SP Corporation Ltd (AWE:SES)

Recent Share Price: $0.80

Accounting: Singapore Accounting Standards

Fiscal Year: December 31corporate-profile8

SP Corporation Limited, a Singapore-based investment holding company, trades in commodities, primarily from Indonesia, and distributes consumer staples, also primarily from Indonesia.  Recently, they sold off their tire distribution business.  They have a ‘Mining & Energy’ segment that does not contribute materially to earnings.

Commodities Trading segment (2017: 95% Revenue, 255% Profits)

  • SP Resources International Pte. Ltd.
    • Engages in the trading of selected industrial products such as coal, rubber, metals, and machinery in Asia.
    • Trades in coal produced by Indonesian coal mining companies, namely;
      • PT. Bukit Baiduri Energi, and
      • PT. Indexim Coalindo.
    • Supplies aluminum to a cable manufacturer and an automotive alloy wheel manufacturer in Indonesia
  • SP Global International Pte. Ltd.
    • Handles the marketing and distribution of consumer products produced by established manufacturers in China and Indonesia. It also provides in-house packaging for supermarkets.
    • The focus is on the bulk distribution of personal hygiene products from its main principal, PT. Softex Indonesia.
      • The products distributed by SP Global include “Softlove” baby diapers, “Softlove” smart pants, “Softlove” baby wet wipes, “Sweety” fit pants, “Confidence” & AdFit” adult diapers, and “Sally” & “Softex” feminine napkins.

Discontinued Tire Distribution segment (2017: 5% Revenue, -65% Profits)

  • Globaltraco International Pte Ltd distributes a full range of GT Radial tires from passenger car touring and ultra high-performance models, through to light commercial and heavy truck models.
  • The company was established in 1985 and is located in Singapore. Its tire distribution business commenced in 1996.
  • Globaltraco is the authorized distributor for GT tires in Singapore, Malaysia, Vietnam, Brunei, Myanmar, Cambodia, Laos, Pakistan and a few other countries.

Others

  • SP Energy Pte. Ltd; Investment Holding
  • SP Mining & Engineering Pte. Ltd.; Investment Holding
  • PT. SP Mining & Engineering; Engineering (Indonesia)

It has operations in Singapore, China, including Hong Kong, Indonesia, Malaysia and Germany.

Insider Ownership

According to the 2016 Annual Report, Tuan Sing Holdings Limited owns 80% of the shares outstanding, a company incorporated in Singapore and listed on the SGX-ST. Tuan Sing’s major shareholder is Nuri Holdings (S) Pte Ltd, incorporated in Singapore. Michelle Liem Mei Fung, daughter of tycoon Sjamsul Nursalim, has majority control of Nuri, giving here essentially 80% control of SP Corp.

Peter Sung, the Chairman, is a senior advisor to Nuri Holdings.

Boediman Gosali (Tony Wu), the CEO, is the uncle of Michelle Liem Mei Fung.  Tony has been on medical leave but plans to return to work this month, according to their year-end filing.

William Nursalim (William Liem), a member of the board, is the brother of Michelle Liem Mei Fung.

Recent History

In July 2017, the company announced plans to wind down their tire distribution business and sell off the remaining assets for S$2.2 million (book value of S$1.4 million).  Since 2014, the business has been a loss-making enterprise as the business continued to shrink due to increased competition.

2017 Results

SP Corp’s 2017 (Fiscal: December) net profit fell 75% to S$447,000 as higher costs and expenses overtook a revenue increase of 11% to S$121.1 million.   A portion of the loss was attributable to a write-down of S$519,000 in discontinued operations. Sales from the discontinued tire distribution business, which has been sold off, fell 59% to S$6.7 million.

Related Party Transactions

Much of SP Corp’s business is tied up with related party transactions. Related parties are members in which the shareholders of Nuri and their family members have a controlling interest.  In 2017, SP Corp recorded, in aggregate, $64.3 million in revenue and $68.9 million in expenses — for a net of ($4.5) million.  This may be of concern considering this exceeds total operating income.  Conversely, SP Corp reported a profit.

Included in the Commodities Trading revenue of $121.1 million (2016: $109.3 million) were sales of approximately $38.1 million and $19.2 million (2016: $44.7 million and $16.0 million) to the Group’s two largest customers and one of the customers is also a related party.

These estimates do not take into consideration a trade deposit of $8 million.

  • Refundable trade deposit of US$6,000,000 (2016: US$6,000,000) relates to monies placed by the Group with a coal mine which is a related party to secure coal allocations. The deposit is secured by a corporate guarantee issued by the immediate holding company of the coal mine, which itself is a coal mine and a related party of the Group.
  • The deposit (equivalent to $8,073,000 [2016: $8,689,000]) is repayable within one year and subject to annual renewal by mutual agreement between the two parties. It bears an effective interest rate of 5.73% (2016: 5.43%) per annum.

These types of transactions have occurred before, as the company was reimbursed for a similar transaction in 2017 worth $3.5 million.

On 23 January 2018, SP Corp renewed the coal allocation agreement with a related party extending the latter’s supply to 2021 and is expected to contribute positively.

Other

  • Non-cancelable leases due within 5 years approximate $450,000 SGD.
  • No company pension
  • Compensation for directors and key personnel totaled $1,480,000 SGD in 2017
  • No options or warrants
12/31/15 12/31/16 12/31/17
Cash and Short-term Investments $12,999,000 $24,826,000 $22,684,000
(0.75 * Accounts Receivable) $46,710,000 $39,008,250 $33,117,750
(0.5 * Inventory) $457,000 $379,500 $0
Total Liabilities $26,359,000 $24,987,000 $16,207,000
NNWC $33,807,000 $39,226,750 $39,594,750
NCAV $49,834,000 $52,609,000 $50,634,000
NCAV + LT Investments $49,834,000 $52,609,000 $50,634,000
TBV $50,364,000 $52,984,000 $50,806,000
Enterprise Value $5,395,200
Retained Earnings -$8,812,000 -$7,010,000 -$6,563,000
Dividend Payout $0 $0 $0
Shares Outstanding 35,099,000 35,099,000 35,099,000
P / NNWC 114% 43% 71%
P / NCAV 77% 32% 55%
P / NCAV + LT Investments 77% 32% 55%
P / TBV 76% 32% 55%
NCAV Burn Rate 5.4% 5.6% -3.8%
Debt / Equity 0.0% 0.0% 0.0%
F-Score 3 7 5
FS-Score 3 8 5
Z-Score 3.5
Beneish M-Score n/a
EV / Operating Income (5yr) 54%
EV / Operating Income (10yr) 28%
Operating Income (5yr) $9,928,000
Operating Income (10yr) $19,548,000

Untitled

Disclosure: We own shares in SP Corporation Ltd (AWE:SES)

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