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Thursday, 28 February 2008

Tsit Wing's 4Q results on 27th February 2008 - Something positive finally?

Past, present and future results?

I've gathered and compiled Tsit Wing's past segmental results by regions over the last 5 years and reproduced them below.

Tsit Wing had tried to enter the PRC market and had been making losses over the years. It finally turned around in 2007, in line with my earlier prediction in 2006.

Graphical representation

Simplied assumptions in forecast
  1. Sales in Hong Kong will increase by 5% annually due to the mature market nature
  2. Sales in PRC will increase by 35% annually (on average) due to the competitive but emerging market nature (extrapolating using the last 5 years' trend)
  3. Profit margin will trend towards 7% (arbitrary number, so long as its below 10%)

As can be seen from the chart on gross profits, the blue line clearly shows the turning point in overall gross profit. If Tsit Wing can replicate its logistical competitive advantage in Hong Kong to the major Chinese cities, the potential PRCmarket should allow Tsit Wing to make record profit within the next 5 years.

The falling profit margin, though undesirable, is a nature of diversifying away from a tea, coffee beverage distributor. Its foray into distributing groceries products improve its bottom line, but at the expense of profit margin.

Risk factors
  1. Intense competition in PRC markets
  2. Profit margin squeeze from rising cost of business, especially raw materials and pricing pressure

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