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CTRL GROUP Ltd 6-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

CTRL GROUP Ltd

Filing date:

03/14/2025

TLDR:

CTRL Group Limited announced its unaudited financial results for the six months ended September 30, 2024, showing a decrease in revenue and profit compared to the same period in 2023, along with details of its recent IPO.

ELI5:

CTRL Group, a marketing company, made less money in the first half of 2024 compared to last year because their online ad business slowed down. They think it will get better, but the economy and competition are making things tough.

Accession #:

0001213900-25-024183

Published on

Analyst Summary

  • Revenue decreased by 25.6% from HK$23.7 million to HK$17.6 million for the six months ended September 30, 2024, compared to the same period in 2023.
  • Net profit decreased by 68.5% from HK$2.6 million to HK$0.8 million.
  • Earnings per share decreased by 70% from HK$0.20 to HK$0.06.
  • Gross profit margin decreased from 32.7% to 27.8%.
  • Management attributes the revenue decline to decreased demand for online advertising due to COVID-19’s lingering effects and a shift towards offline advertising.
  • Net cash used in operating activities was approximately HK$2.4 million.
  • The debt-to-equity ratio decreased from 4.97 to 3.76, a decline of 24.35%.
  • The interest coverage ratio decreased from 21.92 to 8.10, a decline of 63.04%.
  • The asset turnover decreased from 3.00 to 2.13, a decline of 29%.
  • The price-to-earnings ratio is very high at 504.55.
  • The price-to-book ratio is very high at 220.34.
  • The price-to-sales ratio is very high at 22.06.
  • The enterprise value to EBITDA ratio is very high at 219.26.

Opportunities and Risks

  • Risk: The prevailing general economic outlook in Hong Kong could further negatively impact the company’s business.
  • Risk: Increased competition in the advertising market could put pressure on pricing and margins.
  • Risk: The company’s reliance on a limited number of clients, primarily from China, exposes it to risks associated with those clients’ financial health and business decisions.
  • Risk: The shift in client preferences towards offline advertising could require the company to adapt its service offerings and potentially invest in new capabilities.
  • Opportunity: The anticipated rebound in online advertising revenue could provide a significant boost to the company’s financial performance.
  • Opportunity: The proceeds from the IPO can be used to invest in growth initiatives, such as expanding service offerings, entering new markets, or making strategic acquisitions.

Potential Implications

Company Performance

  • Continued revenue decline could lead to further reductions in profitability and cash flow.
  • Failure to adapt to the shift towards offline advertising could result in a loss of market share.
  • Successful execution of growth initiatives funded by IPO proceeds could drive future revenue growth and profitability.

Stock Price

  • Negative financial results and a lack of clear turnaround strategy could lead to a decline in the company’s stock price.
  • Positive news regarding revenue stabilization, new client acquisitions, or successful expansion into new markets could boost investor confidence and drive the stock price higher.
  • The current valuation metrics (P/E, P/B, P/S, EV/EBITDA) are very high, suggesting that the stock may be overvalued.

CTRL Group Ltd – SEC Filing Report (6-K) – March 14, 2025

Executive Summary

This report analyzes CTRL Group Limited’s (Nasdaq: MCTR) 6-K filing, specifically the unaudited financial results for the six months ended September 30, 2024. The results indicate a significant decline in revenue and profitability compared to the same period in 2023, primarily due to decreased demand for online advertising services. While the company anticipates a rebound in online revenue, the current economic outlook and shift towards offline advertising pose challenges. The recent IPO and over-allotment exercise provide a cash infusion, but the company needs to demonstrate a turnaround in its core business. A neutral outlook is warranted, pending further evidence of revenue stabilization and growth.

Company Overview

CTRL Group Limited is a British Virgin Islands-based holding company. Its primary operating subsidiary, CTRL Media Limited, is an integrated marketing and advertising services provider in Hong Kong, specializing in mobile game promotion. The company recently completed its IPO and is listed on the Nasdaq Capital Market under the ticker “MCTR”.

Detailed Analysis

Financial Statement Analysis

Key Performance Indicators (HKD)

Metric Six Months Ended Sept 30, 2023 (Unaudited) Six Months Ended Sept 30, 2024 (Unaudited) Change (%)
Revenue 23,667,668 17,611,950 -25.6%
Cost of Services (15,928,443) (12,708,290) -20.2%
Gross Profit 7,739,225 4,903,660 -36.6%
Gross Profit Margin 32.7% 27.8% -4.9%
General & Administrative Expenses (4,082,321) (3,267,217) -20.0%
Profit Before Taxation 3,432,444 1,297,000 -62.2%
Net Profit 2,559,703 805,491 -68.5%
Earnings per Share (Basic & Diluted) 0.20 0.06 -70.0%

Balance Sheet Highlights (HKD)

Item March 31, 2024 (Audited) September 30, 2024 (Unaudited)
Cash and Cash Equivalents 4,368,915 2,941,264
Accounts Receivable 5,880,737 7,784,255
Total Assets 16,245,401 16,770,723
Total Liabilities 13,524,806 13,244,637
Total Shareholders’ Equity 2,720,595 3,526,086

Cash Flow Analysis (HKD)

  • Net cash used in operating activities was approximately HK$2.4 million for the six months ended September 30, 2024.
  • Net cash generated from financing activities was approximately HK$1.0 million for the six months ended September 30, 2024, primarily from an advance from a shareholder related to IPO expenses.

Management’s Discussion and Analysis (MD&A) Insights

  • Management attributes the revenue decline to decreased demand for online advertising due to COVID-19’s lingering effects and a shift towards offline advertising.
  • They anticipate a rebound in online revenue as COVID-19’s adverse implications abate.
  • The decrease in general and administrative expenses is primarily due to reduced staff performance bonus payments and the absence of an impairment loss on accounts receivable.

Red Flags and Uncommon Metrics

  • Significant Revenue Decline: The 25.6% decrease in revenue is a major concern and requires close monitoring.
  • Decreasing Profitability: The substantial drop in net profit (68.5%) and earnings per share (70.0%) indicates significant operational challenges.
  • Increased Accounts Receivable: The increase in accounts receivable suggests potential issues with collecting payments from clients, which could impact future cash flow.
  • IPO Costs: The increase in deposits, prepayments, and other receivables is partly due to deferred IPO costs. While this is a one-time event, it’s important to understand the full financial impact of the IPO.

Risk and Opportunity Assessment

Risks

  • Economic Downturn: The prevailing general economic outlook in Hong Kong could further negatively impact the company’s business.
  • Competition: Increased competition in the advertising market could put pressure on pricing and margins.
  • Client Concentration: The company’s reliance on a limited number of clients, primarily from China, exposes it to risks associated with those clients’ financial health and business decisions.
  • Shift to Offline Advertising: The shift in client preferences towards offline advertising could require the company to adapt its service offerings and potentially invest in new capabilities.

Opportunities

  • Post-COVID-19 Rebound: The anticipated rebound in online advertising revenue could provide a significant boost to the company’s financial performance.
  • IPO Proceeds: The proceeds from the IPO can be used to invest in growth initiatives, such as expanding service offerings, entering new markets, or making strategic acquisitions.

Conclusion and Actionable Insights

CTRL Group Limited faces significant challenges, as evidenced by the substantial decline in revenue and profitability. While the recent IPO provides a financial cushion, the company needs to demonstrate a clear strategy for reversing the negative trends and capitalizing on growth opportunities.

Recommendations:

  • Monitor Revenue Trends: Closely track revenue performance in the coming quarters to assess the effectiveness of management’s turnaround efforts.
  • Manage Accounts Receivable: Implement measures to improve the collection of accounts receivable and minimize the risk of bad debts.
  • Diversify Client Base: Reduce reliance on a limited number of clients by actively pursuing new business opportunities.
  • Adapt to Market Changes: Develop and implement strategies to adapt to the shift towards offline advertising and maintain competitiveness.

Overall Assessment: Neutral. The company’s future performance hinges on its ability to execute its turnaround strategy and capitalize on growth opportunities. Further observation is warranted.

1. Commentary

CTRL Group Limited’s financial performance for the six months ended September 30, 2024, shows a concerning decline compared to the same period in 2023. Revenue decreased significantly, leading to a substantial drop in gross profit and net income. While the company managed to reduce general and administrative expenses, it wasn’t enough to offset the revenue decline. The decrease in cash flow from operations is also a significant concern, despite some improvements in financing activities.

2. Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

  • Metric: 2023: (7,739,225 / 23,667,668) = 32.70%, 2024: (4,903,660 / 17,611,950) = 27.84%
  • Trend: The gross profit margin decreased from 32.70% to 27.84%, a decline of 14.87%.
  • Industry: The industry average gross profit margin varies widely depending on the specific sector within media and advertising. Generally, a healthy gross profit margin for a service-based company is between 40% and 60%. CTRL Group’s margin is below this range, indicating potential issues with pricing or cost management.

Operating Profit Margin

  • Metric: 2023: 3,656,904 / 23,667,668 = 15.45%, 2024: 1,636,443 / 17,611,950 = 9.29%
  • Trend: The operating profit margin decreased from 15.45% to 9.29%, a decline of 39.87%.
  • Industry: A good operating profit margin is typically between 15% and 20%. CTRL Group’s current operating margin is below average, suggesting challenges in managing operating expenses relative to revenue.

Net Profit Margin

  • Metric: 2023: 2,559,703 / 23,667,668 = 10.81%, 2024: 805,491 / 17,611,950 = 4.57%
  • Trend: The net profit margin decreased from 10.81% to 4.57%, a decline of 57.72%.
  • Industry: An average net profit margin is around 5-10%. CTRL Group’s net profit margin is at the lower end of this range, indicating that the company retains a smaller percentage of revenue as profit after all expenses.

Return on Assets (ROA)

  • Metric: To calculate ROA, we need to annualize the net income. 2023: (2,559,703 * 2) / 16,245,401 = 31.52%, 2024: (805,491 * 2) / 16,770,723 = 9.59%
  • Trend: The ROA decreased from 31.52% to 9.59%, a decline of 69.57%.
  • Industry: A good ROA is generally considered to be above 5%. CTRL Group’s ROA is below average, indicating that the company is not generating significant profit from its assets.

Return on Equity (ROE)

  • Metric: To calculate ROE, we need to annualize the net income. 2023: (2,559,703 * 2) / 2,720,595 = 188.14%, 2024: (805,491 * 2) / 3,526,086 = 45.69%
  • Trend: The ROE decreased from 188.14% to 45.69%, a decline of 75.61%.
  • Industry: A good ROE is typically between 15% and 20%. CTRL Group’s ROE is above average, indicating that the company is generating significant profit from its equity.

Earnings Per Share (EPS) – Basic and Diluted

  • Metric: 2023: 0.20 HKD, 2024: 0.06 HKD
  • Trend: EPS decreased from 0.20 HKD to 0.06 HKD, a decline of 70%.
  • Industry: EPS varies significantly by industry and company size. A declining EPS is generally a negative sign, indicating lower profitability per share.

Liquidity

Current Ratio

  • Metric: 2024: 16,206,315 / 5,518,006 = 2.94, 2023: 15,454,994 / 5,252,484 = 2.94
  • Trend: The current ratio remained constant at 2.94.
  • Industry: A current ratio between 1.5 and 2 is generally considered healthy. CTRL Group’s current ratio is above this range, indicating strong liquidity.

Quick Ratio (Acid-Test Ratio)

  • Metric: 2024: (16,206,315 – 0) / 5,518,006 = 2.94, 2023: (15,454,994 – 0) / 5,252,484 = 2.94 (Assuming no inventory)
  • Trend: The quick ratio remained constant at 2.94.
  • Industry: A quick ratio above 1 is generally considered healthy. CTRL Group’s quick ratio is above this range, indicating strong short-term liquidity.

Cash Ratio

  • Metric: 2024: 2,941,264 / 5,518,006 = 0.53, 2023: 4,368,915 / 5,252,484 = 0.83
  • Trend: The cash ratio decreased from 0.83 to 0.53, a decline of 36.14%.
  • Industry: A cash ratio of 0.5 or higher is generally considered good. CTRL Group’s cash ratio is within this range, indicating adequate cash reserves to cover short-term liabilities.

Solvency/Leverage

Debt-to-Equity Ratio

  • Metric: 2024: 13,244,637 / 3,526,086 = 3.76, 2023: 13,524,806 / 2,720,595 = 4.97
  • Trend: The debt-to-equity ratio decreased from 4.97 to 3.76, a decline of 24.35%.
  • Industry: A debt-to-equity ratio below 1 is generally considered conservative. CTRL Group’s debt-to-equity ratio is high, indicating a significant reliance on debt financing.

Debt-to-Assets Ratio

  • Metric: 2024: 13,244,637 / 16,770,723 = 0.79, 2023: 13,524,806 / 16,245,401 = 0.83
  • Trend: The debt-to-assets ratio decreased from 0.83 to 0.79, a decline of 4.82%.
  • Industry: A debt-to-assets ratio below 0.5 is generally considered healthy. CTRL Group’s debt-to-assets ratio is high, indicating that a significant portion of the company’s assets are financed by debt.

Interest Coverage Ratio (Times Interest Earned)

  • Metric: 2024: 1,297,000 / 160,129 = 8.10, 2023: 3,432,444 / 156,564 = 21.92
  • Trend: The interest coverage ratio decreased from 21.92 to 8.10, a decline of 63.04%.
  • Industry: An interest coverage ratio above 1.5 is generally considered safe. CTRL Group’s interest coverage ratio is above this threshold, indicating that the company can comfortably cover its interest expenses.

Activity/Efficiency

Asset Turnover

  • Metric: 2024: (17,611,950 * 2) / ((16,770,723 + 16,245,401)/2) = 2.13, 2023: (23,667,668 * 2) / ((16,245,401 + 15,454,994)/2) = 3.00
  • Trend: The asset turnover decreased from 3.00 to 2.13, a decline of 29%.
  • Industry: An asset turnover ratio of 1 or higher is generally considered good. CTRL Group’s asset turnover ratio is above this range, indicating efficient use of assets to generate revenue.

Valuation

Price-to-Earnings Ratio (P/E)

  • Metric: Current stock price: $7.77. EPS (annualized): 0.06 HKD * 2 = 0.12 HKD. Exchange rate (approximate): 7.8 HKD/USD. EPS in USD: 0.12 / 7.8 = 0.0154 USD. P/E Ratio: 7.77 / 0.0154 = 504.55
  • Trend: N/A – Requires previous period’s P/E ratio.
  • Industry: The average P/E ratio varies significantly by industry. A high P/E ratio may indicate that the stock is overvalued or that investors expect high growth in the future.

Price-to-Book Ratio (P/B)

  • Metric: Market Cap (in USD): 13,000,000 shares * $7.77/share = $100,000,000. Book Value (in USD): $453,848. P/B Ratio: $100,000,000 / $453,848 = 220.34
  • Trend: N/A – Requires previous period’s P/B ratio.
  • Industry: A P/B ratio between 1 and 3 is often considered reasonable. CTRL Group’s P/B ratio is very high, suggesting that the stock may be overvalued relative to its book value.

Price-to-Sales Ratio (P/S)

  • Metric: Market Cap (in USD): $100,000,000. Annualized Revenue (in USD): $2,266,865 * 2 = $4,533,730. P/S Ratio: $100,000,000 / $4,533,730 = 22.06
  • Trend: N/A – Requires previous period’s P/S ratio.
  • Industry: A P/S ratio below 1 is often considered good. CTRL Group’s P/S ratio is very high, suggesting that the stock may be overvalued relative to its sales.

Enterprise Value to EBITDA (EV/EBITDA)

  • Metric: Market Cap (in USD): $100,000,000. Total Debt (in USD): $1,103,495. Cash (in USD): $378,575. Enterprise Value (EV): $100,000,000 + $1,103,495 – $378,575 = $100,724,920. EBITDA (annualized): (1,636,443 + 160,129) * 2 / 7.8 = $459,377. EV/EBITDA: $100,724,920 / $459,377 = 219.26
  • Trend: N/A – Requires previous period’s EV/EBITDA ratio.
  • Industry: An EV/EBITDA ratio between 10 and 15 is often considered reasonable. CTRL Group’s EV/EBITDA ratio is very high, suggesting that the stock may be overvalued relative to its earnings.

Growth Rates

Revenue Growth

  • Metric: (17,611,950 – 23,667,668) / 23,667,668 = -0.256 or -25.6%
  • Trend: Revenue decreased by 25.6%.
  • Industry: N/A

Net Income Growth

  • Metric: (805,491 – 2,559,703) / 2,559,703 = -0.685 or -68.5%
  • Trend: Net income decreased by 68.5%.
  • Industry: N/A

EPS Growth

  • Metric: (0.06 – 0.20) / 0.20 = -0.70 or -70%
  • Trend: EPS decreased by 70%.
  • Industry: N/A

Other Relevant Metrics

There are no company-specific KPIs or non-GAAP metrics presented in the provided financial results.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️