Financial Analysis of Net Pacific Financial Holdings Limited Q3 2024 – Net Profit Decline

Business Description

Net Pacific Financial Holdings Limited operates in three primary business segments:

• Financing Business: Provides financing services in the PRC, Hong Kong, and Australia, including working capital financing, asset-backed loans, and mezzanine loans.
• Golf Business: Engages in the sale of golf simulators and operates indoor golf simulator venues in the PRC.
• Luggage Business: Researches, designs, produces, and sells hard case luggage in the PRC. This segment was added following the acquisition of Saint Pearl Travel Products (Guangdong) Co., Ltd on 10 May 2024.

The company is geographically focused on the PRC, Hong Kong, and Australia.

Industry Position

The company is positioned within the financing, golf, and luggage industries. The financing segment competes with other financial service providers in the PRC, Hong Kong, and Australia. The golf segment faces competition from other indoor golf simulator providers, while the luggage segment competes with established domestic and international luggage brands.

Revenue Streams

The company’s revenue streams include interest income from loans, sales of golf simulators, and sales of luggage products. The customer base spans financial services clients, golf enthusiasts, and luggage buyers.

Financial Statement Analysis

Income Statement

Revenue for the nine months ended 30 September 2024 increased to HK\$26.0 million from HK\$2.5 million in the same period in 2023. However, the company recorded a net loss of HK\$8.6 million, up from a net loss of HK\$3.8 million in the previous period [[2]]. The loss per share also increased to HK(1.63) cents from HK(0.72) cents [[2]].

Balance Sheet

As of 30 September 2024, total assets stood at HK\$138.6 million, compared to HK\$101.4 million as of 31 December 2023. Total liabilities increased to HK\$45.3 million from HK\$9.4 million [[3]]. Notably, trade and other payables and lease liabilities saw significant increases due to the acquisition of Saint Pearl Travel Products.

Cash Flow Statement

Net cash used in operating activities was HK\$10.0 million, primarily due to operating losses and changes in working capital [[4]]. Net cash used in investing activities was HK\$6.4 million, mainly for the purchase of plant and equipment and the acquisition of Saint Pearl. Net cash used in financing activities was HK\$2.6 million due to repayment of short-term loans and capital contributions from non-controlling interests and a new bank loan [[4]].

Key Findings

Strengths

• Diversification into the Luggage Business, contributing significantly to revenue.
• Revenue growth from HK\$2.5 million to HK\$26.0 million year-on-year.

Risks

• Significant net loss of HK\$8.6 million for the period ended 30 September 2024.
• Increased liabilities, particularly trade and other payables, and lease liabilities.
• High operating losses in the new Luggage Business segment.

Dividend and Special Activities

No dividend was declared or recommended during the financial period ended 30 September 2024 [[18]]. The company is focusing on preserving cash for new business segments and potential investment opportunities [[18]].

Special Actions to Improve Profitability

The company completed the acquisition of Saint Pearl and expanded into the Luggage Business to diversify revenue streams and leverage potential growth opportunities in this segment [[9]].

Recommendations

If Currently Holding the Stock

Investors currently holding the stock should consider the increased revenue from the new Luggage Business but also weigh the significant net loss and increased liabilities. It may be prudent to hold the stock if one believes in the long-term potential of the new business segments but be cautious of the short-term financial challenges.

If Not Currently Holding the Stock

For investors not currently holding the stock, it may be wise to monitor the company’s performance in the coming quarters, especially the profitability of the Luggage Business. Consider investing if there are signs of improved financial health and operational efficiency.

Disclaimer

This recommendation is based on the financial report provided and should not be considered as financial advice. Investors are encouraged to conduct their own research and consult with a financial advisor before making investment decisions.