizu (an up-and-coming Chinese smartphone producer). Other thriving sectors: consumer electronics, household appliances and automotive.

2. South Korea dropped - the market accounted for 12% of group sales in 9M2014, compared to 17% in the whole of 2013.

The market is very competitive with relatively few customers (such as Samsung and LG) controlling the market (unlike in China).

3. Acquisitions: Serial recently acquired 49% of Achieva Technology and expects to turn it around next year.

alex_wuiCFO Alex Wui. File photo.As for the proposed acquisition of GSH Corporation's distribution and trading business, Serial is still doing due diligence and could wrap up the deal within the next few months.

The business is slightly loss-making but there are synergies and upside potential.

It currently distributes finished IT and lifestyle products of brands such as Apple in markets -- such as Central Asia, Vietnam, Cambodia and Bangladesh -- that Serial does not have a presence in.

4. Serial's 20%-associate, South Pacific Laundry, contributed US$0.2 million to Serial's bottomline in 3Q as it did in 2Q from its industrial laundry business in Australia.

Serial acquired its stake in this business in late March this year for US$6.8 million cash.

The business, founded by a Malaysian Chinese, serves clients such as hotels and restaurants, and is expanding in Australia. Thus, it is expected to contribute more to Serial's bottomline going forward.

5. Factoring of accounts receivables: Serial is negotiating with several banks on this, and hopes to wrap things up in a few months' time.

By factoring its ARs (currently about US$200 million), Serial's net gearing will fall sharply when the cash inflow is used to repay bank borrowings. Serial has US$157 million in short-term loans and US$6.2 million in long-term loans.

In factoring, Serial will of course receive less than 100% for its accounts receivables but the company will save on interest costs on borrowings.

6. Dividends: Serial guided for its usual 40-55% payout ratio. A 0.30 cent a share dividend was paid out at half-time. As reference, for FY13, Serial paid out a 0.55 cent a share in final dividend.


Serial's 3Q Powerpoint materials are available on the SGX website.

Recent stories:

SERIAL SYSTEM's fair value is 21.3 cents, says CIMB


SERIAL SYSTEM: Acquisition of Achieva, GSH units to propel growth



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  • Lionel Lim