Sunwah International Reports Financial Results for Q2 FY2012

TORONTO, Feb. 14, 2012 /CNW/ - Sunwah International Limited, TSX: SWH (the "Company"), an Asian based financial services firm today released its financial results for the second quarter ended December 31, 2011.  All figures quoted are in U.S. dollars unless otherwise specified.

For the second quarter of Fiscal 2012, Sunwah International and its subsidiaries (collectively the "Group") reported a net loss of $0.3 million amid discouraging global economic conditions, which saw Hong Kong financial markets reach three year lows in early October 2011. Despite widespread investor uncertainty and overall dampened capital markets activity, during the period the Company recorded a profit before tax of $0.2 million and total revenues of $5.3 million, the result of a continued focus on Sunwah International's fee generating businesses, a modest revival in financial markets in the quarter's second half, a decrease in expenses, and underlying solid market fundamentals in the regions of Asia where the Company's growth strategy is primarily focused.

Financial Highlights for Q2 Fiscal 2012 include:

  • Net loss of $0.3 million compared to a profit of $3.6 million year-over-year.
  • Total revenues of $5.3 million (Q2 FY2011: $13.1 million).
  • Commission and fee income of $2.6 million for the quarter, totaling $6.6 million for the first half-year (comparing year-over-year with $4.0 million and $6.1 million respectively).
  • Net gain of $1.9 million on the disposal and fair value accounting of financial assets/liabilities (Q2 FY2011: $8.8 million).
  • Interest and dividend income of $0.8 million, up $0.5 million from last year's second quarter.
  • A 35% decrease in general and administrative expenses to $5.3 million year-over-year (Q2 FY2011: $8.2 million).
  • A final dividend of Canadian Dollar 0.01 per common share (see "Dividends" section).

"Despite less than ideal operating conditions during the quarter, the Company continues to focus on business development and new initiatives aimed at increasing revenues," said Douglas C. Betts, President and Chief Executive Officer of Sunwah International. "Sunwah International is positioning itself to capitalize on the changes we are seeing in the global economy. With a growth strategy centred on China's newfound stance as a major global consumer, particularly of natural resources, we are favourably situated given the combination of our focus and experience in this area and our Chinese roots, which results in our unique ability to link China with foreign sources of the resources it needs most, focusing on middle tier transactions where we enjoy solid niche positioning."

Financial Results for the Second Quarter ended December 31, 2011

The deterioration of the European and US capital markets together with tightened monetary policy in the People's Republic of China (PRC) began having a negative impact on the Hong Kong financial markets in the first quarter of FY2012.  As a result, during Q2 the Hang Seng Index reached a three-year low in early October 2011.  Financial markets started to rebound during the second half of the quarter after the European Union (EU) leaders agreed on another package of measures designed to prevent the collapse of the economies in the EU member states financial markets.

Against this backdrop, for the second quarter of Fiscal 2012 Sunwah International recorded a net loss of $0.3 million, compared to a net profit of $3.6 million in the second quarter of Fiscal 2011.  A loss of $8.1 million was recorded for the first half year of FY2012, compared to a profit of $4.2 million for the same period last year.  Basic loss per share was $0.0036 for the current quarter compared to basic earnings per share of $0.0397 in the same quarter last year.

The Group recorded a profit before tax of $0.2 million for Q2 of FY2012 compared to $4.8 million for the corresponding quarter last year.  Loss before tax was $11.0 million for the first half year of FY2012 compared to a profit of $5.9 million for the first half year of FY2011.

Total revenues were $5.3 million for Q2 of FY2012 compared to $13.1 million for the corresponding quarter of FY2011.

The Group recorded a net gain of $1.9 million on the disposal of financial assets/liabilities and remeasurement to fair value in Q2 of FY2012, compared to $8.8 million in the same quarter last year.  A net loss of $10.5 million was recorded for the first half year of FY2012, compared to a net gain of $11.4 million in the same period last year, attributable to the substantial unrealized mark to market losses of the Group's investment portfolio.  The unrealized loss was reduced after the rebound of the Hong Kong capital market in Q2 of FY2012.

Commission and fee income of $2.6 million was recorded in the current fiscal year's second quarter and $6.6 million for the first six months of Fiscal 2012, comparing year-over-year with $4.0 million and $6.1 million respectively.  The listing of an IPO client in July 2011 contributed to the improvement in commission and fee income in the first half of FY2012.

Interest and dividend income increased to $0.8 million for Q2 of FY2012, compared to $0.3 million for the same quarter last year, and $1.7 million was recorded in the first half of FY2012 compared to $0.7 million in the corresponding period last year.  The substantial increase in interest income was mainly attributable to the increase in margin loans portfolio.

Selling, general and administrative expenses (including commission expenses) decreased to $5.3 million for Q2 of FY2012, from $8.2 million for Q2 of FY2011 and $11.7 million for the first half year of FY2012, compared to US$12.7 million for the corresponding period last year.  The decrease was mainly attributable to the non-cash charge of $2.0 million 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 recognized in December 2010.

A non-cash gain on fair value changes on financial derivative liabilities of $3.0 million was recorded for the first half year of FY2012, compared to $0.2 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 the associate upon its private placement that took place during the quarter.

Share of loss of associates was $0.1 million and $0.7 million in Q2 and the first half-year of FY2012 respectively, compared to share of profit of $0.1 million in Q2 and the first half-year of FY2011.  The loss was mainly attributable to the net unrealized loss from the investment portfolio in an associated company.

A fair value loss on investments classified as available for sale financial assets of $0.8 million was recognized in the Group's other comprehensive expenses in the first half year of FY2012, mainly attributable to the unrealized loss 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 Second Quarter 

               
 

Brokerage
$'000
Corporate
Finance &
Capital Markets
$'000

Asset
Management
$'000

Investment in
Securities
$'000

Structured
Investment
$'000
Corporate
and Other
Activities
$'000


Total
$'000
Commission & fee income 1,357 1,217 25 - - - 2,599
Dividend income - - - 80 - - 80
Interest income 549 - - 154 - 15 718
Trading (loss)/income (5) - - 2,218 (266) - 1,947
  1,901 1,217 25 2,452 (266) 15 5,344
Other income 1 20 - - - 212 233
Inter-segment revenue 24 - - - - 724 748
General and administrative expenses (2,272) (1,362) (156) (200) (176) (1,900) (6,066)
Finance costs - - - - (183) (4) (187)
Other gains/(loss), net 26 (26) - 6 165 43 214
Share of (loss)/profit of associates (46) 1 - - (68) - (113)
(Loss)/income before income taxes and non-controlling interests (366) (150) (131) 2,258 (528) (910) 173

Brokerage (Capital Markets Group):
   
  Commission and fee income of the brokerage division decreased to $1.4 million for Q2 of FY2012 from $2.5 million for Q2 of FY2011 and decreased to $3.3 million for the first half year of FY2012 from $4.3 million for the corresponding period last year.  This decrease was attributable to the decrease in market activities during the period. Funds raised from IPOs on the Main Board and the average daily market turnover decreased by 79% and 11% respectively in the first half year of FY2012 as compared to the corresponding period last year. Interest income increased to $0.5 million in Q2 of FY2012 from $0.2 million in the same quarter last year and increased to $1.0 million for the first half year of FY2012 from $0.3 million for the first half year of FY2011, mainly attributable to 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.
   
  Selling and administrative expenses decreased to $2.3 million in Q2 of FY2012 from $3.0 million in Q2 of FY2011 and decreased to $4.8 million in the first half-year of FY2012 from $5.4 million in the first half year of FY2011, mainly due to the decrease in variable staff costs which were in line with the decrease in operating income.
   
  The overall loss increased to $0.4 million in the current quarter from $0.1 million in the same quarter last year.  The loss was $0.6 million for the first half year of FY2012 and for the first half-year of FY2011.  The reduction in segment loss was mainly due to fewer overheads associated with the margin loan business, especially in Q1 of FY2012.
   
Corporate Finance & Capital Markets (Capital Markets Group):
   
  Commission and fee income of the division of $1.2 million was recorded in Q2 of FY2012, compared with $1.5 million for Q1 of FY2011. The income increased to $3.3 million for the first half year of FY2012, from $1.7 million for the same period last year.  The division completed the listing of Sino Harbour Property on the Main Board in July 2011 and the placing of shares of China Leason in August 2011.  The Group was appointed the book runner for the IPO of Noble House (China) Holdings in December 2011.  Also notable, the division established a new corporate finance team in the first quarter of FY2012.
   
  Despite the increased staff resources for the new team, selling and administrative expenses decreased to $1.4 million in the current quarter, from $1.5 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.  However, the expenses increased to $3.3 million for the first half year of FY2012, from $2.3 million for the corresponding period last year, which was mainly due to the increase in commission expenses and the increase in variable staff costs, especially in Q1 of FY2012.  The trend was in line with the increase in fee income in the current period as compared with the corresponding period last year.
   
  The division recorded an overall loss of $0.2 million for the quarter compared to income of $0.1 million in Q2 of FY2011.  The loss decreased to $0.01 million for the first half-year of FY2012 from $0.3 million in the same period last year.
   
Asset Management (Asset Management Group):
   
  Commission and fee income of $0.03 million and $0.04 million was recognized in Q2 and the first half-year 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 service in the current quarter.
   
  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.  The funds will include a series of private equity funds, which focus on different segments and regions.
   
  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.
 
  The division recorded an overall loss of $0.1 million and $0.6 million for Q2 and the first half-year of FY2012 respectively, which compares with $0.03 million and $0.05 million in Q2 and the first half-year of FY2011.  The loss was mainly attributable to the expenses incurred for SIAM operations.
 
Investment In Securities (Strategic Investment Group):
 
  The division recorded trading income of $2.2 million in Q2 of FY2012, compared to $5.5 million in Q2 of FY2011.  Trading loss, the majority of which came from unrealized mark-to-market losses in Q1 of FY2012, of $7.5 million was recorded for the first half year of FY2012, compared to a trading income of $7.9 million in the corresponding period last year.  The portfolio performance was in line with the global market performance during the period.
 
  The division recorded overall income of $2.3 million in Q2 of FY2012, compared to $4.7 million in Q2 of FY2011.  An overall loss of $7.3 million was recorded in the first half year of FY2012, compared to income of $7.3 million in the first half-year of FY2011.
 
Structured Investment (Strategic Investment Group):
 
  Trading loss of $0.3 million and $3.0 million was recorded in the current quarter and in the first half-year of FY2012, compared to trading income of $3.4 million and $3.6 million for Q2 and the first half year of FY2011, mainly attributable to the net unrealized loss on the investment portfolios in the current period.
 
  As a result of the weakened Hong Kong equity market, the Group suffered a fair value loss on available for sale investments which were acquired in the last quarter of FY2011.  Fair value loss of $0.8 million was recognized in other comprehensive expenses in the first half year of FY2012, reduced from $1.4 million in Q1 of FY2012.
 
  Other gains increased to $3.5 million for the first half year of FY2012 from $0.2 million for the same period last year, mainly attributable to the increase in the fair value gain on the convertible option derivative component of the Company's convertible debentures.  A one-off gain on deemed partial disposal of an associate of $0.4 million was recognized in Q2 of FY2012, resulting from the dilution in the Group's share upon a private placement by the associated company.
 
  Share of loss of associates was $0.7 million in the first half year of FY2012, compared to a shared profit of $0.05 million in the first half year of FY2011, attributable to the net unrealized loss recognized from the investment portfolio in the associated company.
   
  The division recorded an overall loss of $0.5 million and $0.9 million in Q2 and the first half-year of FY2012 respectively, compared to an overall income of $2.8 million and $2.6 million in the corresponding period last year.
   
Corporate and Other Activities
   
  The overall loss for the corporate and other activities of the Group decreased to $0.9 million in Q2 of FY2012 from $2.7 million in the same quarter last year and $1.6 million for the first half-year of FY2012 from $3.1 million in the first half year of FY2011, mainly attributable to the recognition of non-cash compensation costs for the stock options granted to the Company's directors, officers and employees in December 2010.

Dividends

The Company declared a final dividend of Canadian Dollar 0.01 per common share, which was paid on December 19, 2011 to shareholders of record as at October 12, 2011.  The Board has taken into account the operating cash flow requirements of the Company and the cash dividend received and receivable from Sunwah Kingsway Capital Holdings Limited, which control the Group's primary operating subsidiaries, in determining the amount of the dividend.

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 resources to drive growth in the resource sectors, in particular both mining and energy.  We expect the Chinese Renminbi to play a larger role in international currency transactions driven by China's increased global stature as an international investor and the growing weakness of the US Dollar.

Sunwah International believes 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, the Company believes the Asian capital markets, particularly Hong Kong, will continue to 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. The Company expects a substantial increase in Renminbi based debt financings and the Group is positioning itself to have the capacity to participate in this sector. 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.

The balance of FY2012 will continue to be uncertain 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 moderate growth in China.  We anticipate modest growth in the American economy and some improving strength in the United States equity market, particularly in anticipation of Facebook's planned initial public offering — the largest IPO yet contemplated for Q2 of the 2012 calendar year — both of which should have a positive impact on global 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. 

Forward-Looking Statements  

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.

 

 

SOURCE Sunwah International Limited

For further information:

Gary Quedado, Sunwah International Group, (416) 861-3099 Ext. 238, gquedado@sunwahinternational.com


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