✨ BJCORP Accounting Deep-Dive - Part 3b: Balance Sheet
An elucidation of the IFRS accounting standards relevant to BJCORP's historical Balance Sheets over the past decade
This is the 2nd part of a 4-part series to BJCORP Part 3, the remainder of which will be released over the next week - i.e. Part 3c and Part 3d. Click here to read Part 3a.
We shall be taking a deep look at some of BJCORP’s potential problem areas in their Balance Sheets over the past 10 years.
BJCORP may appeared to have significantly ramped up its debt in the post-pandemic environment - but a deeper-dive reveals that there’s actually nothing to fear.
This Part 3b report should add a significant amount of context to their historical P&L statements in Part 3a - and provide the potential shareholder some assurance over where they have been naughty, as well as where they have been nice.
Importantly, we’ll be covering several intricacies of the IFRS accounting standards which are relevant to the appreciation of BJCORP’s historical balance sheets - and their “twist & turn” developments over the past decade.
Unravelling these accounting standards and understanding their real-life implications will not only help you get up to speed with BJCORP’s business operations over the past 10 years - but also lend insight into what their next steps could potentially be. Think of them as an ancient map to a long-lost treasure.
Hopefully, by the end of this article, you should be able to share in 80% of the new CEO’s perspective with respect to how well capital has been allocated at this conglomerate over the past decade. The upcoming Part 3c should fill in those gaps further to 90%.
A few days ago, I published a report analyzing the past decade of BJCORP’s historical P&L statements (PL) in Part 3a of this 4-part deep-dive series of accounting analyses. Today, I’ll be doing the same for their Balance Sheets of the past 10 years in Part 3b, and also for their historical Cash Flow Statements in the upcoming Part 3c.
If you’ve stumbled upon this report for the first time, I would highly recommend heading back and taking a gander at Part 3a for the background context behind this Part 3b deep-dive report. For additional context, you may also browse through Part 1 for the BJCORP investment thesis, as well as Part 2 for an overview of the listed companies under the Berjaya Group:
For the benefit of those who have already gone through the above reports, I won't be reinventing the wheel by re-explaining the background context. Let's dive right in.
BJCORP 10-year Balance Sheet Model
Download my Excel financial model by clicking the link below:
Caveats:
The inputs for this financial model were entered into Excel by hand. As a result, there may be mistakes and slight inaccuracies in some of the numbers - mostly due to restatements in future reporting periods which I may have missed by using earlier annual report; but also possibly due to my own human errors. I’ve done my best to comb through the entire model to spot inconsistencies, but there will still inevitably be mistaken entries inside - as it would take me way too long to double-check every single figure for inaccuracies with a fine-toothed comb.
Thankfully, I’ve noticed that most of these errors were within 5% of the actual figures, and mostly corrected the rest. Since this investment thesis assumes a 300% upside for the base-case scenario, there should be sufficient margin of safety to absorb 99% of the mistakes made in this model. However, I would still like to apologize in advance for any gross inconsistencies remaining, and hope you can point them out in the comments section below so that I can edit them for everyone’s benefit. Many thanks.
If you have any questions about any particular area, feel free to ask about them in the comments section below so that I can provide a more personalized explanation to your particular areas of concern.
Balance Sheet (BS)
While BJCORP’s historical Profit & Loss Statements (P&L) over the past 10 years were relatively mundane - with relatively isolated problem areas - the historical Balance Sheets of BJCORP over the past decade is where we really start to see things gel together and provide a cohesive picture of the Group’s historical performance.
This is where things start to get interesting - because together with the P&L, we can finally gain some perspective about what the Berjaya Group of the past 10 years might have looked like to the current newly-apppointed CEO - in contrast to the black box that it is to the outside observer.
Once again, the best way to gain meaningful interpretation over this monstrosity of a dataset (e.g. this financial model) is to start with margin analysis. As I’ve mentioned in Part 3a, doing this allows you to home in on the various areas of potential concern in the financial model, while also providing you with a quick snapshot of how the company’s historical performance has been like - e.g. what their working capital position was, how much debt they’ve been employing, what their capital allocation looks like, etc. This then enables us to assign possible future scenarios given the context of their present business operations. By process of elimination, we can then reduce the key factors behind the investment thesis to just a handful, and just focus the remainder of our effort on analyzing those.
Let’s get into a few of these key factors right now:
(The above links which jump to the relevant chapters will only work in the desktop version of Google Chrome. If you’re using a different browser, please scroll to the relevant chapters below.)
BJCORP Links:
Company’s historical financials on TIKR (free sign-up required)
BJCORP’s Listed Companies’ Information & Financials:
Merry Christmas SALE! Get more ASEAN stock ideas like this and access to all our previous research reports… for 10% off at only $79/year!
Debt
The very first question that most investors will typically ask me - with respect to BJCORP’s balance sheet - concerns their high levels of financial leverage. As we can see from the screenshots of my financial model above, their Gross D/E currently stands at 80%; while their Net DE also stands at just shy of 70%. While conglomerates are generally known for adopting high levels of debt due to having relatively stable cash flows and therefore debt service capacity, it’s still a potential area of concern.
Here’s the thing - we can also see that until FY20, their D/E ratios have actually been a lot healthier - with Gross D/E at around 60% and Net D/E at around 50%. Naturally, the next question to ask is Why? What happened in FY20 which caused their debt ratios to ramp up by such a drastic amount?
Click the button below to get a FREE 30-day trial and read the rest of this 7,000-word report - or become a paid subscriber at 10% off by taking advantage of our Merry Christmas Sale above!
Keep reading with a 7-day free trial
Subscribe to Value Investing Substack to keep reading this post and get 7 days of free access to the full post archives.