Review on Yi-Lai

Track Record.



The above table represents what Yilai has achieved since listing. As can seen from the above table, it would appear that fy 2004 was a peak for Yilai and the decline in earnings margins clearly indicates the current extreme competitive market for the tiles industry.

Last month, YiLai announced its 07 Q2 earnings. Quarterly rpt on consolidated results for the financial period ended 30/6/2007.

The following table shows YiLai's most recent quarterly earnings.



Couple of points to note.

1. First half 2 quarters earnings totals only 9.602 million, which is significantly lower than its previous year, fy 2006 first half earnings total of 11.311 million.

2. Inventory level is up a lot for the current quarter.

Dividends. Yilai just announced another interim dividend.

Here is Yilai's dividend track record.



Yes, YiLai pays fantastic dividend yearly and based at current traded market price of 1.20, the dividend yield for Yilai is certainly interesting.

However, let's be honest with ourselves, have a look at the above table. As can be clearly seen, the total dividend received shows a decline and the decline in dividend clearly corresponds with the decline in yearly earnings. So the current risk is such. Although Yilai dividend yield is fantastic now but if the earnings continues to slump, the investor should be realize that future dividends to decline as per the decline in earnings.

Now since I had made several blog postings on YiLai before, I would like to review past blog postings.

1. ROI on Yi-Lai - posted on March 13th 2006.

Review of Earnings.

The decline of earnings was noted back then!

• How do you rate such performance? Yes, total ytd net profit dropped from 29 mil to 27.8 mil. Is there a concern?
  
  Its profit margins. Did it deliver or not?
  
  Or are you worried about the slump in earnings?

2. ROI on Yi-Lai: Part II

Review of Balance Sheet.

The issue of inventory again.

• While I was told that the tiles do not deteriorate over time, however, the design of tiles is important. A good fashionable tile helps boost sales, while poorly designed tiles could get outdated and turn into dead stock. So when a tile manufacturer reports a rising inventory, the concern is that the inventory could consist of out-dated tiles. So when you consider that yi-Lai's inventory increased from 22.023 million a year ago to 32.690 million, how concerned would one be? The concern is that although the tiles have a long life-span since it does not deteriorate, an out-dated, out-fashioned tile is a dead stock which could not be sold. Is this a non-issue?

And the depleting cash issue or rather YiLai's aggressive capital expansion.

• Back in Nov 2005, RHB had a report which stated the following:
  
  Yi-Lai’s new line that boasts a production capacity of 5,500-6,500 sq m/day is now ready for commercial production but practically left idle due to the weak demand condition. The line may be activated over the next six months. Originally designed to produce multi-effect tiles that yield higher margins, the line may be switched to produce glazed tiles or other tiles that are in demand. Given that we expect the weak demand condition to persist over the longer term, it make sense for Yi-Lai to switch its existing production from some of the smaller, older and less cost effective lines to the new line
  
  
  Although the funding of this capex was done without any bank borrowings, a whole new production left practically idle does not bode well. All dressed-up but no where to go! How? What if the production continues to be left idle? Who is paying for the bills?

3. ROI on Yi-Lai: Part III

Outlook.

• I reckon that there are three issues to consider.
  (1) Economic impact on the building materials market.
  (2) Massive capacity expansion by tiles manufacturers.
  (3) Competition from importation of cheap ceramic tiles.
  
  For the investor, would one be comfortable holding a stock in a sluggish industry?
  Is the company's product really durable and competitive enough to sustain a sluggish industry?
  And what if the sluggishness continues for a prolong period?

4. ROI on Yi-Lai: Part IV

The dividend issue.

5. ROI on Yi-Lai: Part V

Reviewing the whole Review Of Investment on Yilai.

• How? Are the reasons still valid to justify one to stay invested in the stock?
  
  Oh.. and some invested in the stock because of the dividend issue. And how would one evaluate their reasoning to stay invested in Yi-Lai since Yi-Lai has decreased their dividend payout this year?

Other postings made: ROI on Yi-Lai: Part VI and ROI on YiLai: Part VII

For the record, Yilai price at 31st March 2006 was 1.32 and currently Yilai is traded at 1.20.

So despite the fantastic dividend yield, the lack of earnings growth or rather the slump in Yilai's earnings has probably been the main factor for the current lackluster performance of YiLai's stock price.