Analyzing a Property Developer with New Venture using 4 Financial Metrics

• Decline in FY2019 revenue due to the absence of project recognition

• Sharp fall in Return on Equity ("ROE") as a result of declining profit

• Aspen Group's CEO is the single largest shareholder

• New opportunity in the gloves industry

Listed on the Catalist in 2017, Aspen Group Holdings Limited (“Aspen”) is a Malaysia-based property group developing residential and mixed development properties at strategic locations with infrastructure and amenities at affordable price points.

The Group’s flagship project, Aspen Vision City, a 245-acres freehold mixed development project located in Bandar Cassia, Batu Kawan – Penang’s third satellite city, is a joint-partnership with IKEA Southeast Asia. With a gross development value of over RM13 billion, of which the Group has launched over RM2.17 billion of properties; Aspen Vision City features the first IKEA Store in the Northern Region of Malaysia and a state-of-the-art regional integrated shopping centre. In addition, the Group also has several property developments in Penang Island and Central Region of Malaysia, which captured a total gross development value of over RM2.5 billion.

Evaluating Aspen Group using 4 Financial Metrics

Revenue & Profit

For FY2019, Aspen’s revenue has dropped by 49.6% year-on-year to S$94.8 million. The decrease in revenue was mainly due to completion of Tri Pinnacle at the end of 2018 and Vervea in early 2019 and slow take-up rate due to the economic condition. The main revenue contributor for FY2019 was Vertu Resorts which had contributed RM179.33 million of revenue to the Group.

With a sharp decline in revenue and an increase in administrative and finance cost, Aspen’s profit after tax suffered a 55.6% year-on-year drop to S$7.1 million.

For Aspen’s trailing 12-month performance, its revenue contracted by 23.2% as a result of deferment of construction progress for Aspen’s on-going projects due to the movement control order imposed by Malaysia government to contain the spread of COVID-19 (“MCO”). With the fall in revenue and increasing administrative expenses, Aspen’s trailing 12-month slipped into a net loss of S$2.5 million.

Management Efficiency Ratio

Aspen’s Return on Equity (“ROE”) has been on a decline since FY2017. For FY2017, its ROE came in at 29.8% and has since dipped by 25.6 percentage points to only 4.2% in FY2019. The decline in ROE was mainly attributed to the declining profit for the Group.

Despite the declining ROE, Aspen’s cost to revenue has improved in FY2019. The cost to revenue for Aspen decreased from FY2018’s figure of 78.5% to 65.9% in FY2019. This shows that Aspen has been improving its operational efficiency.

Ownership

The single largest shareholder belongs to Aspen Vision Group Sdn. Bhd., which has a 50.4% stake in Aspen. The ultimate beneficiary to the stakes belongs to Dato’ Murly Manokharan, who is the President and Group Chief Executive Officer of Aspen.

The second-largest shareholder belongs to Mr. Oh Kim Sun, who has a 10.7% stake in Aspen. His stake in the Group is worth S$28.8 million.

The third-largest shareholder belongs to SGX-listed firm, Oxley Holdings Limited, which has a 10.3% stake in Aspen. Oxley’s CEO, Mr. Ching Chiat Kwong is the Non-Independent Non-Executive Director for Aspen.

Leverage Ratio

Having been in a net cash position for FY2017 and FY2018, Aspen has converted to a net debt company in FY2019, with a net debt to equity ratio of 0.95 times. This can be seen from a higher debt level being accumulated in FY2019. Coupled with a lower cash level in FY2019, Aspen has turned into a net debt company.

With a higher level of debt, Aspen’s finance cost is on a rise since FY2017. As a result, the interest coverage ratio came under pressure for the past 3 financial years. Its interest coverage ratio stands at 72.1 times in FY2017 and has seen declined significantly to only 2.5 times in FY2019.

Conclusion and Prospects

Aspen’s financial performance has suffered a dip for the past 3 financial years, given the shrinking revenue and profit level for the Group. Despite that, Aspen has recently announced the latest venture into the rubber glove manufacturing business through its wholly-owned subsidiary, Aspen Vision All Sdn. Bhd.

Aspen Vision All Sdn. Bhd. has agreed to participate in a joint venture arrangement with CMY Capital Sdn. Bhd. in which Aspen Glove Sdn. Bhd. shall act as the special purpose vehicle for the operations of the proposed new business. The initial investment of approximately RM105 million for phase 1A is targeted to produce a total capacity of between 1.6 to 1.8 billion pieces of gloves per annum from Q2 2021.

Dato’ M. Murly, President and Group Chief Executive Officer of Aspen Group said, “Although being a new entrant during a period of strong market demand, we believe that global demand for rubber gloves will steadily increase in the long run and with strategic planning around pricing, competitors, marketing strategies and distinctive positioning, the Group will be able to penetrate the market and gain a reasonable market share.”

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