Despite an overhang on the equities markets due to the ongoing trade tensions and worries about the economic slowdown, most companies generally continue to deliver decent results for the last quarter. Some of the key highlights in this earnings season include Keppel Corporation announcing a turnaround of its offshore and marine division. Meanwhile, local bank DBS Group Holdings also achieved record quarterly net profit of $1.7 billion rising 8.5 percent year-on-year, which helped to lift Straits Times Index temporarily above the 3,400 level closing at 3,407.02 on 29 April 2019.
Nevertheless, with the recent rally, the probability of an imminent correction has also heightened. For investors who are getting jittery about the widely-believed axiom, “sell in May and go away”, we identify three stocks that had posted less-than-satisfactory results which investors might wish to reduce their exposure on.
Venture Corporation’s (Venture) 1Q19 revenue climbed 8.5 percent to $928.8 million on the back of broad-based growth across the group’s portfolio of technology domains and excellent execution of clients’ programmes. Correspondingly, net profit also managed to grow 8.6 percent to $90.9 million in line with the higher revenue, despite intense competition and pricing pressures in the business environment.
The group generated positive operating cash flows of $100.5 million in the first quarter. As at the end of March 2019, Venture held $806.8 million of cash and bank balances as well as $17.6 million of borrowings, translating to a net cash position of $789.2 million.
Venture’s numbers may seem pretty strong, but they failed to meet the street’s expectations. This was accompanied by management’s remarks that they are expecting near-term volatility to the group’s performance arising from some customers’ product transitions. Considering that Venture’s share price had already run up quite a bit before its earnings release, a number of research houses believed that its growth expectations had been priced in and hence proceeded to downgrade its ratings. As a result, Venture slid 9.2 percent closing at $17.52 on 26 April 2019, the next trading day after its results announcement.
iFAST Corporation’s (iFAST) assets under administration grew 8.7 percent quarter-on-quarter to reach a new record high of $8.8 billion as at 31 March 2019.
However owing to the weaker investors’ sentiment in equity markets, the group saw a significant drop in customers’ investment subscription in unit trusts in 1Q19 which led to a decline in its front-end commission income. Consequently, 1Q19 revenue fell 12.2 percent to $27.2 million.
Total operating expenses climbed 13.4 percent to $13.5 million attributable to iFAST’s continued efforts to invest for ongoing growth, mainly though enhancing the group’s platform capabilities and expanding the range of investment products and services so as to strengthen its Fintech Ecosystem and scale up the businesses further. As a result, net profit sank deeper by 41.8 percent to $1.6 million.
iFAST’s cash balance as at 31 March 2019 declined 45.6 percent to $33 million from $60.7 million at the end of FY18, mainly due to payments of additions of plant and equipment and intangible assets. Fortunately the group’s cash position, comprising cash equivalents and other current investments in financial assets net of bank loans, remained in the positive territory standing at $47.9 million. The group declared an interim dividend of $0.0075 a share, the same amount as per what it had paid out in the previous corresponding period.
iFAST’s share price closed at $1.12 on 29 April 2019 after releasing its results, which translated to a 4.3 percent decline within a single trading day.
Hutchison Port Holdings Trust
Hutchison Port Holdings Trust’s (HPHT) 1Q19 revenue was largely flat inching up 0.3 percent to HK$2.7 billion dragged down by 9.6 percent lower combined container throughput of HPHT Kwai Tsing but partially offset by increased container throughput of Yantian International Container Terminals (YICT) by 4.6 percent.
Interest and other finance costs jumped 19.8 percent arising from higher interest rates of the bank loans attributable to increased HIBOR/LIBOR. The trust’s tax expenses also climbed 22.8 percent due to increased tax rates following the expiries of “High and New Technology Enterprise” status of YICT Phase I and II and the tax exemption period for YICT’s West Port Phase II berth number four at the end of 2018.
Consequently, net profit remained sluggish sinking 33.4 percent as compared to last year at HK$96.9 million.
HPHT closed flat at US$0.24 on 29 April 2019, the trading day after it released its results. Looking forward, management expressed caution as the expected cargo volume for the rest of 2019 could stay weak on the back of the macro-economic and political uncertainties. It further guided a distribution per unit (DPU) between a range of HK$0.11 to HK$0.17 for the full year. Assuming that HPHT managed to pay out at the higher end of the range at HK$0.17 which is also the amount that the trust had paid out in FY18, this implied a yield of 9.6 percent based on HPHT’s last market price of US$0.23 as at 6 May 2019.
Having said that, investors need to be mindful of the foreign exchange exposure while holding on to HPHT. Should the Federal Reserve decides to adopt a looser monetary policy ahead of the presidential election next year, we would expect to see a weaker US dollar.