MST Golf Part 1: A Year Later, Was It a Swing and a Miss?

Remember last May when we were all abuzz about MST Golf's IPO? Well, grab your favorite putter and let's take a stroll down memory lane, shall we? Read my previous entry related on this: Should You Buy MST stocks? and MST Golf: Swinging into Southeast Asia's Greener Pastures.

I recall that last year, almost midnight, I was half asleep when my boss suddenly texted me to buy MST stock for him. Being the finest KPI 5 assistant, my boss has ever had, I perked up faster than you can say "fore!" 😜 K. I knew there would be a rush for it - me included. I reviewed the prospectus on the day it came out. Gigih jugalah cari balik no. CDS login details bagai. Tapi fikir-fikir balik, nope, I'm just in line for my boss. Tapi tak dapat beli juga, habis licin tidak bersisa. After all, who wouldn't want a stake in MST, the leading and largest golf retailer in Malaysia? 

MST Golf was the talk of the town back then (still, with their expansion in Indonesia etc.). With 50 locations across Malaysia, Singapore, and Indonesia, they were practically the Tiger Woods of golf retail in our region. Their prospectus looked shinier than a brand-new driver, boasting consistent growth and a market position stronger than my boss's golf grip.

Fast forward to today, and oh boy, what a ride it's been! It's like MST Golf has been playing on a course with more hazards than we expected. Their recent financials look like they've hit a few too many bunkers. Revenue's down, profits have taken a dive steeper than my handicap, and their cash flow. Well, let's just say it's not exactly flowing like a well-watered green.

Now, I'm not saying MST Golf has sliced its drive into the rough, but they're certainly facing some challenging lies. The pandemic golf boom seems to have cooled off faster than a golfer's temper after a missed putt. And while they're still swinging for expansion in Southeast Asia, it's looking more like a risky shot over water than a safe approach to the green.

But here's the thing - golf, like the stock market, is a game of patience and strategy. MST Golf might be in the rough now, but they've got the clubs to play their way out. They're still the big fish in our golf pond, and with the right moves, they could turn this bogey into a birdie (or albatross? Who knows, right?)

As an investor, what should you do? If you invested last year, it may feel as though you're stuck in a sand trap. However, it's important to recall that even pros have bad rounds. MST Golf needs to focus on improving their game - tightening up operations, rethinking that dividend strategy (because paying dividends without free cash flow is like buying rounds at the clubhouse when you're broke), and maybe bringing in some experienced caddies (I mean, board members) to help navigate the course.

For those watching from the sidelines, it might be worth waiting to see if MST Golf can sink the comeback putt before jumping in. The potential is there, but so are the risks - kind of like that tempting shortcut over the water hazard.

In the end, whether MST Golf turns out to be a hole-in-one investment or a missed cut, one thing's for sure - it's been anything but a boring round! So, keep your eye on the ball, fellow investors. This game is far from over, and in the world of stocks and golf, anything can happen.

Now, if you'll excuse me, I need to go practice my putting. My investment skills might be questionable, but I'm determined to at least improve my golf game. So, what do you think? Are you holding onto your MST Golf stocks like a prized golf trophy, or are you eyeing the exit like it's the 19th hole? 

Based on the comprehensive MSTGOLF annual and quarterly report here: Reports & Presentations, let me present you a detailed analysis of MST Golf Group Berhad (MSTGOLF):

Company Overview:

MST Golf Group, established in 1989, is Malaysia's leading golf retailer with a strong presence across Malaysia, Singapore, and Indonesia. The company operates 50 locations, including 42 retail outlets (35 in Malaysia and 8 in Singapore). They offer over 95 brands of golf equipment, accessories, and apparel.

IPO and Market Capitalization:

• IPO launched on June 28, 2023, at RM 0.81 per share
• Market capitalization upon listing: RM 664.90 million

Historical Financial Performance:

• 3-year revenue CAGR (2019-2022): 19.6%
• 3-year gross profit CAGR: 22.2%
• 3-year net profit CAGR: 41.8%

FY2023 Performance

• Revenue: RM325.4 million (8.2% increase)
• Profit Before Tax: RM27.3 million
• PATAMI: RM17.9 million (normalized: RM22.3 million excluding IPO expenses)
• Effective tax rate: 35% (impacted by non-deductible IPO expenses and Indonesia start-up costs)

Q1 2024 Performance

• Revenue: RM77.01 million (10.8% decrease YoY)
• Gross Profit: RM31.43 million (down from RM37.20 million)
• Profit Before Tax: RM1.71 million (significant drop from RM11.78 million)
• Net Profit: RM1.03 million (down from RM8.79 million)
• EPS: RM0.002 (down from RM0.013)

Current Financial Health (as of July 27, 2024)

A. Earnings Quality and Profitability

• High level of non-cash earnings, raising concerns (red flag) about earnings quality. This suggests that a significant portion of reported profits may not be backed by actual cash received, potentially overstating the company's financial health.
• Net profit margin declined from 8.7% to 3.1%. This represents a substantial decline in profitability, indicating potential issues with cost management or pricing power.
• Negative earnings growth (-63.9%), underperforming industry average (-24.4%). The significant underperformance suggests company-specific issues beyond general industry challenges.
• Low Return on Equity (ROE) at 3.8%, which considered low, indicating inefficient use of shareholder equity to generate profits.

B. Cash Flow and Debt

• Negative operating cash flow
• Poor debt coverage due to negative cash flow
• Insufficient data on debt-to-equity ratio trends (more information needed)

C. Dividend Policy

• It's too early to assess the stability or growth trajectory of these payments as MSTGOLF has only recently started paying dividends.
• Current yield: 3.17% (low compared the top 25% of dividend payers in the Malaysian market, 4.6%).
• Paying dividends despite lack of free cash flow, raising sustainability concerns (in the long term and may lead to financial strain or increased debt).

D. Corporate Governance

• CEO compensation ($261,560 USD) above market average ($101,410 USD) for companies of similar size in the Malaysian market. The high compensation, especially given the company's poor performance, raises questions about alignment with shareholder interests.
• Inexperienced board with average tenure 1.8 years; relatively new board, which may lack the experience and deep understanding of the company needed to navigate current challenges.

Market Position and Growth Prospects

1. Leading position in Malaysian golf retail
2. Plans for expansion in Southeast Asia (Indonesia, Thailand, Vietnam)
3. Benefiting from increased interest in golf, especially among younger demographics
4. Potential impact of technology on the industry, particularly in manufacturing

Challenges and Risks

1. Declining profitability and negative earnings growth
2. Cash flow issues and questionable dividend sustainability
3. Potential misalignment between executive compensation and company performance
4. Inexperienced board facing complex challenges

Outlook

While MST Golf Group has a strong market position and historical growth, recent financial performance raises significant concerns. The company faces challenges in profitability, cash flow management, and corporate governance. To improve its outlook, (of course, with all due respect), MSTGOLF needs to:

1. Focus on improving core operations and cash flow
2. Reconsider its dividend policy
3. Enhance transparency regarding turnaround strategies
4. Address corporate governance concerns
5. Potentially explore restructuring or capital raising options

Investors should approach MSTGOLF with caution, considering both its market leadership and current financial challenges. The company's ability to leverage its strong market position while addressing operational and financial issues will be crucial for its future success in the competitive Specialty Retail sector.

Disclaimer: This information is gathered from a variety of sources such as news articles, historical IPOs, Bursa Saham, Simplywall.st, and MST's official website. It is intended solely for informational purposes and represents the perspective of a housewife who may not fully understand the broader picture, rather than a professional analyst's viewpoint. My knowledge is still evolving, and there may be inaccuracies. Kindly correct any errors found. 😌