AOI Alliance One International
Sector financial performance:
This company, primarily purchases, processes, packs, stores and ships tobacco to manufacturers of international brand cigarette has been grouped into cigarette and cigar sector in tobacco industry.
It seems that demand for tobacco supply has been actually declining as indicated by slightly decline in volume of typical companies in this sector. Consistent with demand’s shifting to discount cigarette, manufacturers’ demand for raw tobacco has been shifting to lower price product, which, working together with oversupply in 2015 and 2016, put down the price of tobacco price.
While gross margins of those companies were improved due to oversupply of farmers’ production, their cash flow margins have been hurt due to deleveraging of corporate expenses as revenue declined.
The typical companies’ gross margin has gone up to 16% since 2015. With a slight decrease in SG&A as percentage of sales (about 9% in 2017), the typical operating margin went up to about 7% in 2017.
The typical average enterprise/sales ratio is about 0.8.
It seems that the demand for tobacco products of this company has been stable and grown slightly in the past three years as indicated by the sales volume. However, the average selling price seems to rebound back in 2017 after two years straight decline due to unfavourable product mix and oversupply. Tobacco supply price seems to have declined during the same period.
The first nine months fiscal 2018 compared with the same period of 2017
Net revenue (tobacco sales) increased 9.2% primarily due to increase of 7.5% in price (favourable product mix) and increase of 1.7% in volume from Asia.
The fiscal 2017 compared with the 2016
Net revenue (tobacco sales) decreased 10.8% primarily due to decrease of 10.5% in price (unfavourable product mix) and decrease of 0.3% in volume.
The fiscal 2016 compared with 2015
Net revenue (tobacco sales) decreased 6.2% primarily due to decrease of 7.2% in price (unfavourable product mix and oversupply) and increase of 1.1% in volume.
Its gross margin has increased by about 140 basis points to about 13% in 2017 due probably to decreasing supply costs. Its operating margin thus increased to about 6% in 2017 due to an increase in SG&A as percentage of sales.
This stock currently has a stock price/sales ratio of 0.1. We think that its stock is being relatively overvalued compared with its peers.
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