Tong Herr's Earnings

Tong Herr reported its earnings last nite.

It wasn't impressive at all.

Net earnings of 4.444 million versus 18.942 million ago is rather very, very poor.

And this is what the company said.

• The Group recorded revenue of RM99.64 million and profit before income tax of RM6.22 million in this reporting quarter compared to RM97.70 million and RM8.1 million respectively, as recorded in the preceding quarter.
  
  The higher revenue and lower profit before income tax for this quarter are due to higher demand for the product and higher cost of raw materials purchased in the preceding quarters.

Now BusinessTimes posted an article on Tong Herr, Tong Herr to invest RM70m on production

• TONG Herr Resources Bhd will spend RM70 million this year to boost its capacity in Malaysia and Thailand on strong demand for steel fasteners.
  
  The Penang-based company will triple the production of nuts, bolts, screws and other threaded items at its Perai Free Trade Zone facility on mainland Penang by September, its chairman Tsai Ching-Tung said yesterday.
  
  "We have earmarked RM45 million for machinery and the construction of a facility adjoining our existing one," he told reporters after the company's annual shareholders' meeting.
  
  Tsai said Tong Herr will also invest RM25 million to expand its 7,000 sq ft Thai factory located at the Amata Nakorn Industrial Estate in Chonburi, adding that rising steel prices had very little impact on Tong Herr's bottom lines.
  
  For its 2007 financial year ending December 31, Tong Herr recorded its highest ever revenue of RM487.67 million while net profit jumped 31 per cent to RM73.22 million.

Two issues for me.

Firstly, the decision to want to invest rm25 million in expanding their Thailand factory.

Look at the following screen shot of Tong Herr's notes on its segmental reporting.

Its Thailand operations only contributed a net profit of 636 thousand for the current quarter. And the boss wants to spend another 25 million???????

Last year, it was reported that this Thailand plant had already cost 20 million.

And Tong Herr wants to add another 25 million??????

That's 45 million!!!!!!!!!!!!!!!!

For a plant that only contributes 636 thousand in net earnings!

Holy cow!!!!!!!!!!!!!

What kind of Return Of Investment are we talking about here?????????

Blows my mind away man!

And then we have the statement from Mr.Tsai that "adding that rising steel prices had very little impact on Tong Herr's bottom lines."

I am so utterly confused here.

Now steel is the main raw material for Tong Herr, right?

And you have the company stating the following:

• The higher revenue and lower profit before income tax for this quarter are due to higher demand for the product and higher cost of raw materials purchased in the preceding quarters.

The higher cost of raw materials has resulted in the company net earnings plunging to 4.444 million compared to 18.942 million the same period a year ago.

However, Mr.Tsai says "rising steel prices had very little impact on Tong Herr's bottom lines".

Huh????????????????????????????