2Q 2010 corporate earnings update - Best World, Courage Marine

Best World International

• Shock loss of $806,000 for 2Q10, down substantially from $3.427 million profit a year ago
• 1H 10 profit of $228,000, versus $5.44 million in 1H 09
• Revenue plunged 52.4% y-o-y, mainly due to 87.2% drop for Indonesia, and 54.5% drop for Malaysia
• Huge amount of cash and equivalents of $36.1 million
• Interim dividend of $0.012, unchanged y-o-y

The latest quarter has been exceptionally poor, largely due to the impact of lowered sales in Malaysia and Indonesia. Indonesia sales have suffered as a result of changes in cosmetic and import regulations, and Management has guided that two key products have received product licenses in 2Q10, and were launched in June. Malaysia sales have also taken a hit from increased competition.

We continue to like Best World International as a proxy to emerging Asian consumption, especially with its presence in Indonesia. Import regulations have hurt revenue in the near term, but we think that things will be substantially better in 2H10 with more product approvals granted. We like the business for its ability to generate strong cashflow, and the quality of management is decent. Management is keenly aware of the near-term negative impact of the news, and to buffer stock downside (and given the huge cash position), an unchanged interim dividend of 1.2 cents has been declared, despite poor 1H10 profits.

Courage Marine

• Posted 2Q10 revenue of US$16,277,000, up 26.6% q-o-q (+168.3% y-o-y)
• Logged US$242,000 disposal gains in 2Q10
• Net profit of US$5,176,000 in 2Q10, up from US$3,025,000 in 1Q10
• Remains net cash, with cash and equivalents of US$21.8 million  
• Utilisation rate about 90% for 2Q10, up from 70% in 2Q09

Courage Marine posted a strong quarter, as the BDI rose to about 4,200 in May. However, the BDI dropped to around 2,000 points in June, indicative of the volatile nature of bulk shipping rates. With the current BDI at around 2,400 points, Courage Marine is looking at a weaker 3Q10.

Management prudence is once again reflected in the latest quarter's income statement. While turnover rose a massive 168% y-o-y, cost of sales rose much less (+68% y-o-y), allowing the company to post a decent profit, even with moderate shipping rates in the quarter. The company's strategy to utilise older vessels is evidently effective, and the even after the recent disposal of a Handysize vessel, the company still has 580,000 dwt in its fleet to capitalise on a rebound in the global economy.