Abundance International, like all traders of commodity chemicals, faces a perpetual challenge: It makes thin gross margins of 1-3% in back-to-back transactions.  Sam Kok Yin, MD of Abundance International: Owns a 16.4% stake in the listco. Photo by Leong Chan TeikAnd things can go wrong, ie it can suffer significant losses, when it has to assume a "price exposure" in transactions that are not of a back-to-back nature. Thus, it is noteable that Abundance's wholly-owned subsidiary, Orient-Salt Chemicals (OSC Singapore), and its subsidiaries, made US$1.3 million in net profit in 1H2017. At the Abundance group level, net profit attributable to shareholders was US$248,000 after various expenses (See details in press release here). One of the expenses, notably, was a non-cash interest expense of US$0.4 million as a result of the S$12,855,000 in principal amount of zero coupon bonds issued by Abundance on 31 Jan 2017. If not for that expense, net profit attributable to shareholders would have exceeded US$600,000. It is a small profit but it's significant coming after at least five consecutive years of losses suffered by the previous core printing business. |
Abundance International was formerly Craft Print, which for some 40 years was into printing, binding and packing of books, magazines and the like.
It was a sunset business, and since 2016, the renamed Abundance has moved into trading of chemicals under new controlling shareholders.
(For more, see: ABUNDANCE INTERNATIONAL: Rapidly scaling up its chemical trading business).
The trading business actually arose from an established trading business of nearly 15 years in China dealing with MNCs and state-owned enterprises. And it has had a long track record, which helps explain why under Abundance, the performance was positive from the start.
The revenue of Abundance ramped up to US$222.7 million in 1H2017, largely owing to Abundance securing more bank lines and credit terms from suppliers in 1H2017, which was a major improvement from 2016.
|
Stock price |
4 c |
|
52-week range |
3.4 – 8.5 c |
|
PE (ttm) |
46 |
|
Market cap |
S$26 m |
|
Shares outstanding |
642.8 million |
|
Dividend |
-- |
|
Year-to-date return |
14% |
|
Source: Bloomberg |
|
As at 30 June 2017, the OSC Group had access to US$28.6 million of trade facilities granted by banks.
With more working capital, it has been able to trade more products. A promising one is MIBK, which stands for methyl isobutyl ketone.
It is a niche (relatively low volume) specialty chemical that OSC has become one of the most active traders of in China, selling it in the country as well as overseas, according to Abundance MD Sam Kok Yin in a 1H17 results briefing.
The chairman of Abundance owns one of the largest ethanol production plants in China and supports OSC by buying some raw materials and selling some products through OSC.
This relationship and the larger volume enables OSC to negotiate better terms from suppliers and customers, a synergy that contributes to OSC's profitability.
With 1H17 being a positive period for OSC, and assuming that business stays stable, the 2H could be more positive as more working capital becomes available and a wider range of chemicals is traded.
| One risk is trading losses -- but OSC has imposed more stringent checks and balances this year. Another risk: "Our trades are all physical trades, as we don't do derivatives due to the associated high risks. However, like all traders, we face the risk of disputes, if anything happens to a shipment or the product quality. The past year has been a lucky one in that such things didn't happen," says Mr Sam. "I suppose the ability to minimise and manage such incidents is a necessary attribute of a successful trading company." |
