Grand Banks Yachts

Grand Banks Yachts: Swings to 9MFY14 profit on further cost cuts; eyes exit from Watch-list Grand Banks Yachts (GBY) recorded its second consecutive profitable quarter in 3QFY14, with a net profit of $0.5m, reversing from a net loss of $0.7m a year ago. Gross profit rose 32% y/y to $1.7m, even as revenue fell 21% to $8.1m, thanks to a decline in operating expenses to the lowest level in nearly five years amid accelerated cost-cutting efforts. These include improving cost-of-sales efficiencies, and realigning sales, marketing and admin expenses through reducing headcount, lowering travel and entertainment expenses and restructuring of its offices in the US and Australia. The group remains committed to its objective of being removed from the SGX Watch-list. Amongst the requirements, GBY has to report a pretax profit in FYJun14; as at 9MFY14, the group had pretax profit of $0.25m – a sharp improvement from the $2.8m pretax loss a year ago. Meanwhile, GBY’s market cap of $39.8m is just shy of the second requirement to achieve an average daily market cap of at least $40m. Management remains optimistic on outlook. Amidst the recovering US luxury boat market, it notes that regional buying interest, especially in S’pore and Japan, has also picked up. Following several boat shows in recent months, the group’s net order book has increased to $10.6m, from $9m a quarter ago. Going forward, the proposed A$10m acquisition of Palm Beach Motor Yacht in Australia could mark a new chapter of growth for the group, with the introduction of Mark Richards, founder and CEO of Palm Beach as the new CEO of the enlarged group that will hold two world-class boat brands. Backed by $23.2m cash ($0.134 per share) and no debt, GBY will have the financial wherewithal to pursue its strategic restructurings. Valuations at 18.5x annualized 3QFY14 P/E and 0.8x P/B look even cheaper on an ex-cash basis, at ~8.3x P/E and 0.4x P/B.