Case Study of Foundpac Group Berhad (5277)

By Stella Goh – Market Data Analyst | 19 February 2020  

Overview

Foundpac Group Berhad (FPGROUP) is a Malaysia-based investment holding company founded in 2015 and headquartered in Bayan Lepas, Penang. FPGROUP is primarily involved as an import-export company that has made a significant impact in the manufacturing and engineering industry.

FPGROUP was listed on Bursa Malaysia’s Main Market on 29 December 2016. FPGROUP nurtures alliances with a reputable network of vendors and contractors in order to provide an unequalled standard of excellence. The group has acquired accreditation with ISO 9001 as proof of their quality and commitment to excellence.

Business Model

FPGROUP is primarily involved in the design, development, manufacturing, marketing and sale of precision engineering products such as stiffeners, integrated circuit (IC) test sockets, hand lids, and related accessories as well as manufacturing and sale of laser stencils. Examples are final test stiffeners, probe and card stiffeners, accessories for stiffeners, high pin court sockets, fine pitch sockets, high power or high frequency sockets, tri-temp test sockets, module test sockets and toggle clamp hand lids.

FPGROUP’s customers are primarily large multinational semiconductor manufacturers, outsourced semiconductor assembly and test companies (OSATs) and printed circuit board (PCB) design houses as well as fables semiconductor companies. All FPGROUP’s products are distributed within Malaysia as well as exported to countries including Singapore, China, Hong Kong, Taiwan, France and the UK.

Financial Review

FPGROUP has achieved a revenue growth of 26.49% from RM35.534 million in FY2018 to RM44.946 million in FY2019. Based on the past 5 years CAGR basis, the gross profit growth was 8.27%.

The increase in revenue from the Asia market was mainly contributed by existing and new customers in China, Hong Kong and Taiwan for both precision engineering and laser stencil segments. While the increase in revenue contributions from North America and Europe markets were mainly contributed by existing customers in North America and Germany for the precision engineering segment. (Source: Annual Report 2019)

FPGROUP has recorded a RM6.073 million increase in gross profit, translating to a growth of 35.76% from RM16.983 million in FY2018 to RM23.056 million in FY2019. Based on 5 years CAGR basis, the group’s gross profit has grown 12.71%. The increase in gross profit was due to the hike in revenue generated by precision engineering segments, namely stiffeners and related accessories.

Based on Annual Report 2019, the precision engineering segment recorded a surge in revenue from Asia, North America and Europe markets by RM2.761 million, RM2.223 million and RM2.088 million respectively as compared to FY2018. Besides, the laser stencil segment also generated a hike in revenue from other Asian markets by RM1.947 million.

The Profit After Tax (PAT) of FPGROUP rose 58.08% from RM8.011 million in FY2018 to RM12.664 million in FY2019. On a CAGR basis, the Profit After Tax (PAT) grew by 6.57% which was in line with the growth in revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has provided a positive cash flow of RM9.650 million in FY2019 as compared to RM5.406 million in the previous year indicating that the company is healthy and has enough cash to be used for business expansion.

The net cash from investing activities in FY2019 (-RM5.208 million) was mainly due to the purchase of Property, Plant and Equipment (PPE) of RM6.758 million. The negative cash flow indicates that the firm is investing more in its business for growth. (Source: Annual Report 2019).

The net cash from financing activities in FY2019 (-RM5.175 million) was mainly due to the dividend paid to shareholders of the company (RM5.186 million) and dividend paid to non-controlling interests (RM262,500).

Is the company able to pay back its liabilities?

Based on liquidity ratio calculation, FPGROUP has a current ratio of 12.86 times in FY2019 indicating that the company does not face any liquidity issues as it is capable of paying back its liabilities if any unforeseeable circumstances occur. FPGROUP is able to do so by using current assets such as inventories, receivables, prepayments, current tax assets, cash and cash equivalents amounting to RM53.491 million. However, this may also indicate that the company is not efficiently using its current assets or its short-term financing facilities.

Prospect and Challenges

According to the group Chief Executive Officer Ong Cheng Hoon, FPGROUP plans to produce parts for the automotive industry next year and it has installed a new production line to manufacture the critical automotive parts. The group was in the process of applying for the IATF 16949 certification which will qualify it as a first and second tier producer of critical automotive parts. The certification is expected in 1H 2020 and commencement of commercial operations in 2H 2020. The negotiations as a key supplier of critical automotive components with European and Asian carmakers are expected to be concluded in FY2020. (Source: StarBiz, 16 Dec 2019).

According to The Star Business, FPGROUP expects its first-half performance for the financial year ending 30 June 2020 to improve by double digit percentages, driven by the implementation of 5G infrastructure and transmission towers. The group Chief Executive Officers Ong Choon Heng told StarBiz that for the first half of 2020, more than RM25 million worth of test sockets, stiffeners and laser stencils would be shipped to semiconductor test equipment customers in United States, Europe and China compared to about RM21 million achieved in the corresponding period of the preceding year. (Source: StarBiz, 23 Sep 2019).

The test sockets and stiffeners are attached to semiconductor test equipment to check integrated circuits and printed circuits boards used in a wide range of 5G hardware, electronic home appliances, consumer electronics and semiconductor parts. According to Ong, the rollout of 5G technology is expected to hit US$2.7 trillion by the end of FY2020. (Source: StarBiz, 23 Sep 2019).

FPGROUP’s stencils enable the electronic manufacturing services (EMS) companies to manufacture at a lower cost. Moving forward, the group will continue to focus on the high-mix and low-volume product business model. The group’s strategy is to compete with the other test socket and stiffener manufacturers in terms of quality so that they can price their products higher to generate better margins. (Source: StarBiz, 23 Sep 2019).

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Average

Net Earnings [5 years CAGR] = Average

Basic Earnings per Share (EPS) [5 years CAGR] = Average

Interest Coverage = NIL

*Interest Coverage is NIL because there is no interest income incurred. (Source: Annual Report 2019)

Insight

Based on the calculation of Discounted Earnings Model, FPGROUP has an intrinsic value of RM1.495. The current share price of FPGROUP is RM0.95 which makes it an undervalued stock (as at 18 Feb 2020). FPGROUP has a beta of 1.784 (500 days) indicating that the company is more volatile than the current market. Investors may face higher risk. Based on the computation of Compound Annual Growth Rate (CAGR), FPGROUP has an expected market return of 5.22%.

In conclusion, FPGROUP has achieved an outstanding performance in FY2019 with its highest revenue and gross profit over the past 5 years. FPGROUP’s prospect remains bright as the rollout of 5G in China, Europe and the United States is expected to generate demand for integrated circuits for use in the hardware of 5G transmission towers. The company is expected to perform well in the future as the Internet of Things (IoTs) needs a lot of high-end equipment to test and automate hence creating a strong demand for semiconductor test equipment.


Disclaimers

The research, information and financial opinions expressed on ShareInvestor.com website are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely.

Case Study of Kejuruteraan Asastera Berhad (0193)

By Stella Goh – Market Data Analyst | 12 February 2020  

Overview

Kejuruteraan Asastera Berhad (KAB) is an established Malaysia-based electrical and mechanical engineering company founded in 1997 and headquartered in Kuala Lumpur. KAB specializes in providing comprehensive and one-stop solutions in electrical and engineering services for main contractors, project owners and property developers operating in Malaysia. 

KAB was listed in ACE Market on 17 November 2017. KAB holds a Class A certification (highest electrical contractor certification) from Energy Commission Malaysia and a Grade 7 (highest grade) license from Construction Industry Development Board (CIDB). 

Business Model 

KAB covers all aspects of electrical, mechanical and associated engineering services for both commercial and residential buildings. 

KAB offers installation, testing and commissioning of electrical systems, electrical distribution systems, communication & information technology networks, generator sets, street lighting, lifts and escalators, fire protection, extra-low voltage (ELV) systems, air-conditioning and mechanical ventilation systems. 

The company also derived additional revenue from sales of cables, switches, trunking, pipes and electrical accessories which are required for projects to its sub-contractors. 

Financial Review 

Based on the past 4 financial years of revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2015 (+52.93%), FY2016 (+6.92%), FY2017 (+23.01%) to FY2018 (+21.43%). On a CAGR basis, KAB has grown 25.01% based on 4 years. The increase in revenue was mainly attributed to 54.6% from commercial projects, 43.6% from residential projects and 1.8% from others.

KAB has recorded RM3.415 million increase in gross profit, translating to a growth of 15.55% from RM22 million in FY2017 to RM25.4 million in FY2018. Based on four years CAGR basis, the gross profit has grown 31.29%. The increase in gross profit was due to the rise in demand for electrical & mechanical engineering services specifically in new construction and property projects. 

The Profit After Tax (PAT) of KAB rose 26.58% from RM6.8 million to a new high of RM8.6 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 21.91% which was in line with the growth of revenue and gross profit. 

Cash Flow Statement 

The net cash from operating activities has obtained a positive cash flow of RM1.4 million in FY2018 as compared to RM2 million in the previous year. The decrease in net cash from operating activities was mainly due to the increase in working capital requirements and taxes paid for the group’s ongoing operations. Even though the cash flow is lower in FY2018, the company still has enough cash for business expansion. 

The net cash from investing activities in FY2018 (-RM867,196) was mainly due to the purchase of Property, Plant and Equipment (PPE) of (RM901,144) and acquisition of subsidiary unquoted shares (RM1,052). The negative cash flow indicates that the firm is investing more in its business for growth. (Source: Annual Report 2018) 

The net cash from financing activities in FY2018 (-RM267,314) was mainly due to fixed deposits pledged as securities (RM5.1 million), dividend paid (RM3.2 million), repayment of bank’s factoring (RM2.5 million), repayment of term loans (RM1.9 million) and repayment of finance lease liabilities (RM376,691).  

Is the company able to pay back its liabilities?  

Based on liquidity ratio calculation, KAB has a current ratio of 1.8544 times in FY2018 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities if any unforeseeable circumstances occur. KAB is able to do so by using current assets such as contracts, trade and other receivables, deposits & prepayments, amount due from subsidiary companies, deposits with licensed banks, cash and bank balances amounting to RM84.1 million.  

Prospect and Challenges 

KAB has achieved an order book estimated at RM350 million, translating into 2.5 times revenue in FY2018 after winning the job for three blocks of serviced apartment and hotel at Lot 162, Sungai Besi. (Source: TheEdge, 10 January 2020). 

KAB has won a RM20 million electrical installation services contract from Kerjaya Prospek Group Bhd for a hotel, office and serviced apartment project in Kuala Lumpur. The project known as Bloomsvale located at Jalan Klang Lama, which comprises two 53-storey blocks and another 25-storey block has commenced since last week and is expected to be completed by 1 November 2022. (Source: TheEdge, 30 January 2020). 

In early 2018, KAB has set up KAB Technologies Sdn Bhd (KABT) to provide project management and consultancy for upgrading M&E systems for buildings to save on energy costs. KABT will use the data collection devices and the Internet of Things (IoT) such as sensor network and communication modules to gather the building usage data. (Source: TheEdge, 21 January 2020). 

In FY2019, KABT has also entered an 80:20 joint venture (JV) with Resources Data Management Asia Sdn Bhd to develop new technology solutions as well as identify strategic business developments and revenue recognition. (Source: TheEdge, 21 January 2020).  

KAB is also venturing into solar energy generation via the acquisition of 30% stake in Leverage Edge Sdn Bhd (LSB), where the partnership is expected to boost its chances next year in Large-Scale Solar 4 (LSS4) tender. Apart from the energy efficiency solutions and solar energy generation businesses, KAB also provides combined heat & power co-generation, waste heat recovery solutions and is currently participating in some tenders. (Source: TheEdge, 21 January 2020). 

Rating System 

Return on Equity (ROE) = Average 

Revenue [4 years CAGR] = Good 

Net Earnings [4 years CAGR] = Good 

Basic Earnings per Share (EPS) [4 years CAGR] = Good 

Interest Coverage = Average 

Insight 

Based on calculation on Discounted Earnings Model, KAB has an intrinsic value of RM2.529. The current share price of KAB is RM1.960 which is in the range of fair value. (Based on 11Feb2020). KAB has a beta of 0.917 (500 days) indicating that the company is less volatile than the current market. Investors may face a lower risk. Based on the computation of Compound Annual Growth Rate (CAGR), KAB has an expected market return of 5.25%. 

In conclusion, KAB has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax increased year-on-year basis. KAB has actively sought joint ventures and is looking to invest in the Internet of Things (IoT) which can help to enhance its position in the electrical and industry sector. Based on intrinsic value calculated, KAB has 29.03% upside potential in share price.  

Disclaimers 

The research, information and financial opinions expressed on ShareInvestor.com website are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely. 

Case Study of JHM Consolidation Berhad (0127)

By Stella Goh – Market Data Analyst | 22 January 2020

Overview 

JHM Consolidation Berhad (JHM) is an established Malaysia-based company founded in 2005 and headquartered in Bayan Lepas, Malaysia. JHM is a one stop solution provider for high precision, high speed stamping, including tooling design, fabrication as well as production of Micro-Electronic Components (MECs).  

JHM was listed in ACE Market in Year 2006 and is seeking to transfer their listing quotation for entire issued share capital to Main Market of Bursa Malaysia by third quarter of this year. (The Star Property, 1Jan2020). Geographically, the company exports its products to People’s Republic of China, United States of America, United Kingdom and Singapore. 

There are 6 wholly subsidiaries of JHM such as Morrissey Technology Sdn Bhd (MTSB), Morrissey Assembly Solutions Sdn Bhd (MASSB), JH Morrissey Sdn Bhd (JMSB), Morrissey Mettalurgy Manufacturing Sdn Bhd (MMMSB), Morrissey Integrated Dynamics Sdn Bhd (MIDSB) and Mace Instrumentation Sdn Bhd (MISB). 

Business Model 

JHM principally engaged in the manufacturing of precision miniature engineering metal parts & components, assembly of electronic components by using surface mount technology (SMT), assembly of automotive rear lighting for well-known car manufacturers in North America countries as well as in Japan, and production on high brightness of emitting diodes (HB LED) application to support 3D effects. 

The group also involved in the broad portfolio of innovative equipment, services and niche products for aerospace. They design, SMT production and assembly of interior lighting for aerospace. 

Financial Review 

Based on the past 5 financial years of revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2014 (+3.45%), FY2015 (+82.86%), FY2016 (+47.51%), FY2017 (+27.03%) to FY2018 (+7.57%). On a CAGR basis, JHM has grown 30.69% based on 5 years. The increase in revenue was mainly attributed to 71% for Automotive Segment Industry, 28% for Industrial Products and 1% for others. 

JHM has successfully recorded RM3.965 million increase in gross profit, translating to a growth of 6.99% from RM56.7 million in FY2017 to RM60.7 million in FY2018. Based on five years CAGR basis, the group has grown 48.94%. The increase in gross profit was due to the contribution from Mace instrumentation Sdn Bhd (MISB), growing of automotive sectors, results from Mechanical Business Unit and unrealized gain on foreign exchange of RM2.22 million in FY2018.    

The Profit After Tax (PAT) of JHM rose 19.60% from RM29.6 million in FY2017 to a new high of RM35.4 million in FY2018. On CAGR basis, the Profit After Tax (PAT) grew by 77.30% was in line with the growth of revenue and gross profit.

Cash Flow Statement 

The net cash from operating activities has obtained a positive cash flow of RM26.0 million in FY2018 compared to RM17.1 million in FY2017 indicates that the company is healthy and have enough cash used for business expansion. 

The net cash from investing activities in FY2018 is (-RM12.7 million) was mainly due to purchase of Property, Plant and Equipment (PPE) (RM8.5 million), net cash outflow from acquisition of a subsidiary (RM3.9 million), acquisition of non-controlling interests (RM1.5 million) and placement of fixed deposits (RM0.158 million). The negative cash flow indicates that the company is investing more in its business to grow. 

The net cash from financing activities in FY2018 is (-RM10.8 million) was mainly due to the payment of finance lease (RM15.7 million) and dividends paid (RM8.4 million).  

Is the company able to pay back its liabilities?  

Based on my liquidity ratio calculation, JHM has a current ratio of 2.858 times in FY2018 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities if any unforeseeable circumstances occur. JHM is able to do so by using current assets such as inventories, trade receivables, other receivables, deposits, prepayments, tax recoverable, cash and bank balances amounted to RM182.7 million. 

Prospect and Challenges 

JHM was buying a factory in Kedah for RM16.6 million by cash and the group have signed the sale and purchase agreement (SPA) with Bernas Wirama Sdn Bhd. The acquisition will enable JHM to expand their production floor in order to increase their production capacity. The board views it as a strategic move for JHM group to own the property, to improve and enhance the operational efficiencies in long-term. (The Edge, 2 April 2019).  

On 26 March 2019, JHM has entered a two years Memorandum of Understanding (MoU) with Universal Alloy Corporation Europe (UACE) in order to create an efficient and effective supply chain for machined sub-assembled aerospace components and products. UACE will provides technical and manufacturing capabilities insertion programs as and when needed by JHM. They understand that the MoU is one of four signed as part of strategic objectives of Malaysia’ National Policy on Industry 4.0 for Industry 4WRD. They noted that there was also another MoU signed between JHM and MTC AeroSystems of Hungary to supply software systems for JHM. (The Edge, 28 March 2019).  

Rating System

Return on Equity (ROE) = Average 

Revenue [5 years CAGR] = Good 

Net Earnings [5 years CAGR] = Excellent 

Basic Earnings per Share (EPS) [5 years CAGR] = Excellent 

Interest Coverage = Good 

My Insight 

Based on my calculation on Discounted Earnings Model, JHM Consolidation Berhad has a fair value of RM4.372. The current market value of JHM is RM1.68 which is undervalued (Based on 20Jan2020). JHM has a beta of 1.659 (500 days) indicates that the company is more volatile than current market, which means the investors / traders are actively trading in this stock. While for short-term trader, they may face higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), JHM has an expected market return of 5.54%. 

In conclusion, JHM Consolidation Berhad has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax (PAT) have been increased years by years from FY2014 to FY2018. JHM’s prospect remains bright will be supported by vibrant automotive segment, and by industrial segments such as gradual and steady take-off strategic aerospace segment, especially after the successful qualification of initial sample parts. I believe the company can grow very well in the future as the Industry 4.0 will need a lot of high-end equipment to test and automate. 

Disclaimers 

The research information and financial opinions expressed by ShareInvestor.com website is for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. You should not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your own action. You need to do your research to make your own investment decision wisely. 

Case Study of GHL Systems Berhad (0021)


Overview

GHL Systems Berhad is an investment holding company founded in Year 1994 and headquartered in Kuala Lumpur. GHLSYS was primarily involved as a leading payment service provider in Asia Pacific, specializing in payment related solutions and services for banks, merchants, telco, billers and other e-commerce players such as oil & gas, retail, transportation companies etc.

GHLSYS was listed in ACE Market on April 2003 and successfully transformed into Main Market of Bursa Malaysia on February 2007. With more than 20 years of experience in e-payment industry, the group successfully built a solid reputation in revolutionizing the ASEAN payment industry. They transformed the manual payment methods into a complete digital approach by simplifying the distribution payment as well as collection catering to all merchants in the region.

Presently, GHLSYS has business operations spanning across Malaysia, Philippines, Cambodia, Indonesia, Singapore and Australia.



Business Model

GHL Systems Berhad principally involved in the business segments such as shared services, solution services and transaction payment acquisitions.

GHLSYS provides a full range of solutions and services to banks and merchants affiliated to the acceptance of payment devices on sale, maintenance and rental basis. For examples, POS terminals and other payment acceptance devices which can perform electronic payments for credit cards, debit cards, e-Wallet, loyalty points capture, redemption transactions, loan repayment and other bank or merchant specific requirements.

The group also engaged in developing and selling in-house software and hardware programs, implementation services which enables the banks and merchants acquire a secure payment network and other related services such as installation, training and maintenance. They are also accredited by reputable organizations and governing bodies such as VISA, MasterCard, JCB, UPI, Alipay, MEPS, SIRIM, and Line Encryption Working Group.

Financial Review


Based on the past 5 financial years of revenue chart above, the group’s revenue grew years-on-years (y-o-y) from FY2014 (+157.58%), FY2015 (+28.16%), FY2016 (+16.34%), FY2017 (+3.15%) to FY2018 (+17.89%). On CAGR basis, GHLSYS has grown 36.11% based on 5 years. The increase in revenue was mainly attributed to 61% for Transaction Payment Acquisition (TPA), 34.2% for Shared Services and 4.8% for Solution Services.


GHL Systems Berhad has successfully recorded a considerable RM21,150 million increase in gross profit, translating to a double-digit growth of 20% from RM105.7 million in FY2017 to RM126.9 million in FY2018. Based on 5 years CAGR basis, the group has grown 25.75%. The increase in gross profit was mainly due to the increase in sales of EDC terminals in Malaysia and Thailand, higher rental fees and transaction fees collected, and better performance by geography from Thailand and Philippines, particularly in Transaction Payment Acquisition (TPA) segments.


The Net Profit After Tax (PAT) of GHLSYS rose 19.89% from RM20.5 million in FY2017 to a new high of RM24.6 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 36.62% was in line with the growth of revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has obtained a cash flow of RM2.5 million in FY2018 which is lesser than FY2017 amounted to RM56.4 million. Even though the cash flow is lesser in FY2018 compared to previous years, the company still have enough cash used for business expansion.

The net cash from investing activities in FY2018 is (-RM52.7 million) was mainly due to the purchase of Property, Plant & Equipment (PPE) (RM22.6 million), purchases of intangible assets (RM0.021 million), acquisition of subsidiaries (34.4 million), acquisition of additional interests in other investment (RM2.1 million), and placement in deposit pledged (RM4.5 million). The negative cash flow indicates that the firm is investing more in its business to grow.

The net cash from financing activities in FY2018 has obtained a positive figure of RM82.7 million was attributed to drawdown of term loans (RM79.9 million), drawdown of hire purchase (RM6.6 million) and proceeds received (Executive Share Scheme exercised, private placement and resale of treasury shares) (RM85.7 million). GHLSYS had also need to pay for term loans, Islamic facility, hire purchase creditors and banker’s acceptance with a total amounting to RM89.5 million.

Does the company able to pay back its liabilities? Based on my liquidity ratio calculation, GHLSYS has a current ratio of 1.096 times in FY2018 indicates that the company do not face any liquidity issue as they are capable to pay back its liabilities if any unforeseeable circumstances occurred by using current assets such as inventories, trade & receivables, current tax assets, cash and bank balances amounted to RM371.4 million.

Prospect and Challenges

GHLSYS is partnered with Mastercard, has launched a tokenized e-payments solution that offer simple, more secure and seamless digital payment experiences for consumers. For examples, the Mastercard Digital Enablement Services (MDES) for Merchants (M4M) is offered by GHLSYS’s fintech arm, eGHL (first payment service provider in Southeast Asia) for online and in apps transactions. The MDES will be used to protect user’s card information and sensitive accounts numbers, with a digital token that is unique to only the customer and the merchant. (Source: TheEdge, 6Jan2020)

GHLSYS plans to roll out 10,000 of merchant acquisition for Bank Negara Indonesia (BNI) and becomes e-Wallets provider in Indonesia starting in first quarter of 2020 (1Q2020). The groups also have started pilot program for money lending business in Malaysia and Thailand after they received the money lending license in August 2019, which will allow them offer financing to its merchant base. (Source: TheEdge, 6Dec2019).

GHLSYS via its 100% subsidiary GHL (Thailand) Co Ltd together with Thanachart Bank Public Company Limited have jointly launched smart payment terminals in Thailand as they see big opportunities to bring cashless payments to a wider range of business. The payment acceptance options in Thanachart banks include both PromptPay and credit / debit cards which follows the Thai QR Code Specification and WMVCo standards for Payment Systems. These services are expected help to reduce dependency on cash, as more business are gearing towards new e-payment methods. (TheEdge, 24July2019).


Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Good

Basic Earnings per Share (EPS) [5 years CAGR] = Good

Interest Coverage = Good

My Insight

Based on my calculation on Discounted Earnings Model, GHL Systems Berhad has a fair value of RM4.291. The current market value of GHLSYS is RM1.64 which is undervalued. (Based on 13 Jan 2020). GHLSYS has a beta of 0.579 (500 days) indicates that the company is less volatile than current market, which also indicates investors / traders are not actively trading in this stock. While for short-term trader, they may face lower risk. Based on my computation of Compound Annual Growth Rate (CAGR), GHLSYS has an expected market return of 5.51%. GHLSYS has a Return of Equity (ROE) of 6.042%, which is slightly decreased from 7.459% from last year which means slightly unhealthy.

In conclusion, GHL Systems Berhad has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax (PAT) have been increased years by years from FY2014 to FY2018. GHLSYS prospects remain bright by looking at the growth of cashless payment such as Mastercard Digital Enablement Services (MDES) and smart payment terminals. I believe the company can grow very well in the future as the electronic and digital payments are on the rise around the globe.

However, investors or traders must be cautious that the decreasing of Return on Equity (ROE) of the company indicates that the management’s effectiveness in utilization resources to generate return, for each dollar invested in the company, is decreasing.

Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website is for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. You should not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your own action. You need to do your research to make your own investment decision wisely.

Written by Stella Goh – Market Data Analyst | 15 January 2020

Case Study of Frontken Corporation Berhad (0128)


Overview 

Frontken Corporation Berhad is an established Malaysia-based investment holding and provision management services company founded in the Year 1996, primarily involved as a leading service provider of surface and mechanical engineering in the Asia Pacific region.  

FROTNKN was listed on ACE Market in the Year 2006 and successfully transformed into Main Market of Bursa Malaysia on 19 November 2008. Most of the key players of FRONTKN in oil and gas (O&G), petrochemical, power generation, semiconductor and electronics manufacturing industries come from Singapore market, while the group also has a presence in Malaysia, Philippines, Indonesia, Thailand, Vietnam and Japan.  


Business Model 

Frontken Corporation Berhad was principally involved in the business by providing various specialised engineering services such as thermal spray coating, cold build coating, plating and conversion coating, specialised welding, precision cleaning abrasive blasting, machining and grinding. 

Through the surface technologies, the group provides components protection, lifetime expansion, performance and efficiency improvement to customer’s equipment. FRONTKN also provides assessment, assembly, balancing, recovery and upgrading work on industrial rotating or non-rotating equipment such as pumps, turbines, compressors, diesel engines, generators and motors. 



Financial Review 


Based on the past 5 financial years of revenue chart above, the group has successfully recorded a considerable RM30,637 million increase in revenue, translating to a growth of 10.33% from RM296.6 million in FY2017 to RM327.2 million in FY2018. Based on 5 years CAGR basis, the group has grown 11.41%. The increase in revenue was mainly due to the growth of semiconductor-related business with strong support from its customers and improvement in engineering business from their subsidiaries in Malaysia, Singapore and Taiwan. 


Frontken Corporation Berhad has successfully achieved a tremendous high record of gross profit by 20.75% from RM104.8 million in FY2017 to RM126.6 million in FY2018. Based on the past 5 years of CAGR basis, the gross profit has grown 21.02%. The growth of gross profit was mainly driven by stronger demand in the cloud computing business, demand for a wafer of LED chips, ramp up production of advanced node chip and the better performance from their oil and gas (O&G) division. 


The Profit after Tax (PAT) of FRONTKN rose 56.56% from RM36.4 million in FY2017 to a new high of RM57 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 161.67% was in line with the growth of revenue and gross profit. 

Cash Flow Statements 

The group has generated net cash from operating activities of RM63.3 million in FY2018 as compared to RM69 million in the previous year. The decrease in net cash from operating activities was mainly due to the increase in working capital requirements and taxes paid for the group’s ongoing operations. Even though the cash flow is lesser in FY2018, the company still has enough cash used for business expansion.  

The net cash from investing activities in FY2018 is (-RM7.1 million) was mainly due to the purchase of property, plant and equipment (PPE) (RM7.5 million) and additional investment or acquisition of subsidiaries (RM7.1 million). The negative cash flow indicates that the firm is investing more in its business to grow.  

The net cash from financing activities in FY2018 is in the negative zone (-RM27.8 million) was primarily due to repayment of term loans (RM16.7 million). The others factor including interest payment (RM0.568 million), the dividend issued by the company (RM7.3 million), a dividend paid by the subsidiary to non-controlling interests party (RM2.6 million) and payment of hire purchase payables (RM0.545 million).  

Based on liquidity ratio calculation, FRONTKN has a current ratio of 2.8303 times in FY2018 compared to 2.2225 times in FY2017 indicates that the company do not face any liquidity issue as they are capable to pay back its liabilities if any unforeseeable circumstances occurred by using current assets such as inventories, trade receivables, deposits, prepaid expenses, amount owing by subsidiaries, amount owing by associate, current tax assets, short-term investments, fixed deposits with licensed banks, cash and bank balances amounted to RM277.6 million. 

Prospect and Challenges  

According to the chairman and chief executive officer (CEO) Nicholas Ng, the group is seeing more opportunities in oil and gas (O&G) sector, especially with more activities in Pengerang, Johor where the Petronas Refinery and Petronas Chemical Integrated Development (Rapid) project is developed. (Source: TheEdge, 25 March 2019) 

Through Research & Development, the group will innovate more efficient ways in advanced materials and surface engineering technology to produce new and improved coatings which will use in protection against material degradation and to improve the productivity of industrial processes. (Source: Annual Report 2018). The demand for semiconductor will accelerate further once 5G is rolled out globally. (Source: Quarterly Report, 20 September 2019). 

FRONTKN also plans to strengthen its foothold in the Chinese market where it sees huge opportunities and probably involves in setting up new facilities, instead of servicing China-based clients from its existing Taiwan and Singapore facilities. (Source: TheEdge, 25 March 2019) 

The group also will take some time to identify a strategic location for the new facility to be closer to most major wafer fabrication equipment sprawled across the country. By 2020, the group should be able to cater to its customers’ wafer fabrication process node of up to five nanometers. (Source: TheEdge, 25 March 2019) 

Rating System

Return on Equity (ROE) = Average 

Revenue [6 years CAGR] = Average 

Net Earnings [6 years CAGR] = Excellent 

Basic Earnings per Share (EPS) [6 years CAGR] = Excellent 

Interest Coverage = Excellent 

My Insight

Based on my calculation on Discounted Earnings Model, Frontken Corporation Berhad has a fair value of RM7.72. The current market value of FRONTKN is RM2.38 which is undervalued. (Based on 6Jan2020). FRONTKN has a beta of 1.229 (500 days) indicates that the company is more volatile than the current market, which also indicates investors / traders are actively trading in this stock. While for short-term trader, they may face a higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), FRONTKN has an expected market return of 5.59%.  FRONTKN has also achieved a double-digit of Return on Equity (ROE) which is 16.08% in FY2018 considered as healthy as compared to 10.60% in FY2017. 

In conclusion, Frontken Corporation Berhad has achieved outstanding performance in FY2018 as the revenue, gross profit and net profit achieved a new high over the past year. FRONTKN prospect remains bright by looking at the growth of semiconductor and Oil & Gas division. I believe the company can grow very well in future as the Internet of Things (IoT) and Industry 4.0 will need much high-end equipment to test and automate. 

Disclaimers 

The research information and financial opinions expressed byShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. You should not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your own action. It would be best if you did your research to make your own investment decision wisely. 

Written by Stella Goh – Market Data Analyst | 9 January 2020

Case Study of Airasia Group Berhad (5099)

Overview

AirAsia Group Berhad is an established Malaysia-based investment holding company founded in the Year 1993 based in Kuala Lumpur, which primarily involved as a multinational airline group with the world’s lowest cost-carrier in Asia.

AIRASIA was listed in Main Market of Bursa Malaysia in November 2004. The group has connected people and place across 388 routes, 104 of which are categorized as unique routes across the Asia Pacific. In 2018, the groups include AirAsia Group Berhad (AirAsia Malaysia, AirAsia Indonesia, AirAsia Philippines), AirAsia Thailand, AirAsia India and AirAsia Japan reinforced its leadership position with two remarkable milestones. For examples, flying over 500 million guests and grew from 2 aircraft in FY2001 to 226 aircraft as the end of FY2018.

Business Model

AirAsia Group Berhad’s entire business model centres at low-cost philosophy which requires its operations to be a lean, simple, and efficient.

AIRASIA focuses on high Aircraft Utilisation means the group has high frequency and high turnaround of flights, both bring customers convenience and greater cost efficiencies as the turnaround of 25 minutes is the fastest in the region.

AIRASIA provides low fare but no frills mean there is no frequent flyer miles or airport lounges in exchange for low fares. Guests have their choices to pay for in-flight meals, snacks and drinks.

AIRASIA also offers internet sales or by call centres. The bulk of sales can be done via the airline’s website (www.airasia.com), whereby the fares are paid by using credit cards, debit cards or via online banking. While for call centres, customers can purchase tickets via telephone. Both methods are the most effective distribution channel which can be made customers more convenience.

The group also has actively diversified their business into non-airline digital-based businesses such as Big Loyalty, BigPay, travel360.com, ROKKI, OURSHOP and RedCargo Logistics and RedBeat Ventures (RBV).

Financial Review


Based on past 5 financial years of revenue chart above, the group’s revenue grew years-on-years (y-oy) from FY2014 (+5.95%), FY2015 (+16.28%), FY2016 (+8.71%), FY2017 (+41.83%) to FY2018 (+9.56%). On a CAGR basis, AIRASIA has grown 15.79% based on 5 years. The increase in revenue was mainly driven by an 18% increase in capacity which enables a 14% increase in a number of guests carried to 44.44 million. Although their enhanced capacity led to slightly decrease in average fare from RM176 in FY2017 to RM173 in FY2018, it has compensated by 7% increases in ancillary revenue to total RM2.06 billion.

AirAsia Group Berhad has recorded a decreased gross profit from RM1.9 billion in FY2017 to RM805.1 million in FY2018 equivalents to (-56.55%). The huge decrease in gross profit was mainly caused by the increased of fuel and one-off expenses as well as changed in accounting from owning to leasing aircraft towards the second half of FY2018. Due to hike in fuel price, and 3% dip in average stage length of flights, their overall cost per available seat kilometre (CASK) including fuel increased by 12% to 14.80 Sen.

The Net Profit After Tax (PAT) of AIRASIA has successfully recorded a considerable RM124.02 million increase in Profit After Tax (PAT), translating to a growth of 7.89% from RM1.6 billion in FY2017 to RM1.7 billion in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 36.17% was in line with the growth of revenue.

Cash Flow Statement

The group have generated net cash flow from operating activities of RM353.1 million in FY2018 compared to RM2.2 billion in the previous year. The decrease in net cash from operating activities was mainly due to the interest paid (RM323.1 million), taxes paid (RM45 million) and retirement benefit paid (RM3.4 million). Even though the cash flow is lesser in FY2018, the company still have enough cash used for business expansion.

The net cash from investing activities in FY2018 is (RM9 million) was mainly due to the group received proceeds disposal from Property, Plant and Equipment (PPE) & associate, dividend received from investment securities & associate and net cash inflow from partial disposal of an interest in subsidiary with a total amounting of RM10.6 billion. The positive cash flow indicates that the firm is generating a positive return from their investment and gain through the disposal of assets.

The net cash from financing activities in FY2018 is (-RM8.1 billion) was mainly attributed to the repayment of borrowings and dividends paid to shareholders with a total amount of RM9.3 billion.

Based on liquidity ratio calculation, AIRASIA has a current ratio of 1.2872 times in FY2018 compared to 0.8104 times in FY2017 indicates that the company do not face any liquidity issue as they are capable to pay back its liabilities if any unforeseeable circumstances occurred by using current assets such as inventories, receivables & prepayments, deposit on aircraft purchase, derivative financial instruments, amounts from (subsidiary, associates, joint ventures and related parties), tax recoverable, asset held for sale, deposits, cash and bank balances amounting to RM8.8 billion.

Prospect and Challenges

AIRASIA has launched the FACES (Fast Airport Clearance Experience System), also known as biometric airport recognition system at Senai International Airport in Johor, Avalon (new airport based in Melbourne) and the airport in Kuching to facilitate the boarding process. For examples, users can board the flight by using facial biometrics which can eliminate the needs to show their passport. (Source: Annual Report FY2018)

The group have to collaborate with Google Cloud to integrate machine learning and artificial intelligence (AI) into every aspect of their business and culture. Their Digital and Data team will work together with Google Cloud engineers on specific business scenarios to gain a solid foundation in enhancing their predictive ability in sales and marketing, as well as asset management. (Source: Annual Report 2018).

As of 2 April 2019, when an upgraded version of AirAsia’s portal was launched, the portal has incorporated OURSHOP (online retail business), tours and activities deal by Vidi. There will be more products and services will be added as airasia.com to be evolved. The group has also launched an international remittance service that will allow instant international transfer from Malaysia for fixed rates as low as RM7 (S$2.31). So far, there are four countries included such as Singapore, Indonesia, Philippines and Thailand. (Source: Business Insider Malaysia, 23Sep2019).

AIRASIA has opened a restaurant (Santan and T&CO) which serving actual aeroplane food at Mid Valley Megamall. According to Tan Sri Dr Anthony Francis Fernandes, he plans to open 5 outlets this year, and 100 over the next three to five years to fulfil the increasing demand for Asian cuisines. (Source: Business Insider Malaysia, 3Dec2019).

By recognising the needs for low-cost carrier terminals to cater for budget travellers, the Government has agreed to set up a dedicated low-cost terminal in Penang by 2022. AirAsia already occupies 50% of the capacity at Penang International Airport and would like to turn Penang into their northern Malaysia transit hub connecting ASEAN directly with the country’s Pearl of the Orient. (Source: Annual Report 2018).

Rating System

Return on Equity (ROE) = Good

Revenue [5 years CAGR] = Average

Net Earnings [5 years CAGR] = Good

Basic Earnings per Share [5 years CAGR] = Good

Interest Coverage = Average

My Insight

Based on my calculation on Discounted Earnings Model, AIRASIA has a fair value of RM4.911. The current market value of AIRASIA is RM1.71 which is undervalued. (Based on 27Dec2019). AIRASIA has a beta of 1.261 (500days) indicates that the company is more volatile than the current market, which means investors/traders are actively trading in this stock; they may face a higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), AIRASIA has an expected market return of 6.25%.

In conclusion, AirAsia Group Berhad has achieved an outstanding performance for revenue and profit after tax in FY2018 due to its capacity expansion. I believe the group’s digital-based ventures such as BIG Loyalty, BigPay, Vidi, RedCargo Logistics, ROKKI, OURSHOP, travel360.com and Redtix will help AIRASIA poised for good ancillary revenue growth going forward.

Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would help if you did your research to make your own investment decision wisely.

Written by Stella Goh – Market Data Analyst | 2 January 2020

Case Study of Top Glove Corporation Bhd (7113)

Overview

Top Glove Corporation Bhd is an established Malaysia-based investment holding company founded in the Year 1991 by Tan Sri Dr Lim Wee Chai and Siew Bee Tong based in Shah Alam, which primarily involved as the world’s largest rubber glove manufacturer in Malaysia, specialise in both healthcare and non-healthcare segments.

TOPGLOV was listed in ACE Market in 2001 and successfully transformed into Main Market of Bursa Malaysia on 16 May 2002. The group serves a network of over 2,000 satisfied customers in more than 195 countries worldwide, and these numbers are still increasing. Their complete range of quality gloves at low efficient cost enables them to meet the needs of the company’s ever-expanding customer base.

Presently, TOPGLOV has few manufacturing operations spanning across Malaysia, Thailand and China. There are marketing offices in these countries as well as USA, Germany and Brazil.


Business Model

Top Glove Corporation Bhd principally involved in the business segment such as hand protection, sexual wellness, dental care and others.

TOPGLOV provides a comprehensive range of products such as latex examination gloves, nitrile examination gloves, surgical gloves, polychloroprene examination gloves, cast polyethene (CPE) gloves, thermoplastic elastomer (TPE) gloves, vinyl gloves, cleanroom gloves, household gloves, industrial gloves as well as non-gloves products such as dental dam, exercise band and condom.

Most of the glove products cater to the medical profession, surgeon, cleanrooms and industrial usage as well as aerospace, household, food and beauty industries.


Financial Review

Based on the past 5 financial years of revenue chart above, the group’s revenue grew years-on-years (y-o-y) from FY2015 (+10.33%), FY2016 (+15.06%), FY2017 (+18.03%), FY2018 (+23.81%) to FY2019 (+13.75%). On a CAGR basis, TOPGLOV has grown 16.11% based on 5 years. The increase in revenue was mainly due to robust growth in sales volume of nitrile gloves segments which saw a 30% surge, enhanced the marketing efforts as well as additional nitrile capacity which has increased by 54% over the past 2 years, with the plan for further expansion. (Source: Annual Report 2019).


Top Glove Corporation Bhd has successfully recorded a considerable RM41,627 million increase in gross profit, translating to a growth of 4.94% from RM842.4 million in FY2018 to RM884 million in FY2019. Based on 5 years CAGR basis, the group has grown 18.18%. The increase in gross profit was mainly attributed to 46% jump in volume sold for surgical glove segment which largely due to the contribution from Aspion and increases in demand for nitrile glove segment, which sales volume go up by 20.3% and 24% respectively chiefly by US and Japan. (Source: Annual Report 2019)


The Net Profit After Tax (PAT) of TOPGLOV has decreased 15.16% from RM433.2 million in FY2018 to RM367.5 million in FY2019. The decreased in Net Profit After Tax (PAT) was mainly due to the increase in latex concentrate prices, competitive environment for natural gloves as well as the losses occurred in the vinyl segment due to oversupply in China.


Cash Flow Statements

The net cash from operating activities has obtained a positive cash flow of RM526.2 million in FY2019 compared to RM341.2 million in FY2018 indicates that the company is healthy and have enough cash used for business expansion.

The net cash from investing activities in FY2019 is (-RM493.5 million) was mainly due to purchase of property, plant and equipment (RM568.1 million), purchase of land use rights (RM55.6 million), purchase of intangible assets (RM0.016 million), additions to investment property (RM0.393 million), purchase of investment securities (RM138.4 million), an increase in the bank balance pledged with banks (RM1.1 million). The negative cash flow indicates that the company is investing in its business to grow.

The net cash from financing activities in FY2019 is (-RM34.6 million) was mainly due to the transaction cost incurred (RM0.086 million), dividends paid on ordinary shares (RM217.4 million), dividends paid on non-controlling interest (RM2.7 million), repayment of loans and borrowings (RM1.2 billion).

Based on liquidity ratio calculation, TOPGLOV has a current ratio of 0.967 times in FY2019 indicates that the company may face some liquidity issue if any unforeseeable circumstances forcing the company to settle the current liabilities by using the current assets such as inventories, other current assets, tax recoverable, investment securities, derivatives financial instruments, trade & other receivables, cash and bank balances amounting to RM1.5 billion.


Prospect and Challenges

The domestic rubber sectors are expected to be a bounce-back in FY2020, as the US buyers will be likely to increase the Malaysian shipments as well as 15% additional tariff imposed on medical gloves made in China, effective from 1 Sep 2019. (Source: The Malaysian Reserve, 17Dec2019). The expected robust growth is underpinned by an expanding of the global healthcare sector as well as increased awareness of the importance of hygienic practices throughout the industry, especially the emerging markets such as India and China. (Source: TheEdge, 12Dec2019).

TOPGLOV will be in expansion mode as there is an influx of latex glove supply from Thailand-based Sri Trang Agro-Industry Pcl aims to increase the rubber glove output by about 74% to 30 billion gloves annually by the end of FY2020 from 22 billion in the nine months of FY2019. (Source: TheEdge, 12Dec2019).  TopGlove also has date established a total of 4 R&D Centres staffed by some 454 researchers (as at FY19) from across varied fields of expertise, working together to drive innovation and breakthrough at Top Glove. (Source: Annual Report 2019).

TOPGLOV has set aside about RM100 million for land acquisition in the country would be used for setting up the factories to produce vinyl gloves. TOPGLOV also will open its first Vietnam factory to meet a surge in demand for the hygienic gloves. As the construction of the plant has started in Vietnam, it is done deal there and the operation would commence in the first quarter of 2020. (Source: Daily Express, 21Mar2019).

In the year-end of FY2019, TOPGLOV has carried out large scale line modification, key process improvements as well as intensive training for factory floor personnel. They are also pleased to report that there is no impairment loss required for the provisional goodwill arising from the acquisition of Aspion as at 31Aug2019. (Source: Annual Report FY2019).

TOPGLOV is also developing the eco-friendly gloves, the first if which was their flagship green product, BiogreenTM Biodegradable Nitrile Gloves (Powder Free), launched in June 2019. They also continue to enhance their product portfolio with more specialised and cost-effective surgical gloves, while diversifying into non-glove products such as tourniquets. (Source: Annual Report FY2019).


Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Average

Basic Earnings per Share [5 years CAGR] = Average

Interest Coverage = Average


My Insight

Based on my calculation on Discounted Earnings Model, TOPGLOV has a fair value of RM8.40. The current market value of TOPGLOV is RM4.77 which is undervalued (Based on 23Dec2019). TOPGLOV has a beta of 1.020 (500 days) indicates that the company is more volatile than the current market, which means the investors/traders are actively trading in this stock, they may face a higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), TOPGLOV has an expected market return of 6.27%.

In conclusion, Top Glove Corporation Bhd has achieved an outstanding performance for revenue in FY2019 due to the robust growth in sales volume of nitrile gloves segments and capacity of nitrile segment expansion. Even though the Profit After Tax has slightly decreased in FY2019, I still believe that the company is well-positioned to tap on the growing glove demand and prioritise R&D, innovation and Industry 4.0 initiatives.


Disclaimers

The research information and financial opinions expressed by
ShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur, it would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would help if you did your research to make your own investment decision wisely.

Written by Stella Goh – Market Data Analyst | 25 December 2019

Case Study of Sam Engineering & Equipment (M) Berhad (9822)

Overview 

Sam Engineering & Equipment (M) Berhad is an established holding and provision of corporate management services company founded in the Year 1948, which primarily involved as a key player in precision machining, equipment integration and automation solutions for aerospace and equipment industries. 

SAM was listed on ACE Market in 1995 and successfully transformed into Main Market of Bursa Malaysia in 1999. The group is a subsidiary of Singapore Aerospace Manufacturing Pte Ltd (SAM), a leading manufacturer of critical aero-engine components for the international aerospace market. Their key customers include Boeing, GE Aircraft Engines, GKN Aerospace Services, Goodrich and major aerospace original equipment manufacturers.  

SAM are supplied from their facilities in China, Germany, Malaysia, Singapore and Thailand to customers worldwide. 


Business Model 

Sam Engineering & Equipment (M) Berhad principally involved in the business segments such as Aerospace, Equipment Manufacturing and Precision Engineering. 

The Aerospace segment provides end-to-end manufacturing solutions on critical engine parts and other related equipment parts of complex geometry that are made by aluminium alloys, and hard, tough materials such as stainless steels, titanium and nickel-based alloys.  

While for the Equipment Manufacturing segment, it provides system integration services and unique engineering solutions from collaborative design and development to multinational companies in Hard Drive, Solar, Semiconductor and LED industries which are supported by their in-house machining, sheet metal fabrication and surface treatment processes.  

While for Precision Engineering segment, it provides end-to-end precision manufacturing solutions on engineering and high-precision tooling, including large format computer numerical control (CNC) machining parts.


Financial Review 

Based on the past 5 financial years of revenue chart above, the group’s revenue grew from RM451.5 million in FY2015 to RM620.1 million in FY2016 equivalents to 37.33% and started to decline to RM537.4 million in FY2017. When it comes to FY2019, SAM successfully rebound back from RM537.4 million in FY2017 to RM755 million equivalents to 21.97%. On a CAGR basis, SAM has grown 10.77% based on 5 years. The increase in revenue was mainly due to the growth momentum in both Aerospace and Equipment Businesses which constituted approximately 60.87% and 39.13% of total group’s revenue respectively.  

Sam Engineering & Equipment (M) Berhad has successfully achieved a tremendous high record of gross profit by 11.65% from RM102.6 million in FY2018 to RM114.6 million in FY2019. Based on the past 5 years of CAGR basis, the gross profit has grown 18.74%. The ramp-up mainly drove the growth of gross profit in production for the new Airbus A320neo and Boeing 737max aircraft engine cases and stronger demand in semiconductor & data storage devices industry in FY2019. 

The Profit After Tax (PAT) of SAM rose 24.79% from RM62.9 million in FY2018 to a new high of RM78.5 million in FY2019. On a CAGR basis, the Profit After Tax (PAT) grew by 22.63% was in line with the growth of revenue and gross profit.


Cash Flow Statement 

The group have generated net cash from operating activities of RM32.6 million in FY2019 as compared to RM64.8 million in the previous year. The decrease in net cash from operating activities was mainly due to the increase in working capital requirements for the group’s on-going operations. Even though the cash flow is lesser in FY2019, the company still have enough cash used for business expansion. 

The net cash from investing activities in FY2019 is (-RM88.2 million) was mainly due to purchase of plant and equipment (RM91.3 million) and purchase of intangible assets (RM11.3 million), partially offset by proceeds from sales of land and building of RM14.3 million. The negative cash flow indicates that the firm is investing more in its business to grow. 

The net cash from financing activities in FY2019 has obtained a positive figure of RM47.1 million was mainly attributed to the drawdown of term loans (RM19.8 million) and drawdown of revolving credit (RM67.9 million). SAM had also paid for the dividends, interest and foreign currency loan with a total amounting to RM40.6 million.  

Based on liquidity ratio calculation, SAM has a current ratio of 2.1373 times in FY2019 compared to 2.1379 times in FY2018 indicates that the company do not face any liquidity issue as they are capable of paying back its liabilities on due by using current assets such as inventories, contract assets, trade & other receivables, derivatives financial assets, current tax assets, cash and bank balances amounted to RM470.5 million.  


Prospect & Challenges 

Sam Engineering & Equipment (M) Berhad has achieved an outstanding order book amounted to RM3.1 billion for engine casing and small to large aerostructure. (Source: The Star, 22Feb2019).  

SAM has launched the latest RM140 million manufacturing plant in Penang Science order book Bukit Minyak and seeks strong prospect for the aerospace industry as Malaysia aimed to become a leading aerospace nation in Southeast Asia by the Year 2030. (Source: MalayMail, 21Feb2019). The new 145,000 sq. ft. The plant is equipped with state-of-the-art precision machinery and the group tends to employ 200 highly skilled workers when fully ramped-up. The group will spend about RM1.3 million annually for their employees to overseas for on-the-job training and for engineering collaborations with their counterparts in Singapore and China to increase their job performance. (Source: Malaymail, 21Feb2019).  

Based in the Forbes Report in December 2018, the Solid-State Drive (SSD) will gradually replace the Hard Disk Drive (HDD) for many current storage applications. While this may be the case, the demand for HDD will remain strong due to more cost-effective devices for large capacity storage. SAM’s storage device business is well balanced as they supply equipment for both SSD and HDD applications. Regardless of whether the SSD will overtake the HDD as future storage technology, the groups are confident of riding the wave of the industry. (Source: Annual Report 2018).  


Rating System 
 

 
 
Return on Equity (ROE) = Average 

Revenue [5 years CAGR] = Average 

Net Earnings [5 years CAGR] = Good 

Basic Earnings per Share [5 years CAGR] = Good 

Interest Coverage = Good 


My Insight 

Based on my calculation on Discounted Earnings Model, Sam Engineering & Equipment (M) Berhad has a fair value of RM8.877. The current market value of SAM is RM7.98 which is in the range of fair value. (Based on 16Dec2019). SAM has a beta of 0.624 (500days) indicates that the company is volatile than the current market, which means the investors/traders is not actively trading in this stock, they may face lower risk. Based on my computation of Compound Annual Growth Rate (CAGR), SAM has an expected market return of 6%. 

In conclusion, Sam Engineering & Equipment (M) Berhad has achieved an outstanding performance in FY2019 as the revenue, gross profit and net profit after tax have increased based on years-on-years (y-o-y) basis as the production for new Airbus A320neo and Boeing 737max keep on increasing and higher demand for semiconductor & data storage industry. However, an investor or trader must cautious that this company is having limited growth based on its intrinsic value have calculated.

Disclaimers 
 
The research information and financial opinions expressed by ShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur, it would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would help if you did your research to make your own investment decision wisely. 

Written by Stella Goh – Market Data Analyst | 19 December 2019

 

Case Study of Mega First Corporation Berhad (3069)

Overview

Mega First Corporation Berhad (MFCB) is a Malaysia-based investment holding and provision management services company founded in 1966, headquartered in Petaling Jaya, which primarily involved as the largest lime producers in Malaysia, acts as an operator in Electric Services sector, and involving in Property Division.

MFCB was listed in Main Market of Bursa Malaysia on 11 August 1970. The groups have its geographical markets such as Malaysia, China, Laos, India, Australia, New Zealand and other countries.


Business Model

MFCB is a diversified company principally involved in three core businesses; Powerplant operating and management; Earth resources on extracting, manufacturing and trading limestone; Property development and property investment. The group also engaged in other businesses such as manufacturing of label and packaging products, agricultural cultivation and development activities inter-alia.


Financial Review

Revenue

Based on the past 5 years of revenue chart above, the group’s revenue recovering from a 19% revenue drop in FY2015 and start to improve in FY2016 onwards. On a CAGR basis, MFCB has grown 25.4% based on 5 years. The increase in revenue was mainly due to the increase in construction profit from Don Sahong Hydropower Project to RM178.1 million in FY2018 compared to RM172.6 million in FY2017. (Source: Annual Report 2018)


Gross Profit

**Unable to capture figures due to the company restated all their information.


Net Profit After Tax

The Net Profit After Tax (PAT) of MFCB has a slightly decrease of 12.69% from RM167 million in FY2017 to RM145.8 million in FY2018. The decrease in net profit after tax (PAT) was mainly due to the expiry of the Sino-foreign Joint Venture in China on 22 October 2017 and Power Purchase Agreement in Sabah on 2 December 2017 which were not extended for commercial reasons. The two discontinued power plant operations registered an RM13.7 million loss in FY2018 mainly due to the one-off impairment charges, compared to a profit of RM15 million in FY2017. (Source: Annual Report 2018)


Cash Flow Statements

The net cash from operating activities has obtained cash flow of RM38.6 million in FY2018 which is lesser than FY2017 amounted to RM115.1 million. Even though the cash flow is lesser in FY2018 compared to previous year, the company still have enough cash used for business expansion.

The net cash from investing activities in FY2018 is (-RM412.6 million) was mainly due to the cash outflow for Don Sahong Hydropower Project (RM370.2 million), purchase of Property, Plant and Equipment (PPE) (RM49.8 million), payment for rights of land use (RM0.469 million) and investment in joint venture and associate (RM4 million). The negative cash flow indicates that the firm is investing more in its business to grow.

The net cash from financing activities in FY2018 has obtained a positive figure RM364.9 million was mainly attributed to the net drawdown of bankers’ acceptance & revolving credits (RM4.6 million), acquired term loans (RM361.9 million), withdrawal of deposit pledged (RM1.6 million) and proceeded received from conversion of warrants (RM13.2 million), exercise of ESOS options (RM1.4 million) and proceeds from non-controlling interest. (RM12.5 million).

Based on liquidity ratio calculation, MFCB has a current ratio of 0.723 times in FY2018 indicates that the company may face some liquidity issue if any unforeseeable circumstances forcing the company to settle the current liabilities using current assets such as inventories, contract assets, receivables, derivatives asset, bank balance and deposits amounting to RM290.3 million.


Prospect and Challenges

After taking nearly 4 years, MFCB’s Don Sahong Hydropower Project worth RM1.67 billion in Laos has been completed earlier than expected has significantly brought down the project cost. According to the official statement from Chinese contractor, Sinohydro Corp Ltd, all turbines have entered commercial operations after the successful trial of the fourth turbines. (Source: TheEdge, 14Nov2019).

The Don Sahong plant is expected to generate annual revenue of US$120 million upon its commercial operations in FY2020. The plant is environmentally friendly because there is no dam and it run-of-the-river hydroelectricity. (Source: TheEdge, 15Dec2018)

The RM110 million expansion programme of Resources Division started in FY2015 is now completed with Kiln 8 ready for commissioning in this month. The group have a total increased capacity of 1,200 tonnes per day to 1,960 tonnes per day compared to FY2015. With this expansion, the group now operated as one of the largest lime manufacturing operations in Malaysia. (Source: Annual Report 2018)

The group has RM11 million worth of unsold property inventory as the property market condition in Malaysia is still weakening. The group will continue to sell the remaining completed property units and no plans to restart its development segment. (Source: TheEdge, 18Nov2019). The rental income from PJ8 and Greentown carparks is expected to remain stable. (Source: Annual Report 2018)


Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Average

Basic Earnings per Share [5 years CAGR] = Average

Interest Coverage = Good


My Insight

Based on my calculation on Discounted Earnings Model, Mega First Corporation Berhad has a fair value of RM12.257. The current market value of MFCB is RM4.760 which is undervalued. (Based on 6Dec2019). MFCB gas a beta of 0.485 (500 days) indicates that the company is less volatile than the current market, which means the investors/traders are not actively trading in this stock, they may face lower risk. Based on my computation of Compound Annual Growth Rate (CAGR), MFCB has an expected market return of 6%.

In conclusion, Mega First Corporation Berhad has achieved outstanding performance for revenue in FY2018 due to Don Sahong projects. Even though the Profit After Tax has slightly decreased in FY2018 which was due to the discontinuation of two plants, I still believe Don Sahong Hydropower Projectable to bring the group’s profit and cash flow to new heights from FY2020 onwards because Don Sahong is the group’s first foray renewable energy which may become the group’s main income generator in coming year and it is the way forward which can help the group explore more new strategic investment opportunities domestically and regionally. However, investor or trader must cautious that this company may not have enough current asset to cover its current liabilities but when comes to its interest coverage, the group overall finance is still healthy as they can pay interest on outstanding debts by using their earnings before interest and taxes (EBIT).


Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website is for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would help if you did your research to make your own investment decision wisely.

Written by Stella Goh – Market Data Analyst | 12 December 2019

Case Study of Guan Chong Berhad (5102)

Overview

Guan Chong Berhad is an established investment holding and provision of management services company founded in the Year 1980 based in the southern state of Johor, which primarily involved as one of the world’s largest cocoa ingredients producers in Malaysia. The group produce cocoa bean with a grinding capacity of 80,000 metric tonnes (MT) per year in Pasir Gudang, Malaysia and 120,000 MT per year in Batam, Indonesia.

GCB was listed in Main Market of Bursa Malaysia on 8 April 2005. The group has established clientele which including the world-famous chocolate makers such as Mars and Hershey’s with a global distribution network of more than 70 distributors or agents in Asia, Europe and the United States of America.

There are 7 subsidiaries of GCB such as Guan Chong Cocoa Manufacturer Sdn Bhd, PT Asia Cocoa Indonesia, GCB Cocoa Singapore Pte Ltd, GCB Specialty Chocolates Sdn Bhd, GCB Foods Sdn Bhd, GCB America Inc. (Carlyle Cocoa) and PT GCB Cocoa Indonesia.

Business Model

Guan Chong Berhad principally involved in the business of manufacturing, distributing and trading of cocoa-derived food ingredients such as Cocoa Liquor (Cocoa Mass), Cocoa Butter, Cocoa Cake and Cocoa Powder. Most of their cocoa ingredients market under Favorich brands and the product are widely used in chocolate, confectionery, food and beverages industries worldwide. There are also other brands such as CacaoRich and Melko created with specially formulated feel good elements such as less sweet taste and rich in antioxidants. The group also have actively involved in doing private brands for hypermarket such as TESCO ChocoMalt, Choco Champ, Tesco Value, Jusco Selections, Packers Best etc.

As the world’s fourth-largest cocoa grinder, GCB also involved in other cocoa related industries such as blending and mixing vision that used to produce cocoa preparation. GCB also has two facilities located in Delaware and New Jersey, the United States that undertake cocoa cake grinding, cocoa liquor and butter melting as well as cocoa butter deodorising. The business operations are supported by trading subsidiaries in Singapore and Indonesia.

Financial Review


Based on the past 5 financial years of revenue chart above, the group’s revenue grew from RM1.8 billion in FY2014 to RM2.4 billion in FY2015 equivalents to 30.89% and started to decline from FY2015 to RM2.1 billion in FY2017. When it comes to FY2018, GCB successfully rebound back from RM2.1 billion from the previous year to RM2.3 billion equivalents to 5.84%. The increase in revenue was mainly due to the increased in sales of cocoa ingredients to their existing multinational customers, and expansion of their grinding facility in Pasir Gudang, under GCB Cocoa Malaysia Sdn Bhd to its present capacity of 50,000 MT from 90,000 MT previously.

Guan Chong Berhad has successfully achieved a tremendous high record of gross profit by 82.06% from RM154.3 million in FY2017 to RM280.9 million in FY2018. Based on the past 5 years of CAGR basis, the gross profit has grown 34.69%. The growth of gross profit was mainly driven by the higher capacity utilisation of their plants and strong growth in sales volume for cocoa bean, which has helped to offset the lower average of selling price during the year due to decline in the commodity price of cocoa beans.

The Profit After Tax (PAT) of GCB rose 108.81% from RM91 million in FY2017 to a new high of RM190.1 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 113.09% was in line with the growth of revenue and gross profit.

Cash Flow Statement

The net cash from operating activities have obtained a positive cash flow of RM302.5 million in FY2018 indicates that the company is healthy and have enough cash used for business expansion when compared to previous years.

The net cash from investing activities in FY2018 is (-RM99.2 million) was mainly due to purchase of Property, Plant and Equipment (PPE) (RM97.6 million), payment to sub-leases of warehouses (RM0.124 million) and advances payment to the ultimate holding company (RM4.3 million). The negative cash flow indicates that the firm is investing more in its business to grow.

The net cash from financing activities in FY2018 is (-RM199.7 million) was mainly due to the dividend payment (RM9.6 million), share repurchased (RM0.152 million), net placement of fixed deposit pledged (RM0.455 million), and net movements in borrowings (RM189.5 million).

Does the company able to pay back its liabilities? Based on my computation of liquidity ratio, GCB has a current ratio of 1.239 times in FY2018 indicates that the company do not face any liquidity issue as they are capable of paying back its liabilities on due by using current assets such as inventories, trade & other receivables, derivatives financial assets, current tax assets, cash and bank balances amounting to RM1.3 billion.


Prospect and Challenges

GCB plans to keep expanding after its latest €60 million (RM278 million) investment in a new cocoa bean processing plant in Africa, called Ivory Coast. According to the managing director and CEO Brandon Tay Hoe Lian, he said that Ivory Coast-based grinders enjoy zero tax on cocoa products compared with Malaysian 7% duty. The new plant in Ivory Coast will boost up the group’s production capacity by another 60,000 tonnes when it starts operation by the first quarter of FY2021. (Source: TheEdge, 1Oct2019)

Besides expansion in Africa, GCB also pursues more exports to existing and new markets as the demand of chocolates remains on an uptrend, due to the rising consumption in major markets such as Europe and the United States, and sanguine Asian demand on the rising affluence and appetite for cocoa products. (Source: TheEdge, 18Nov2019)

GCB also stated that they would explore opportunities to expand their production facilities to major cocoa-producing countries to enhance their competitive edge which would provide significant cost savings in freight and transportation, as well as enhance their manufacturing supply chain. (Source: Annual Report FY2018)

Rating System

Return on Equity (ROE) = Good

Revenue [5 years CAGR] = Average

Net Earnings [5 years CAGR] = Excellent

Basic Earnings per Share (EPS) [5 years CAGR] = Excellent

Interest Coverage = Average

My Insight

Based on my calculation on Discounted Earnings Model, Guan Chong Berhad has a fair value of RM11.749. The current market value of GCB is RM2.80 which is undervalued. (Based on 25Nov2019). GCB has a beta of 0.643 (500days) indicates that the company is less volatile than the current market, which means the investors/traders are not actively trading in this stock, they may face lower risk. Based on my computation of Compound Annual Growth Rate (CAGR), GCB has an expected market return of 6.12%.

In conclusion, Guan Chong Berhad has achieved outstanding performance in FY2018 as the Profit After Tax has achieved a new high equivalent to 113.09% based on 5 years as the group are keep on expanding their business by increasing their productivity, activities of exportation and production facilities.

Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would help if you did your research to make your own investment decision wisely.

Written by Stella Goh – Market Data Analyst | 27 November 2019

Site last updated February 19, 2020 @ 7:14 am