How do you rate such performance? Yes, total ytd net profit dropped from 29 mil to 27.8 mil. Is there a concern?

Its profit margins. Did it deliver or not?

Or are you worried about the slump in earnings?

• While I was told that the tiles do not deteriorate over time, however, the design of tiles is important. A good fashionable tile helps boost sales, while poorly designed tiles could get outdated and turn into dead stock. So when a tile manufacturer reports a rising inventory, the concern is that the inventory could consist of out-dated tiles. So when you consider that yi-Lai's inventory increased from 22.023 million a year ago to 32.690 million, how concerned would one be? The concern is that although the tiles have a long life-span since it does not deteriorate, an out-dated, out-fashioned tile is a dead stock which could not be sold. Is this a non-issue?

Back in Nov 2005, RHB had a report which stated the following:

• Yi-Lai’s new line that boasts a production capacity of 5,500-6,500 sq m/day is now ready for commercial production but practically left idle due to the weak demand condition. The line may be activated over the next six months. Originally designed to produce multi-effect tiles that yield higher margins, the line may be switched to produce glazed tiles or other tiles that are in demand. Given that we expect the weak demand condition to persist over the longer term, it make sense for Yi-Lai to switch its existing production from some of the smaller, older and less cost effective lines to the new line

Although the funding of this capex was done without any bank borrowings, a whole new production left practically idle does not bode well. All dressed-up but no where to go! How? What if the production continues to be left idle? Who is paying for the bills?

I reckon that there are three issues to consider.
(1) Economic impact on the building materials market.
(2) Massive capacity expansion by tiles manufacturers.
(3) Competition from importation of cheap ceramic tiles.

For the investor, would one be comfortable holding a stock in a sluggish industry?
Is the company's product really durable and competitive enough to sustain a sluggish industry?
And what if the sluggishness continues for a prolong period?

How? Are the reasons still valid to justify one to stay invested in the stock?

Oh.. and some invested in the stock because of the dividend issue. And how would one evaluate their reasoning to stay invested in Yi-Lai since Yi-Lai has decreased their dividend payout this year?

1. Fantastic balance sheet
2. Fantastic dividend yield
3. Able to expand via internal generated funds.

1. Slump in earnings caused by extreme competitive business environment.

• We now believe that the ceramic tiles sector’s chance of re-emerging on the radar screen of investors is remote, despite the relatively buoyant equity market.
• On the demand side, the main consumer of ceramic tiles, i.e. the property sector, has not been able to pick up in a significant way. On the supply side, the excess capacity from over-investment by players during the recent peak years of the ceramic tiles sector in 2003-2004 are now weighing on prices.
• On the back of the weak domestic market, Malaysian players have tried to export. They have been expanding their marketing and distribution networks in the overseas market, in particular, in the Gulf states. However, so far none have made significant inroads. This is not surprising given that Malaysian players are inherently less competitive vis-à-vis low-cost players, in particular, the China producers. The situation has now turned from bad to worse against a backdrop of the strengthening ringgit.
• In view of the worsening outlook for the ceramic tiles sector, we are cutting FY12/07-09 net profit forecasts for White Horse by 9-45% and Yi-Lai by 12-19% largely to reflect the pricing pressure.
• Correspondingly, indicative fair value for White Horse is reduced by 32% from RM1.92 to RM1.30 and for Yi-Lai by 15% from RM1.07 to RM0.91. Downgrade White Horse from Outperform to Underperform and maintain Underperform for Yi-Lai. Downgrade the ceramic tiles sector from Neutral to Underweight and cease coverage on White Horse and Yi-Lai. We believe there are more attractive investment opportunities elsewhere, such as in the aggregates sector (Minetech and Sunway) where we estimated 16-38% potential upside in share prices.

Yi-Lai Bhd (5048.KU) - Malaysia    3rd quarter ended Sep. 30:    Figures are in Ringgit (MYR).                                  2007               2006 Revenue                 MYR28,599,000      MYR34,945,000 Pretax Profit               5,823,000          8,942,000 Net Profit                  5,278,000          6,723,000 Earnings Per Share           3.30 Sen           4.20 Sen Dividend                      Omitted            Omitted    9 months ended Sep. 30: Revenue                    86,757,000        100,649,000 Pretax Profit              18,003,000         24,749,000 Net Profit                 14,880,000         18,034,000 Earnings Per Share           9.30 Sen          11.27 Sen Dividend                      Omitted            Omitted

just a quick update...

Yi-Lai Bhd (5048.KU) - Malaysia    4th quarter ended Dec. 31:    Figures are in Ringgit (MYR).                                  2007               2006 Revenue                    25,895,000         32,067,000 Pretax Profit               3,200,000          7,375,000 Net Profit                  2,766,000          5,852,000 Earnings Per Share           1.73 Sen           3.66 Sen Dividend                     4.00 Sen           8.00 Sen    12 months ended Dec. 31: Revenue                   112,652,000        132,716,000 Pretax Profit              21,203,000         32,124,000 Net Profit                 17,646,000         23,886,000 Earnings Per Share          11.03 Sen          14.93 Sen Dividend                     9.00 Sen          13.00 Sen

 

Weak isn't it?