Stamford Tyres will hold its FY2017 AGM this Monday (28 Aug). From its annual report, here is its President's letter to shareholders.

Dear Shareholders,

I am pleased to present the results for FY2017. Our improved performance is due to three main factors.

wkw cimb350Wee Kok Wah, President of Stamford Tyres. NextInsight file photoFirstly, our primary market - Southeast Asia - showed enhanced profitability despite the challenges faced. Southeast Asia, which accounted for 85.8% of Group revenue, once again delivered commendable performance. It produced pre-tax profit of $7.8 million on revenue of $202.3 million. 


The pre-tax profit was 43.7% higher year-on-year on a 0.8% dip in revenue. Secondly, after several years of persistent and focused efforts, our ventures into the newer and emerging markets (India and South Africa) achieved operational breakeven levels.

Our Australian operation narrowed its losses significantly on the back of a higher top line from more product offerings via its local distribution network.

Thirdly, our ongoing forex risk management coupled with lower market volatility has resulted in the Group reporting net forex costs of approximately S$68,000, the lowest in the past five years. 


Taken together, those key factors enabled the Group to report a net profit of $8.1 million, up 213.6% year-on-year. Our total revenue was $238.7 million, down 1.5%. Net profits of $1.7 million and $2.6 million was recorded in FY2015 and FY2016, respectively.


HEALTHY MARGINS
There were challenges, including a stronger US dollar vis-à-vis currencies in markets we operated in. There was also competition from new players and an oversupply of tyres globally. The Group’s gross profit margin increased to 26.2% in FY2017, compared to 22.1% and 24.7% in FY2015 and FY2016, respectively.

Stock price 

34.5 c

52-week range

23.5 – 35.5 c

PE (ttm)

10

Market cap

S$81 m

Shares outstanding

235.5 million

Dividend
yield (ttm)

4.35%

Year-to-date return

23%

Source: Bloomberg

This is reflective of one of our core business approaches – which we have highlighted at past Annual General Meetings -- of defending our gross margin and focusing on improving the contribution from value-added activities from the Group’s Stamford Tyres retail chain and truck centres as well as the offering of total tyre management services to commercial fleet and mining operators in Southeast Asia. To sustain healthy net margins, we continue to find ways to reduce and contain operating costs.

Our FY2017 total operating expenses (including marketing and distribution costs) were lowered by $1.9 million, or 3.2%, to $56.4 million. Notably, we have pared down our net borrowings by $11.7 million, resulting in lower finance costs. In conjunction with that, our inventory as at end-FY2017 was lowered to $77.9 million from $85.0 million a year earlier.

This is in line with the Group’s approach of rationalising its current assets.

VALUE ADDING
We worked continuously to add value to our clients beyond just selling tyres. Our extensive Stamford Tyres retail chain network provides a comprehensive range of workshop services as well as the retailing of car accessories, lubricants and batteries to both end users and corporate customers. Our truck centres cater to the total tyre management needs of commercial fleet operators.

 In addition to the above, we are continuously improving our offerings of specialty and mining tyres, logistical and warehouse support to our mining customers. Please refer to the Financial and Operations Review section of this annual report for more information on our business performance.

OUTLOOK
Various competitive pressures in our industry can be challenging to us but we continue to find ways to stay resilient. Competition remains strong from distributors of other tyre brands, a challenge that has become keener with an increased supply of tyres within Southeast Asia. Inflationary pressure exists in all our markets and we will do our part to reduce and contain operating costs.

We will continue to maintain adequate forex hedging ratios and higher local currency trade lines in managing the impact of forex swings.

DIVIDEND
The Board of Directors has proposed a dividend of 1.5 cents a share, up from 1.0 cent in each of the past two years, subject to shareholders’ approval at the Annual General Meeting.

APPRECIATION
I am grateful to customers, suppliers, bankers and business associates for their support and confidence in us. Our staff certainly deserve a pat on their back, especially the management team headed by Mr Cham Soon Kian, our Executive Vice President and a 26-year veteran of Stamford Tyres. I would also like to thank the Board of Directors for their counsel. We look forward to telling you more about our business, and answering your questions, at the Annual General Meeting at our office in Lok Yang Way.

WEE KOK WAH
President
Stamford Tyres Corporation Limited


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