Sapphire FY2016 AGM - Notes
CEO Mr Teh handled most of the questions from shareholders.
Ranken's business model:
1) EPC (Engineering, procurement & construction)
This segment is the main focus of Ranken.
Gross profit margin: 12 - 15%
Net profit margin: 4 - 6%
2) Design & consultancy
This is the asset light part of the business. It is project management, focusing on HR and capital deployment.
Net profit margin: 7.5 - 10%
3) BT (Built-Transfer)
https://en.wikipedia.org/wiki/Build%E2%80%93operate%E2%80%93transfer
This has higher margins than EPC, however there is no payment until project completion. The project will take 2 to 3 years to complete. BT consists of about 10% of revenue currently.
A shareholder commented on the low profit margins. Mr Teh replied that efficiency and scale will be key in executing the work.
Market share:
Ranken's market share is insignificant based on the proposed amount of investment on infrastructure set by the Chinese government. Non high speed railway infrastructure is set to increase. This is Ranken's area of expertise.
Credit risk:
Credit risk is not high as clients are from the government or state-owned enterprises (SOE). Provision of bad debts are low. Excluding retention monies, BT contracts and other guaranteed sums, trade receivable turnaround period would be approximately 90 days. (Days in sales outstanding is about 210, based on all trade receivables)
Retention monies:
When the defects notification period expires 12 months after project completion, retention monies are returned. It is around 10 - 15% of the project value.
(It makes up around 1/3 of trade receivables)
Financing:
Financing is fully from licensed banks in China. These banks are highly supportive of Sapphire.
Cost of borrowing: 7 - 8.5%
Although the cost of borrowing is lower in Singapore, the board is not looking at funding from Singapore banks yet. This is due to the operations of Ranken being mainly in China and also their operating currency is Renminbi.
Funding with equity will only be with a strategic shareholder, who could improve the standing, growth and revenue of Sapphire.
Sapphire will be willing to gear up to 80%. (Debt / Assets)
Public-Private-Partnership (PPP) & State-owned Enterprises (SOE):
PPP may provide an alternative source of funding. Margins may be lower, however looking at the long term would be beneficial to Sapphire.
Sapphire will have to work with SOEs to progress.
Dividends:
There is no dividend policy, the focus will be on funding for future projects. Funds will be needed to tap on opportunities. Projects require funding within 14 days of being awarded the contract.
One Belt One Road (OBOR):
This initiative will be a growth driver for the next ten years. The management will be prudent in selecting projects, especially those that require Sapphire to invest into the project.
Expanding beyond China:
Ranken is a prominent contractor for One Belt One Road (OBOR) projects in Bangladesh. To date, 6 projects have been completed. These projects act as a platform for future projects in emerging countries.
However, the board will be prudent expanding overseas. Projects which do not require capital investment or self funding are preferred.
Vested at $0.33
Related:
Sapphire Corporation: A Hidden Gem?
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