I just read the following clip on Guan Chong on Business Times.
That article was of interest since I had blogged on this company several times before.
- 9 Aug 2010: Review Of Guan Chong's Earnings
- 10 Aug 2010: Update On Guan Chong's Posting
- 1 Feb 2011: Update On Guan Chong's Earnings
Guan Chong said it had a net profit of some 35 million for the current quarter.
So I was curious.... to have a look at Guan Chong's notes.
As mentioned in the posting Update On Guan Chong's Earnings
As posted in the posting, Review Of Guan Chong's Earnings , it was noted that Guan Chong
- .. gain from commodity future contracts and net fair value gains on foreign exchange derivatives.
This is Guan Chong's latest.
Here's Guan Chong latest info on its derivative contracts.
Some 168 million on forward forex contracts? Err..... wow!
(ps: the commodity futures contracts... its shows a minus.... compare to the previous earnings screenshot here: http://1.bp.blogspot.com/ )
Then I decided to check out the balance sheet.
Piggy bank cash only totals some 15 million.
And mind you Guan Chong owes a bit to its bankers!
Then I took a quick look at the cash flow....
errr...... frankly.... for a company that is said to be enjoying its best earnings ever.... I lost total interest and I think you know what I mean.
BTW there's a set of comments that I like to highlight from the posting Update On Guan Chong's Earnings
- K C said... Is Guan Chong (GC) an upstream coco processor or a derivatives speculator?
Looking at Moola's breakdown on GC's profit, it appears that almost all of GC's profit is from coco future (and stocking up of inventory of coco) and currency derivative. A business is wise to hedge against price fluctuation or currency risk in order to have smooth and predictable profit, not for the purpose of an extraordinary gain. In GC's case, when coco price goes up, its coco processing operation will suffer (unless it can pass all cost increase to its client). This loss position will be approximately offset by the gain from its long position in coco, and vice versa. How did GC manage to do so well in this aspect? Pure speculation of course. It was lucky that lady luck was with GC. It could well be the other way around. In short, this type of speculative gain, is no doubt, unsustainable. GC should concentrate on how to improve its efficiency in coco processing business and hence increase its extremely meager profit margin in this operation, rather than embarking on speculation on derivatives.