Transview FY05 Results (31 Oct 2005)

Transview announced its results on 20 Dec 2005. Here's the update to my review that was done on 17 Dec 2005.

Without the impairment of goodwill of $889K due to the loss of distributorship by Winston, the operating results was actually in line with my expectations.

The revenue grew form 1HFY05 mainly due to higher retail sales while the golf management revenue was quite flat. There was a writeback of $120K stock prov which increased the "Other Revenue"

The impairment loss was higher that my original calculation probably due to more advances given to Winston to settle its liabilities.

Details of advances and purchase consideration $’000
Purchase consideration of $3/- -
Advances to the acquired subsidiary for its Scheme of Arrangement 411
Advances to the acquired subsidiary for its settlement with secured creditors 2,643
Advances to the acquired subsidiary for its working capital purposes 723
3,777

With this impairment loss booked in, essentially Winston becomes a empty shell company with its property being its only valuable asset. It also appears that the only reasonale way is for Transview to sell this property to free its cash, although it may choose to lease out for the time being.

Note
The Property is a 60-year leasehold 7-storey property of approximately 17,000 sq feet gross floor area, located at 49 Kaki Bukit Place, Eunos Techpark, Singapore 416227.

Transview may also continue to incur some staff costs on Winston until it is wound down completely.

Looking ahead, the company has the following comments:
Market environment is expected to remain challenging in FY2006. As the Group continues to expand our geographical coverage and product offerings, the management will continue to focus on controlling costs and improving efficiency.

Winston’s revenue contribution to the Group for the financial year under review was not significant. It is expected to contribute to the Group in FY2006. In view of the latest development, this is unlikely to materilise. Barring any unforseen circumstances, the Board is cautiously optimistic that the Group will continue to remain profitable.

The company has maintained its dividend payout of 0.6 cts and is likely to continue to do so given its high cash reserve. With cash of $10.8M or 7.6 cts/share, the share price is likely to hold above 10 cts unless its operating results turn in very badly for the next half year. Hence, I will still hold these shares in the near future unless I can cashout above my purchase price.

My revisit of the 2004 AR presented the following concerns:

Note 25 (b)

Under Exclusive Distributorship Agreements, the Group has annual minimum purchase commitments for certain golf clubs and related accessories.

Failure to meet these minimum purchase commitments may result in early termination of the Exclusive Distributorship Agreements. As at 31 October 2004, a subsidiary company had not met the required purchase commitments by approximately $369,000. At the date of this report, the subsidiary company has not received any formal indications from the principal suppliers on the outcome of these purchase commitment shortfall. Subsequent to year end, the subsidiary company has continued to purchase from the principal suppliers based on the existing agreements.

Note 25 (c)

A subsidiary company has successfully extended its licence to manage and operate a public golf course. The current licence agreement will expire on 28 February 2006.

Comments

It appears that there are alot of risks involved for those distributorship agreements and golf manage licence when comes to renewal.

As Transview does not have sizeable inhouse products, it is at risks of losing those distributorships if the principal decides to enter the market on its own (e.g. Mercedes Benz and LG products). This kind of risk appears to be most vulnerable for consumer products after the local distributors have established its brand name. Hence this kind of risk should not be discounted lightly. On the other hand, this contrasts the business model of OSIM which controls its POS as well as its own products.