New Silkroutes Group Limited Q3 FY2024 Financial and Restructuring Review

Report Summary and Key Facts

1. Reporting Period and Date: The report is for the nine months ended 31 March 2024 and was published on 27 September 2024.
2. Revenue Performance:
   • Q3 2024 Revenue: The group revenue for the third quarter (Q3) ending 31 March 2024 was SGD 1.13 million, a 60% decline from SGD 6.47 million in Q3 2023.
   • 9M 2024 Revenue: For the nine months ending 31 March 2024, revenue was SGD 7.10 million, marking a significant drop of 72% compared to SGD 25.48 million in the previous period (9M 2023). This decline was attributed to:
     • The disposal of medical and dental clinics in the previous financial year.
     • The newly acquired subsidiaries not yet generating revenue.
     • The disposal of Shanghai Fengwei Garment Accessory Co., Ltd. in the current quarter.
3. Profitability:
   • The group reported a profit before tax of SGD 1.18 million for the nine months ending 31 March 2024, a significant drop from SGD 3.1 million in 9M 2023.
   • Profit for the period stood at SGD 1.18 million (9M 2024), down from SGD 2.8 million (9M 2023).
   • The decrease in employee benefits and purchases of finished goods partially offset the revenue decline.
4. Special Activity – Restructuring Exercise:
   • Moratorium Protection: The company applied for moratorium protection on 9 January 2023 to facilitate the reorganization of its liabilities. The moratorium was extended multiple times and is set to continue until 9 December 2023.
   • Scheme of Arrangement: Approved by the court on 1 December 2023, allowing the company to reorganize its liabilities and aim for a sustainable capital structure.
   • Ontario’s Involvement: Ontario, the company’s largest creditor, opted for an equity option that would result in a 70% ownership stake. Ontario plans to use the company as a holding vehicle for various businesses.
5. Cash Flow:
   • The group generated SGD 0.43 million in cash from operating activities during 9M 2024, mainly due to changes in working capital.
   • Cash inflows from investing activities were SGD 7.79 million, primarily due to the disposal of a subsidiary.
   • Cash outflows for financing activities amounted to SGD 3.88 million, mostly used for loan repayments and lease liabilities.
6. Financial Position:
   • Assets: Total assets as of 31 March 2024 stood at SGD 12.04 million, down from SGD 28.26 million as of 30 June 2023.
   • Liabilities: Total liabilities were SGD 45.28 million as of 31 March 2024, a decrease from SGD 61.74 million as of 30 June 2023.
   • Net Asset Value: Net asset value per share was negative at 15.17 cents as of 31 March 2024.
7. Dividends: No dividends were declared or recommended for the period ended 31 March 2024 due to the company’s accumulated losses.

Special Points for Investor Attention

1. Restructuring Exercise: The company’s ongoing restructuring plan, which includes a scheme of arrangement and possible equity dilution due to Ontario’s involvement, is a crucial point for investors to consider.
2. Moratorium Protection: The moratorium provides the company with breathing room to reorganize its debts but also indicates financial challenges.
3. Ontario’s Future Plans: The company’s future value heavily relies on Ontario’s plan to inject new businesses into the company. This could present new growth opportunities, but the exact nature and impact of these plans are still uncertain.
4. Financial Risks: The company’s current liabilities exceeded its current assets by a significant margin, highlighting liquidity concerns.

Recommendations

For Investors Currently Holding the Stock

• Action: Hold the stock but exercise caution.
• Rationale: The company is undergoing a restructuring process with potential future business injections from Ontario. The restructuring plan’s success and Ontario’s strategy will determine the company’s future direction.
• Caution: Keep an eye on updates related to the restructuring exercise, cash flows, and Ontario’s business plans.

For Investors Not Currently Holding the Stock

• Action: Consider a “Wait and See” approach.
• Rationale: The company is in a state of transition, and its future largely depends on the successful implementation of the restructuring plan and Ontario’s contributions. Entry into the stock should be considered once there is more clarity on the company’s new business direction and profitability.

Disclaimer

The above recommendations are based solely on the financial information presented in the report. This does not constitute financial advice, and investors should perform their due diligence or consult a financial advisor before making any investment decisions.

Summary

The New Silkroutes Group Limited’s report for Q3 FY2024 shows significant declines in revenue and a drop in profitability. The company is in a transitional phase due to its ongoing restructuring exercise. Investors should closely monitor the developments around this restructuring and the company’s future business direction.