Wednesday, 17 May 2017

Cogent Holdings - Growth Story Continues

Cogent Holdings is another firm that I had not written about for 2 consecutive earnings release. Given that the investment thesis was largely built on growth, it is high time to monitor their growth momentum. Interested investors can find their latest Q1'17 earnings here.

Revenue

Source: Cogent Financial Statements
(calculations by Author)

While growth has continued, top line growth rate has actually declined slightly. 

Warehousing, Container and Property Management has been the main growth driver on an absolute basis. Given that the gantry crane on top of Cogent 1 and the Jurong Island container depot are now both fully operational, I expect the trend to continue.

The S$2.5M contract from Land Transport Authority to supply and manage a vehicle pound won on 28th April 2017 should provide a boost for Automotive logistics management services for the rest of the year. Worryingly, revenue from Transportation management services continues to fall.

Bottom Line

Source: FT Markets

As seen above, 2016 was a strong year in terms of bottom line growth for Cogent. 

While Q1'2017 started with a headline 5% YoY increase in net profits, the result was actually a slight 5% fall QoQ fall. However, I believe the expected growth in revenue will reflect on the bottom line as Cogent kept a tight lid on her margins.

Conclusion

I expect both top line and bottom line growth to accelerate slightly in the coming quarters. Beyond FY2017, we can also look forward to the Jurong Island Chemical Logistics Facility's completion and Port of Singapore Authority's move to Tuas as potential growth catalysts.

EDIT:

For those interested, Philip Securities covers Cogent and issued a report on 17th May (here) with a Target Price of S$1.18. Analyst Richard Leow also provided some interesting tidbits of qualitative information which could be of great value to investors.

As a word of caution though, while the Analysts are indeed professionals, they can be (and have been) wrong. Occasionally, they can even be very or completely incorrect. While the TPs might be eye-catching, I personally don't put much thought into these figures bandied around and prefer to use these TPs as some kind of rough gauge. As always, I would suggest for all interested investors to do your own due diligence.

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2 comments:

  1. How is the finance cost for Cogent so low when it has so much debt?

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  2. This is a weird question because there is no context.

    Firstly, whether debt is "so much" is relative. To me, Debt/Equity is currently <1, so in that sense it is not that high.

    As with finance costs, again.. high or low is dependent on context. Cogent might have lower interest rates than other firms with similar D/E ratios, but this is dependent on a host of factors. Important ones include Debt ratios (e.g. debt/equity, interest coverage etc), cash generating capabilities, amount of fixed assets, industry etc. Even vintage of firm, clients of firm etc will be considered. One can write a whole essay on this..

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