Business Overview

New Silkroutes Group Limited (“NSG”) operates primarily in coal storage and sales, as well as general cargo loading and unloading. The Group has also divested its healthcare-related businesses, including medical, dental, and traditional Chinese medicine practices, to pivot towards logistics. Its core operations are now centered in China, following the acquisition of Tianjin Zhoushun Logistics Co., Ltd., which indirectly holds 59% of Hequ Yuanyang Industrial Co., Ltd. (“HYI”).

The company’s position within the logistics industry is being established, with HYI currently undergoing a temporary stoppage mandated by the Chinese government for environmental compliance. NSG faces competition from established logistics operators, but its ability to sustain operations will depend on HYI resuming operations and returning to pre-stoppage shipment volumes.

Revenue Streams and Competitive Position

NSG’s revenue streams are currently limited to its coal logistics segment, which generated S\$7.10 million in FY2024, down from S\$28.25 million in FY2023. The decline is attributed to the disposal of non-core businesses and the delayed revenue contribution from newly acquired subsidiaries. The Group’s customer base and supply chain are predominantly tied to its Chinese operations.

The company’s competitive advantage lies in its restructuring efforts, including debt reduction and a pivot to a focused logistics strategy. However, the temporary shutdown of HYI represents a significant operational risk.

Financial Statement Analysis

Income Statement

– NSG reported a net profit of S\$326,000 for FY2024, a notable improvement from the net loss of S\$7.997 million in FY2023. This turnaround is primarily driven by a gain on the disposal of a subsidiary (S\$2.436 million) and debt reversals.
– Revenue declined by 75% year-on-year to S\$7.10 million due to the disposal of its medical and dental clinics and delayed contributions from its logistics segment.
– Operating expenses increased to S\$4.29 million in FY2024, up from S\$3.44 million in FY2023, driven by professional fees and exchange losses.

Balance Sheet

– Total assets increased to S\$38.68 million as of 30 June 2024, up from S\$28.26 million in FY2023, mainly due to the acquisition of HYI.
– Trade and other payables rose significantly to S\$66.89 million from S\$52.73 million due to liabilities from the acquisition of HYI.
– The Group’s net asset value per share slightly improved to -15.12 cents from -15.33 cents in FY2023.

Cash Flow Statement

– Operating activities generated net cash inflows of S\$0.25 million, primarily due to changes in working capital.
– Investing activities yielded a net cash inflow of S\$6.25 million, largely from the disposal of a subsidiary.
– Financing activities resulted in a net cash outflow of S\$3.00 million, mainly attributed to debt and lease repayments.

Key Findings and Investor Action

Strengths

• Net profit turnaround to S\$326,000 from a significant loss in FY2023 demonstrates effective cost management and strategic divestitures.
• Cash inflows from subsidiary disposal provide liquidity for operational needs.
• Restructuring efforts, including the Scheme of Arrangement, aim to reduce debt and improve financial stability.

Risks

• Revenue dependency on HYI, which is under temporary stoppage, poses significant operational risks.
• High liabilities (S\$66.89 million in trade payables) remain a concern.
• Uncertain timeline for HYI resuming operations could hinder profitability.

Special Activities

– The company is undergoing a major restructuring exercise, including debt reduction and operational pivot to logistics.
– HYI is expected to resume operations in January 2025, pending compliance with environmental regulations.

Dividend Information

No dividend has been declared for FY2024 due to accumulated losses.

Recommendations

If Holding the Stock

Investors currently holding the stock should cautiously monitor the company’s progress in resuming HYI operations. Consider holding the stock if the restructuring and operational pivot show signs of success, but evaluate the risks due to high liabilities and dependency on HYI.

If Not Holding the Stock

New investors should adopt a wait-and-see approach. Entry into the stock should be considered only after HYI resumes operations and demonstrates consistent revenue generation.

Disclaimer

This analysis is based solely on the information provided in the financial report for FY2024. Investors are advised to conduct further research and consider their risk tolerance before making investment decisions.