10-03-2011, 12:25 PM
(10-03-2011, 12:09 PM)Musicwhiz Wrote: [ -> ](10-03-2011, 12:01 PM)Nick Wrote: [ -> ]I think so too MW though I was hoping for a slightly higher dividend haha. Cash will be needed for Penjuru expansion and hopefully a synergistic acquisition in the region for it to spread it wings. I think it will be difficult for it to replicate its double digit growth figures this year without any acquisition. 2012 should be a bumper year when the new facility is operational.
Have you factored in the start-up costs relating to the new facility and the associated depreciation on the building and macinery? If so, then FY 2012 may not be "bumper" in the strict sense of the word. This is similar to MTQ's Bahrain expansion where the initial one year would see high start up costs and staff training costs and hence would incur a loss.
Speaking of which, the new Penjuru expansion seems to be indicate organic growth of Mencast's business. I also noted that their growth has been driven by M&A (Refcon). So, in your view, how much do you think future growth will be attributable to organic, and how much of it will be acquisitive? Problem I have with acquisitive is that more funds may be needed - so fund raising and higher leverage could be an issue.
Thanks!
(Not vested)
The Penjuru facility will be operational at the end of 2011. So yes, it is highly possible that they may face start up expenses in the 1H 2012. Being a manufacturing plant, the key question is whether will they be successful in attracting manufacturing orders from large vessels ? If they do, combined with their pricing power, they might be able to post a profit and steadily grow it in the coming years. If they fail to garner sufficient level of contracts, this manufacturing plant will be one expensive flop. Again all guess-work here since Mencast hasn't done anything like this before.
Based on the SGX Acquisition announcement (dated 30 June 2009), Mencast mentioned that the 2 entities generated $1.1 million profit for FY 2008. Since the acquisition was completed in 2H 2009, the company has seen its profit grown from $5.8 million in FY 2008 to $8.5 million in FY 2010. This shows that the initial contribution from Recon alone wasn't the only growth driver. Clearly, Mencast has succeeded in growing both its own and newly acquired segment and this has translated to huge growth in earnings over the past 2 years. But again, Mencast doesn't provide much break-down of its earnings, so I can't make any meaningful comments beyond this.
I identified 3 possible organic growth factors -
i) Increasing the variety of products manufactured through its partnership with Becker.
ii) Expanding out of Singapore and Indonesia by following the local ship yard builders. Alternatively, form JV with foreign shipyard owners. Not easy.
iii) Service segment should continue to benefit from growing fleet size.