Accordia Golf Trust Q2 results

Recently Accordia Golf trust announced their Q2 result which has create quite a shock among the investing community. The share price has been hovering around 63 to 65 cents and many people bought it for the attractive dividend yield believe to be in the 9 to 10% region.(Based on 6c DPU at 64 cents). In Q1, the dpu came in at 1.76 cents per unit which was wonderful but Q2 dpu was a measly 0.74 cents. That’s a decrease of 58% from Q1. To make things worse, they decide to withhold 10% of total income available for distribution. No wonder the share price drop to 59 cents the next morning following the announcement.

Immediately ASSI AK blog (See Link) about it talking about the bad weather in Japan and I did not think too much about it as weather is unpredictable.  I am in it for the long term and at an average cost of 66 cents, I can still live with the close to 10% unrealised loss as we all know Mr Market is throwing a tantrum. (FYI they are like PMS, don’t try to reason with it).

Lo and behold, the share price suddenly hit a bottom of 55 cents on 1st December. So I took it upon myself to do some research to understand why the price keep on dropping like there is no end to it.

Visitors Numbers

Based on my computation, visitors number decreased by 7% QvQ. As you can see from the figures, May was an exceptionally good month. Visitors almost hit 600k. The rest of the months came in approximately at 500k visitors each. Plus August and September are the peak of the typhoon season, so the numbers are really respectable. (Japan Weather Guide)

Golf Course Revenue

You can see from my computation that Golf Course Revenue per visitor has drop 8% quarter on quarter. My suspicion here is discount could be given to attract more people to play during the typhoon peak season in August and September. Hence visitors maintained at approximately 500k every month. So the exceptional good month in May and drop in golf revenue per visitor contributed to the poor result. My suspicion leads me to think that there is a certain number of visitors Accordia needs to hit to break even and any slight increase in visitors after this breakeven point contribute significantly to the bottomline.

Q2 vs Q1 results

Based on the 2 Quarters result comparison, I would like to highlight somethings that catches my attention. Restaurant and Membership revenue are quite resilient and consistent despite the typhoon and visitors number decrease. Operating expense was very consistent quarter on quarter too. However repayment of membership deposits increase by JPY 415 Mil. We need to investigate further whether the interest in golf is waning or due to the underperformance of the Japanese economy consumers are cutting back on entertainment expense. The first is of utmost important as recession is of temporary nature and the economy will bounce back but loss in interest of golf is harder to recover. Perhaps we should email the IR and ask them to explain this.

Breakeven analysis

Since my observation that operating expense, restaurant, membership revenue and other operating income are quite consistent, I think it will useful to do a breakeven analysis. You can see from my computation at average of JPY5,665, it requires approximately 1.14 mil visitors to breakeven. The additional number after this all goes directly to the bottomline. We can even go a step further to say that based on 500k visitor a month, your yield almost depend entirely on the last month of the quarter. The prior 2 months are to cover the fixed cost.

All doom and gloom

Based on this slide by AGT, distribution is likely to be higher in 2nd half despite lower profit as we enter the winter season. October visitors number also came in at the second highest this year too. I will be watching the November figure closely to get a better idea.

Conclusion

While the share price has been dropping, there is no major cause to be alarm as Accordia has alway been cash flow positive. You can even trace back to the sponsor past year results to have an idea on the resiliency of Golf. Hence I am not doing any analysis on their loan schedule and interest cover ratio. The chances of Bank of Japan going on another round of easing is very high hence it is likely we will see some acquisitions soon due to cheap funding. If you were to ask me, the holding back of 10% income for distribution by management couldn’t have come at a worse timing. I have my doubt on why they choose to withold it when bottomline is hit. It seems like they are not concern that the share price slide down from IPO price of 97 cents to 55 cents. Almost a 50% loss for those who subscribe to the IPO. As they are newly listed, we lack sufficient info to adjust for the seasonality of the earning and to observe the management behaviour. This could turn out to be a great income investment in the long run or value trap due to the poor management. The jury is still out but meanwhile I certainly won’t be adding anymore to AGT.