Dapai Analysis – Part 2

In this part of the analysis, I will present the financials of Dapai and do a quantitative analysis on them.

Financials

As Dapai is a China-based company, its financials are based in RMB. So, I had to convert to SGD and the rate I used was 1RMB=0.2SGD. This rate is just an approximate.

Firstly, the revenue is increasing from FY2007 to FY2008 and then dips in FY2009. The reason cited for this in the annual report is that there was softer demand from first-tier cities, especially Beijing and Guangzhou, due to its higher dependence on domestic consumption. Overall domestic consumption was weakened due to the global financial crisis.

The gross profit and gross profit margin decreased from FY2008 to FY2009 as the average-selling price (ASP) was decreased to fuel demand.

Looking at the Q2FY2010 results which were released on 11th Aug 2010, the revenue, gross profit, GPM, net profit, NPM all increased when compared to Q2FY2009 as the ASP went up and new models were released. Thus, I feel the dip seen from FY2008 to FY2009 is only temporary.

Looking at the balance sheet, Dapai is cash-rich with zero debt! The CCE stands at S$108.4 million for FY2009. The ROE and ROA is also high. Shareholder’s equity is also seen increasing. The NAV as at Q2FY10 is $0.30. The current share price is around $0.20.

Looking at the cash flow part, cash flow from operations is increasing throughout. Capex in FY2009 was at S$39 million due to cost of construction of new office cum factory building purchased in 2008. Dapai has low capex requirements and thus produces lots of free cash flow.

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5 thoughts on “Dapai Analysis – Part 2

  1. Hi FF,

    I think it is important to look into the cost of sales in this aspect when a substantial increase in revenue only brings a small increase in gp margin and a decrease in np margin.

    It could be that the growth in cost of sales or expenses are faster than the growth in revenue, and in this case we could say that this company x is not cost effective enough. If cost of sales or expenses are eating into profit margin, I think it is important to know why.

    E.g. Midas is a company with quite a good financial statement but is at risk when aluminum peaked its price.

    Hope it’s useful. (:

    Regards,
    cj

  2. Hi FFN,

    Thank you for the analysis on Dapai.

    Just to add on, FYI the tax rate for FY09 increased to ~25% compared to ~20% in the prior years, thus squeezing the net margin further.

    Rgds,
    Wee~

    • Hi Wee,

      Thanks for visiting my blog!

      Yes, I glanced through that in the financial footnotes. You are right that it squeezed net margins further. What do you think of the profit warning? Do you think it’s a one-off event or it is a major impediment to the company’s progress?

  3. Hi,

    I guess we will have to monitor the next few quarters’ results to see how badly affected the bottom line will be, and also any remedy action by the management? Perhaps they may have to get new suppliers.

    Rgds,
    Wee~

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