Sunwah International Reports Financial Results for Q3 FY2012
TORONTO, May 14, 2012 /CNW/ - Sunwah International Limited, TSX: SWH (the "Company"), an Asian based financial services firm today released its financial results for the third quarter ended March 31, 2012. All figures quoted are in U.S. dollars unless otherwise specified.
Sunwah International and its subsidiaries (collectively the "Group") reported a net loss of $1.5 million for the third quarter of Fiscal 2012, attributable mainly to a decrease in trading income from its proprietary investment portfolio and a decline in service income amid overall weakened capital markets activity in Hong Kong during the quarter. Revenues were down to $3.3 million, reflecting the poor IPO market in Hong Kong during the quarter, and selling and administrative expenses decreased to $4.8 million from $5.3 million year-over-year in line with this decrease in activity and an effort to streamline costs.
Financial Highlights for Q3 Fiscal 2012 include:
- Net loss of $1.5 million compared to a year-over-year net loss of $1.2 million.
- Total revenues of $3.3 million (Q3 FY2011: $6.2 million).
- Commission and fee income of $1.9 million for the quarter, totaling $8.5 million for the nine months (comparing year-over-year with $2.8 million and $8.9 million respectively).
- Net gain of $0.6 million on the disposal and mark-to-market gains of financial assets/liabilities (Q3 FY2011: $3.1 million).
- Interest and dividend income of $0.7 million, up $0.4 million from last year's third quarter.
- A decrease in general and administrative expenses to $4.8 million (Q3 FY2011: $5.3 million).
"We are currently fine-tuning our business model to lessen the impact of weak financial markets on our earnings in future periods. A key to this lies in our strategic investment pursuits, which bode well for the company's medium to long term growth prospects, " said Douglas C. Betts, President and Chief Executive Officer of Sunwah International. "Our Strategic Investments Group is a cornerstone of our expansion strategy and we are confident in our ability to generate solid value for shareholders by developing these assets while simultaneously generating stable advisory fees. I look forward to providing updates on this and other division initiatives, to the end of helping to stabilize earnings, in the not too distant future."
Sunwah International is actively pursuing various means of diversifying and thus stabilizing its revenue base to protect it during times of market uncertainty. The Company also remains committed to increasing its competitive stance in Hong Kong as illustrated by various initiatives currently being implemented to strengthen its corporate finance and institutional sales teams.
Financial Results for the Third Quarter ended March 31, 2012
Loss attributable to owners of the Company was $1.5 million for Q3 of FY2012, compared to $1.2 million for the corresponding quarter of FY2011. A loss of $9.5 million was recorded for the nine months of FY2012, compared to a profit of $3.0 million for the same period last year.
The Group recorded a loss before tax of $1.4 million for Q3 of FY2012, compared to $0.4 million for the same quarter last year. Loss before tax was $12.4 million for the nine months of FY2012, compared to a profit of $5.5 million for the corresponding period last year.
Total revenues were $3.3 million for Q3 of FY2012 compared to $6.2 million for the corresponding quarter of FY2011.
The Group recorded a net gain of $0.6 million on the disposal of financial assets/liabilities and remeasurement to fair value in Q3 of FY2012, compared to $3.1 million in Q3 of FY2011. A net loss of $9.9 million was recorded for the nine months of FY2012, compared to a net gain of $14.5 million in the corresponding period last year. The FY2012 loss was attributable to the substantial unrealized mark to market losses of the Group's investment portfolio, especially in Q1 of FY2012. The unrealized loss was reduced after the rebound of the Hong Kong capital market in Q2 and Q3 of FY2012. A gain on disposal of available for sale financial assets of $0.1 million was recorded in Q3 of FY2012. There was no such gain in FY2011.
Commission and fee income of $1.9 million and $8.5 million was recorded in Q3 and nine months of FY2012 respectively, compared to $2.8 million and $8.9 million for the same period last year. The commission and fee income in the nine months of FY2012 was mainly contributed from the listing of an IPO client in July 2011.
Interest and dividend income increased to $0.7 million for Q3 of FY2012, compared to $0.3 million for the corresponding quarter last year, and $2.4 million was recorded in the nine months of FY2012, compared to $1.0 million in the same period last year. The substantial increase in interest income was mainly attributable to the increase in the margin loans portfolio.
Selling, general and administrative expenses (including commission expenses) decreased to $4.8 million for Q3 of FY2012, from $5.3 million for Q3 of FY2011, mainly attributable to the decrease in variable staff costs which was in line with the decrease in operating income. Expenses of $16.5 million were recorded for the nine months of FY2012, compared to $18.0 million for the same period last year, as a result of the non-cash charge of $2.0 million recognized in December 2010 in relation to the grant of the Company's stock options to several directors, officers and employees, of which $1.4 million was one-off expense for rewards options that were vested on the date of grant.
A non-cash gain on fair value changes on financial derivative liabilities of $3.1 million was recorded in the nine months of FY2012, compared to a loss of $0.9 million for the same period last year. The fair value changes were in relation to the conversion option derivative component of the Company's issued unsecured convertible debentures. A one-off gain on the deemed partial disposal of an associate of $0.4 million was recognized in Q2 of FY2012, attributable to the passive dilution in the Group's shareholding in an associate upon its private placement that took place during that quarter.
$0.9 million fair value loss on investments classified as available for sale financial assets was recognized in the Group's other comprehensive expenses in the nine months of FY2012, mainly attributable to the devaluation on certain investments held. The decline was in line with the deterioration of the capital market during the period.
Segmented Results of Operations for the Third Quarter
|Commission & fee income||1,493||392||25||-||-||-||1,910|
|General and administrative expenses||(2,498)||(743)||(86)||(205)||(229)||(1,967)||(5,728)|
|Other gains, net||3||-||-||2||144||30||179|
|Share of profit/(loss) of associates||37||(1)||-||-||(17)||-||19|
|(Loss)/income before income taxes and non-controlling interests||(548)||(351)||(61)||1,744||(1,257)||(951)||(1,424)|
Brokerage (Capital Markets Group):
Commission and fee income decreased to $1.5 million for Q3 of FY2012 from $1.7 million for Q3 of FY2011, principally attributable to the decrease in market activities during the period. The average monthly turnover on the Main Board and the GEM Board of the Hong Kong Stock Exchange decreased by 18% in Q3 of FY2012 as compared to Q3 of FY2011.
Interest income increased to $0.4 million in Q3 of FY2012 from $0.3 million in the corresponding period of FY2011, as a result of the increase in interest income from the growth of the margin lending book driven by the demand from the Group's corporate clients and high net worth clients. The Group is gradually reducing the margin portfolio in order to release resources for other uses and there will be further reduction of the balance in future fiscal quarters.
Selling and administrative expenses increased to $2.5 million in Q3 of FY2012 from $2.3 million in Q3 of FY2011, attributable to the increase in sales staff for institutional sales.
The overall loss increased to $0.5 million in Q3 of FY2012 from $0.3 million in the same quarter last year.
Corporate Finance & Capital Markets (Capital Markets Group):
Commission and fee income decreased to $0.4 million in Q3 of FY2012, compared to $1.1 million in Q3 of FY2011, mainly attributable to the poor IPO market in Hong Kong recently. Selling and administrative expenses decreased to $0.7 million in Q3 of FY2012 from $1.1 million for the same quarter last year, mainly attributable to the decrease in variable staff costs which was in line with the decrease in operating income. The division recorded an overall loss of $0.4 million in the current quarter, compared to an income of $0.03 million in the same quarter last year.
Asset Management (Asset Management Group):
Commission and fee income of $0.03 million was recognized in Q3 of FY2012. The division is approaching several private equity funds to provide asset management services and was engaged by a fund manager to provide investment advisory services in July 2011. The Group recruited a new fund manager in the current period and is looking for opportunities to set up small boutique funds for selected high net worth clients.
In the second half of FY2011, Sunwah International Asset Management ("SIAM") was formed to act as a global fund platform for the "family of funds" model. Selling, general and administrative expenses decreased to $0.1 million in the current quarter from $0.2 million in the same quarter last year. The division is undergoing a restructuring exercise which led to the reduction in the operation's scale.
The division recorded an overall loss of $0.1 million for Q3 of FY2012, compared to $0.2 million in Q3 of FY2011.
Investment In Securities (Strategic Investment Group):
The division recorded trading income of $1.7 million in Q3 of FY2012, compared to $3.0 million in Q3 of FY2011. The portfolio performance was in line with the global market performance during the period. The division recorded an overall income of $1.7 million in the current quarter, compared to $2.5 million in the same quarter last year.
Structured Investment (Strategic Investment Group):
Trading loss of $1.0 million was recorded in Q3 of FY2012, compared to trading income of $0.1 million for Q3 of FY2011. The trading loss recognized was mainly attributable to the net unrealized mark to market losses on the investment portfolios in the current period, which was in line with the poor performance of the capital market.
Included in the trading income was a $0.1 million gain on disposal of available for sale financial assets in the current quarter. There was no such gain in the comparative period.
Other gain of $0.2 million was recorded for the fair value gain on the convertible option derivative component of the Company's convertible debentures during the current quarter. There was a comparative loss of $1.2 million in Q3 of FY2011.
The division recorded an overall loss of $1.3 million in Q3 of FY2012, compared to $2.0 million in Q3 of FY2011.
Corporate and Other Activities
During the quarter, the Group completed the acquisition of a property located in Hong Kong for approximately $27.8 million and a mortgage bank loan of $13.2 million was drawdown to finance the acquisition of the property.
Selling and administrative expenses of $2.0 million were recorded in the current quarter, compared to $2.1 million for the same quarter last year. The overall loss increased to $1.0 million in Q3 of FY2012 from $0.5 million in Q3 of FY2011.
Outlook for FY2012
The Company believes that China will continue to be a major factor for growth in the World's economy, not simply as an exporter of low cost goods, but increasingly as a consumer. The Company continues to focus on natural resources - in particular mining and energy - which we believe will maintain their outperformance against other sectors on a medium to long term basis. Accordingly, the Company expects China's continuing demand for natural resources to drive growth particularly in mining and energy. Through investments in the natural resource sector, we have positioned the Company to participate in this demand.
We also believe that the flow of investment capital from Europe (both Western and Eastern Europe), North America and the Middle East towards Asia will increase, particularly to China and South East Asia. The Group continues to position itself as a financial services provider participating in these flows of capital.
As a result of the underlying strength of the Chinese economy, we believe the Asian capital markets, particularly Hong Kong, will outperform the North American and European capital markets not only in terms of capital markets performance but also in terms of the number of new financings. We believe that the policies of the Chinese authorities designed to moderate growth and to quell inflation will result in a more modest period of capital markets activities in both China and Hong Kong for the balance of fiscal 2012 and the first fiscal quarter of 2013, but over the long term, this deliberate cooling of the economy will be positive and result in a more diverse and stronger Chinese economy.
The balance of FY2012 will continue to be difficult for investors as capital markets worldwide (including Hong Kong) adjust to the issues arising from the difficulties in the ECM and the United States combined with more moderate growth in China. We anticipate modest growth in the American economy but continuing weak demand for financial products in all international markets.
About Sunwah International Limited
Sunwah International, is a strategically positioned asset-based financial services provider, linking the global investment community with China's high growth economy. Leveraging a 20-year track record and significant relationships throughout Asia, Sunwah International is now positioned into three integrated divisions: Capital Markets Group, consisting of brokerage and financial services, including investment banking; Strategic Investment Group, a merchant bank focused on mining and natural resources; and our Asset Management Group specializing in private equity funds. The organization's primary subsidiary, Sunwah Kingsway Capital Holdings Limited is based in Hong Kong and listed on The Stock Exchange of Hong Kong. The Sunwah Kingsway group of companies comprises Sunwah International's primary operating subsidiaries and is licensed to provide a range of financial services. Sunwah International operates from six offices located in Hong Kong, Beijing, Shanghai, Shenzhen, Macau and Toronto.
China is widely recognized as an increasingly important player on the world's financial stage. As the country continues to grow, its greatest needs will lie in energy and resources. Following a recent restructuring, the Company is positioned as a middle tier provider of financial services in these sectors and an opportunistic investor in these and related sectors. Sunwah International's strategy is to use investment activities strategically to generate advisory services revenue while creating value for its shareholders through asset accumulation.
Founded in 1990, the Company is listed on the main board of the Toronto Stock Exchange under the symbol SWH.
This press release contains forward-looking statements that are based on the beliefs of Management and reflect the Group's current expectations. In certain cases, forward-looking information can be identified by the use of words such as "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may", "should", "will", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, investors should not place undue reliance on forward-looking information. Forward-looking information is provided as of the date of this press release, and the Company assumes no obligation to update or revise them to reflect new events or circumstances.
For further information:
Gary Quedado, Sunwah International Group, (416) 861-3099 Ext. 238, firstname.lastname@example.org