Intelligent Investor's Notes
Business Quality Inspection on HAIO (7668)
Intelligent Investor
Publish date: Fri, 18 Jul 2014, 12:35 AM
Franchise Quality Analysis (FQA)
- HAIO able to score 40/40 on the FQA inspection.
- HAIO T4Q's revenue & OCF is lower than the 10 year average. Need to pay attention and find out the reason.
Return on Equity (ROE)
- HAIO ROE is way above the WACC (15.45% vs 9.64%)
- The ROE have been grew in 130.72%% with a CAGR of 12.18%.
- The ROE was achieved with a high profit margin of 16.20% and it has been grown with a CAGR if 16.63%. This is the most desirable way to achieve a higher ROE.
- The sales turnover is low and experiences a negative growth (CAGR -2.74%). HAIO should able to achieve a higher ROE if he able to increase the sales turnover.
- HAIO has a very low equity multiplier - 1.1584 and it can increase the financial leverage and improves its ROE. However, financial leverage is a double edge sword it can hurt ROE badly in the bad times. And, high leverage can make a company’s balance sheet unhealthy and become risky during economy downturn.
Return on Invested Capital (ROIC)
HAIO's Invested Capital grew by a CAGR of 3.37% while the NOPAT growth at a much higher rate at CAGR of 23.58%.
Owing to this the ROIC was improved from 6.16% to 36.73%, and it is far above the WACC of 12%.
Profit Margin & Quality
The revenue grew by 81.95% (CAGR of 7.81%) but the COGS grew at a higher rate and this result a lower Gross Profit growth rate of 17.56% (CAGR of 1.56%). Even though the Gross Profit Margin growth rate is very low but the actual gross profit margin was maintained on above 30% level on the pass 10 years.
Compare to the revenue, Operating profit and Net Profit grew at a higher rate of 166.78% and 289.42% respectively. Based on this number, the management was putting a good effort to reduce its operating expenses.
The profit growth is in tandem with revenue growth and the quality of growth is hence considered good.
Cash Flow
OCF is below NP in 3 out of 10 years, and this show that the net income was able to convert to the cash in most of the time. However, it has not able to fully convert the Net Income to OCF on the pass FY and T4Q.
The revenue was growing from 119.48M to 253.39M and it is equivalent to a CAGR of 7.81% while the NP was growing from 4.16M to 41.03M (CAGR of 25.73%). The growth was achieved with an average CAPEX of -5.4M (CAGR of 2.34%). This shows that the return of CAPEX investment is encouraging.
The OCF and FCF on T4Q is equivalent to 10.2% and 8.31% of revenue; 8.43% and 6.84% of the total asset. The average OCF/Revenue, FCF/Revenue and OCF/Total Asset, FCF/Total Asset is 11.60%, 9.57% and 14.93%, 12.52% respectively. This is way above of my require benchmark of 10%, 5% and 8%, 5% and it shows that the growth quality and earning quality is good.
Insider Pay
The director is drawing 1.09% of remuneration from the revenue and the ratio has been reducing from 2.58%. Based on the business quality as presented above, I think the director is not taking a fat salary.
Leverage & Liquidity
The debt is very little and HAIO the cash is more than the total liabilities.
In view of its strong balance sheet, the risk to invest in HAIO is low.
If you are interested on the fundamental analysis, you can perform further reading on below articles:-
- Financial Statement Analysis
- Income Statement Analysis
- Income Statement - Common Size Analysis
- Profit Margin
- Balance Sheet Analysis
- Balance Sheet - Comparative Analysis
- DuPont Analysis - Dissecting ROE
- Issues and Pitfalls of ROE
- Return in Invested Capital (ROIC)
- Total Enterprise Value (TEV) and Earning Yields (EY)
- Cash Flow Statement Analysis
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tbm65
there is a condition called over analysing.too much analysing and thinking a situation so action is never taken
2014-07-19 18:10