J-Long Group Ltd – SEC Filing Report (6-K) – September 30, 2024
Executive Summary
This report analyzes J-Long Group Ltd’s 6-K filing for the six-month period ended September 30, 2024. The company, a distributor of garment trims, reported a significant increase in revenue and net income compared to the same period in 2023. The increase in revenue is attributed to increased orders from key customers who had previously cleared excess inventory. The company maintains a strong liquidity position. Overall, the filing presents a positive outlook for J-Long Group. A “Hold” recommendation is appropriate at this time, pending further analysis of long-term sustainability of the revenue growth and the impact of related party transactions.
Company Overview
J-Long Group Limited (NASDAQ: JL) is a Hong Kong-based distributor of garment trims, including reflective and non-reflective materials. They offer services such as market trend analysis, product design and development, and quality control. The company primarily serves apparel manufacturers.
Detailed Analysis
Financial Statement Analysis
Consolidated Balance Sheets
| Metric |
March 31, 2024 (Audited) USD |
September 30, 2024 (Unaudited) USD |
Change USD |
Change % |
| Cash and Cash Equivalents |
4,161,818 |
6,706,894 |
2,545,076 |
61.16% |
| Total Current Assets |
14,281,045 |
16,887,672 |
2,606,627 |
18.25% |
| Total Assets |
16,894,061 |
20,024,796 |
3,130,735 |
18.53% |
| Total Current Liabilities |
5,339,163 |
6,490,609 |
1,151,446 |
21.57% |
| Total Liabilities |
6,720,913 |
7,543,271 |
822,358 |
12.23% |
| Total Shareholders’ Equity |
10,173,148 |
12,481,525 |
2,308,377 |
22.69% |
Key Observations:
* **Strong Cash Position:** A significant increase in cash and cash equivalents indicates improved liquidity.
* **Asset Growth:** Total assets increased, driven primarily by the increase in current assets.
* **Equity Growth:** Shareholders’ equity increased substantially, reflecting the profitability of the period.
* **Liability Management:** While current liabilities increased, the growth in assets and equity outpaced the liability growth.
Consolidated Statements of Operations and Comprehensive Income
| Metric |
Six Months Ended September 30, 2023 (Unaudited) USD |
Six Months Ended September 30, 2024 (Unaudited) USD |
Change USD |
Change % |
| Revenues |
14,571,703 |
19,024,229 |
4,452,526 |
30.56% |
| Gross Profit |
3,983,137 |
5,288,455 |
1,305,318 |
32.77% |
| Net Income |
1,419,473 |
2,308,377 |
888,904 |
62.62% |
| Basic and Diluted EPS |
0.47 |
0.74 |
0.27 |
57.45% |
Key Observations:
* **Revenue Growth:** Significant revenue growth demonstrates strong demand for the company’s products and services.
* **Improved Profitability:** Net income increased at a higher rate than revenue, indicating improved operational efficiency and cost management.
* **EPS Growth:** The increase in earnings per share reflects the improved profitability on a per-share basis.
Key Ratios
* **Gross Profit Margin (2024):** 27.8% (5,288,455 / 19,024,229)
* **Gross Profit Margin (2023):** 27.3% (3,983,137 / 14,571,703)
* **Net Profit Margin (2024):** 12.1% (2,308,377 / 19,024,229)
* **Net Profit Margin (2023):** 9.7% (1,419,473 / 14,571,703)
* **Working Capital Ratio (September 30, 2024):** 2.6 (16,887,672 / 6,490,609)
* **Gearing Ratio (September 30, 2024):** 13.8% ((667,511 + 1,052,662) / 12,481,525)
Analysis of Ratios:
* The slight increase in gross profit margin suggests improved cost control or a shift in product mix.
* The significant increase in net profit margin indicates better overall profitability.
* A working capital ratio of 2.6 indicates a healthy liquidity position.
* The gearing ratio of 13.8% suggests a conservative capital structure with low leverage.
Management’s Discussion and Analysis (MD&A)
Management attributes the revenue growth to increased orders from key customers who had previously cleared excess inventory. The increase in selling, general, and administrative expenses is attributed to increased payroll and director fees. The increase in other income is due to increased interest income.
Red Flags and Uncommon Metrics
* **Related Party Transactions:** The balance sheet shows significant accounts payable and due to related parties. While not inherently problematic, these transactions require careful scrutiny to ensure they are conducted at arm’s length and do not disadvantage the company. The operating lease liabilities to related parties decreased significantly, which warrants further investigation.
* **Reverse Stock Split:** The company implemented a 1-for-10 reverse stock split on December 9, 2024. While this doesn’t directly impact the interim results, it’s a significant event that investors should be aware of. Reverse stock splits are often undertaken to increase the stock price to meet listing requirements or to improve investor perception, but they can also be a sign of underlying financial difficulties.
Risk and Opportunity Assessment
Opportunities:
* **Continued Revenue Growth:** If the company can sustain the current growth trajectory, it could lead to significant increases in profitability and shareholder value.
* **Strong Liquidity:** The company’s strong cash position provides flexibility for future investments and acquisitions.
Risks:
* **Dependence on Key Customers:** The company’s reliance on a few key customers makes it vulnerable to changes in their purchasing patterns.
* **Related Party Transactions:** The related party transactions could pose a risk if they are not managed properly.
* **Global Economic Conditions:** As a company operating in the apparel industry, J-Long Group is susceptible to fluctuations in global economic conditions and consumer spending.
Conclusion and Actionable Insights
J-Long Group’s interim results for the six months ended September 30, 2024, are positive, demonstrating strong revenue and profit growth. The company’s liquidity position is healthy, and its capital structure is conservative. However, investors should carefully monitor the related party transactions and the company’s dependence on key customers. The recent reverse stock split also warrants attention.
Recommendation: Hold. While the short-term outlook is positive, further analysis is needed to assess the long-term sustainability of the revenue growth and the potential risks associated with related party transactions. Investors should monitor future filings for updates on these issues.