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A-Sonic Aerospace
13-05-2018, 10:43 PM.
Post: #1
A-Sonic Aerospace
A-Sonic Aerospace IPO-ed back in 2003 and posted 3 years of nice profits. Since FY07, things started going downhill and the company never truly recovered. From its last AR, there are still some 5,720 holders of this stock. After being down some 90% since IPO, most shareholders probably just decided to leave it as it is. If this bring back bad memories, I apologise.

Here is a short write-up from way back:

Its IPO prospectus can be found here:

A-Sonic posted combined comprehensive losses of US$24.7m over the past 10 years. Only in 3 of those year was its comprehensive income positive. Given the heavy loses, dividends for the past 10 years totaled US$3.7m, and was paid out over 4 years. Its poor record make A-Sonic a recalcitrant member of the watchlist. Always escaping the gallows by posting some profits when time is almost up, and then returning to its loss-making way immediately after release. 

Comprehensive Income (US$)
FY08:    (14,972)
FY09:    (1,153)
FY10:    8,029 
FY11:    (2,186)
FY12:    (5,618)
FY13:    4,059 
FY14:    105 
FY15:    (9,926)
FY16:    (2,512)
FY17:    (521)

Currently, A-Sonic has a book value of US$26.3m (approx S$35m) and market value of S$11.4m. This translates to a p/b of about a third. Has A-Sonic become a value-for-money buy?

Lets start with its cash flow. A-Sonic has produced a total of $21.1m FCF over the past 10 years. Looks good, yet strange. How can it be posting almost as much losses as it produces FCF? There are 2 reasons why its cash flow statement looks good. The first is that its interest expenses are accounting under 'financing cash flow.' The second and main reason is that it has been delaying the settlement of its trade payables longer than the collection of its trade receivables. In other words, it is borrowing more from suppliers to do business. In FY08, there was more trade receivables than payables. In FY17, it is the reverse. As a result, its cash remains more or less intact.

Trade Receivables, Trade Payables, and Cash (US$)
FY08:    32,134           21,443              26,644
FY09:    41,626           28,868              20,360
FY10:    44,497           28,634              30,080
FY11:    45,740           35,078              29,237
FY12:    53,373           43,065              22,716
FY13:    43,756           37,919              20,718
FY14:    39,725           35,885              16,601
FY15:    29,293           28,181              18,993
FY16:    34,672           33,973              18,354
FY17:    40,365           45,237              23,782

Meanwhile, its working capital is decreasing, in step with the comprehensive income. Clearly, their business model is not working. 

Working capital and comprehensive income (US$)
FY08:    28,196
FY09:    25,812            (1,153)
FY10:    37,981            8,029 
FY11:    33,126            (2,186)
FY12:    25,834            (5,618)
FY13:    18,677            4,059 
FY14:    20,924            105 
FY15:    17,819            (9,926)
FY16:    19,375            (2,512)
FY17:    17,377            (521)

Let's say the Tan sisters (I assume) have had enough, and decide to halt all operations and liquidate the company. Let's say it can get back US$15m out of the US$17.3m of working capital. And for its PPE, let's say it can get back US$5m out of the US$7.2m. That's a cool US$20m (or approx S$26.6m), more than double the market cap! So the question is, will the Tan sisters liquidate the company?

Directors and Key Management Compensation (US$)
FY08:     2,401
FY09:     2,658
FY10:     3,312
FY11:     2,969
FY12:     2,680
FY13:     2,849
FY14:     2,998
FY15:     2,748
FY16:     1,622
FY17:     1,638

Between the two sisters, they make about US$1m per year. The exact figures are not known since it is not disclosed, but you can arrive at an estimate after subtracting the salaries of the others executive officers and independent directors. It is only during the past few years where the compensation shows some alignment with the direction of the business, i.e. down. Even then, it is still high for a company that has not been able to demonstrate making sustainable earnings. Apart from the comfortable salary, A-Sonic was also founded by these sisters. Having been with it for more than 20 years now, it is likely that they will try to turn thing around. Giving up on it will mean giving up a major part of their identity. 

Since liquidation is unlikely, the next question is how long can the company last. Unfortunately, I cannot offer any insight to predicting its future. Assuming that it continues to make small losses, A-Sonic should be able to continue as a going-concern for the next 5 years or so. If things get really bad and it is unable to exit watchlist, shareholders may just continue holding onto shares of a delisted A-Sonic. If the Tan sisters are nice, they may just give a low exit offer. 

For all the Annual Reports:

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