Krono Q1 FY20 Review

The latest Q1 report was below expectation! The result shortfall was primarily due to a one off additional impairment loss was reported under this quarter and caused profit turning into red. 

No dividend was declared by management in this quarter.

Let's us look further into its financial report.

In the income statement, an extraordinary item was declared by management for the impairment on property, plant and equipment (PPE) with a total amount of RM 11.636 mil. Although management didn't mention in detail on the impairment loss, by excluding the one off loss, Q1 FY20 registered a PBT of RM 525k.

Under this quarter, average quantity of share has increased to 514.779 mil of share which will further dilute the EPS. The expected EPS for Q1 FY20 should be 0.078sen after excluding the one off impairment loss on PPE. EPS decreased by 92% and 88% compared to Q1 and Q4 FY19. 

On asset perspective remained healthy, total liabilities decreased by 21.9% compared to preceding quarter mainly due to lower other payables. However, asset reduced as lower trade receivables recorded.

Although one off impairment loss recorded, the group was having positive cash flow, showing that the management is cautiously maintaining its cash flow. Therefore, no dividend payout was declared under this quarter. I believe that the management tries to keep the stability in cash flow to weather through this pandemic.  

Note: Those figures excluded the one off impairment loss recorded in Q1 FY20 result 

After recorded the highest revenue in Q3 FY19, the results have declined for two consecutive quarters. We expect the disappointing results will extend until end of the year, amidst unprecedented global impacts of covid-19. 

Gross margin declined from Q1 FY18 of 26% to 12% of Q1 FY20. We expect that the stiff competition in IT market and higher staff costs are the main reasons to the decline.

The group's revenue during this quarter was mainly derived from Singapore and Philippines, amounting to RM45.297 mil, representing 87.16% of total revenue. However, contribution from China, HK & Taiwan had shrunk mostly due to the country lock down during earlier of the year. Hence, we shall monitor the performance for the coming quarter, expecting lower contribution from Singapore as country lock down was triggered until early of June. 

Technical Analysis:

Stock price had dampened by 65.7% from the previous high of RM 0.92 to as low as RM 0.315 within a month primarily due to the covid-19 pandemic outbreak fear. Stock price then picked up the momentum and recovered 96.8% to RM 0.62. I believe the recent rally of stock price was only the short term speculation activities on technology counters. 

With the weak quarter result reported and greatly below my expectation, I presume the stock price will break down the upward trend support (blue line) and decline further to RM 0.458 support point (Fibo-0.236). If the price cannot maintain within the fibo support range of 0.236-0.382, we might see the price to fall to next support line at RM 0.315. In addition, MACD trend is about to make a negative crossing which giving a signal of bearish before the quarter result was released.  

Comment:

• Unexpected Q1 FY20 result, which will drag the whole year performance to break off the track record of continuous growing in its profit since FY 2014 until now. 
• One of impairment loss that unable to explain in current financial quarter would shy away investors.  
• Impact from Covid-19 outbreak was more severe than expected. Previous review on Krono, I reckoned a drop of profit by 50%,  in fact, the profit was fallen as much as 98% from preceding quarter of RM 18.6 mil to RM 400k. 
• I will readjust the TP to the lowest support line at RM 0.315 by considering the coming quarter will get worse.