Update on ALCO

I posted last January about ALCO, the thesis was simple, given the capable management of ALCO the sale of the Company’s wholly owned subsidiary will add value to shareholders through lower finance costs and increase in cash balance.

I presented two assumptions regarding the sale of Irmo, Inc., ALCO’s wholly owned subsidiary:

With the disclosure of ALCO’s annual report, it appears that assumption #1 is the closest to actual:

ALCO1

The transaction above made significant improvement on ALCO’s finance costs and balance sheet:

ALCO2

What came to me as a surprise?

Sudden decline of ALCO’s gross profit margin:

ALCO3

Tentatively, the declining gross profit margin hints that the Company is facing a tough competition under the luxury property development industry that they tend to sacrifice gross margin to meet sales target. However, what hold me back from that conclusion is that the decline occurred only in the fourth quarter and not throughout the year.

Looking forward for their first quarter report.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

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