ROI on YiLai: Part VII

Yi-Lai just announced its 2006 Q3 earnings. (past blog postings on it can be found here: Part I , Part II , Part III , Part IV , Part V , Part VI)

The following is a snapshot of how Yi-Lai has fared for its most recent 4 quarters.

And this was what the company management had to say in their earning notes.

• For the current quarter under review, the Group recorded a higher turnover of RM34.9 million compared to RM30.8 million for the corresponding quarter in 2005 whilst profit before tax was RM8.9 million compared to RM8.7 million for the corresponding quarter in 2005. The improvement in results was attributable to higher sales volume achieved in the current quarter.
  On a cumulative basis for the first nine months of 2006, the turnover increased by 14.8% to RM100.6 million (2005 – RM87.7 million). However, profit before tax was lower by 5.0% to RM24.7 million (2005 – RM26.1 million) as a result of higher cost of production and stiff price competition.

For me the two issues I mentioned in Part VI still remains. Here is what I wrote back then. (in blue italics)

• So two clear and present issues.
  
  Remember the issue of it's the business that counts?
  
  Well, Yi-Lai's business is struggling in the current tough business environment. The tough business environment is hurting Yi-Lai's profits. Make no doubt about it.
  
  How concern would you be on this issue? How worried are you that Yi-Lai's earnings is hurting?
  
  However, the balance sheet is top draw. Another rarity since we are witnessing an extremely healthy growth in the cash flow despite the tough business environment. It's highly commendable what the management is achieving during current times..
  
  How brown cow?

Same issue for me.

Yes, I think Yilai is still managed brilliantly...

BUT....

I really believe the current ballgame has changed. It's a tough current ball game. The current YiLai ain't as good as the YiLai of the yester-years!

When will it change? How long will it last? And worse still, will the situation worsen?

How?

Here are some commentary from a RHB writeup this morning:

• X 9MFY12/06 net profit came in at 78-84% of our full-year forecast and the full-year market consensus. However, we consider the results within expectations as we expect weak performance in 4Q as operating conditions continue to deteriorate.
  
  X Competition in the domestic ceramic tiles industry continues to intensify against a backdrop of massive excess capacity and softening demand on the back of a weak property market. The rising production costs coupled with local players’ inability to penetrate the export market in a major way do not help either. Yi-Lai is not spared.
  
  X However, the weak prospects will not impair Yi-Lai’s ability to pay out a generous gross dividend of 12sen/share per annum, translating into a gross dividend yield of 9.9%. This is because of its net cash of RM58.5m or 37sen/share as at 30 September 2006 coupled with minimal capex projected at only RM4m per annum going forward. Indicative fair value is RM1.16 based on 8x FY12/07 EPS, in line with its 1-year forward historical average PER. Maintain Market Perform.