Be Wary Of Rex International Holding (SGX:5WH) And Its Returns On Capital

Rex International Holding (SGX:5WH) has been a subject of interest for investors due to its involvement in oil and gas exploration and production, as well as its ownership of ultrasound technology for commercial oil well stimulation and RVD technology for oil exploration. However, a closer examination of the company's financials and operational metrics reveals several red flags that investors should be aware of before making any investment decisions.

One of the primary concerns for investors is Rex International Holding's low return on capital (ROIC) of 4.03%. This metric indicates that the company is not efficiently utilizing its capital to generate profits. Several factors contribute to this low ROIC:

1. High Debt Levels: Rex International Holding has a high debt-to-equity ratio of 0.77, which means it has a significant amount of debt relative to its equity. This high debt level can lead to higher interest expenses, reducing the company's overall profitability and thus its ROIC.
2. Low Profitability: Rex International Holding has reported losses in the last 12 months, with a net income of -102.49 million. This low profitability contributes to a lower ROIC, as the company is not generating sufficient profits to cover its capital investments.
3. Low Asset Turnover: Rex International Holding has an asset turnover ratio of 0.42, which is relatively low compared to other companies in the industry. This indicates that the company is not effectively utilizing its assets to generate revenue, which can lead to a lower ROIC.
4. High Capital Expenditures: Rex International Holding has high capital expenditures (CapEx) relative to its operating cash flow. In the last 12 months, the company's CapEx was -126.41 million, while its operating cash flow was 242.22 million. This high level of CapEx can lead to a lower ROIC, as the company is investing more in capital assets than it is generating in cash flow.



Rex International Holding's low ROIC is also reflected in its negative return on equity (ROE) of -57.38% and low profit margins of -29.22%. These metrics indicate that the company is struggling with operational inefficiencies and may not be generating sufficient revenue to cover its costs.

Investors should also be aware of Rex International Holding's Altman Z-Score of 0.78, which suggests an increased risk of bankruptcy. A Z-score under 3 indicates that a company may be at risk of financial distress.

In conclusion, Rex International Holding's low return on capital, high debt levels, low profitability, and increased risk of bankruptcy should give investors pause before considering an investment in the company. While the company's involvement in the oil and gas industry and its ownership of innovative technologies may hold promise for future growth, its current financial situation and operational metrics suggest that it may not be a reliable investment option. Investors should carefully evaluate the company's financials and consider alternative investment opportunities before making any decisions.