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 | 27 November 2019.

Case Study of QL Resources Berhad (7084)

Overview

QL Resources Berhad is an established Malaysia-based investment holding company founded in the Year 1987 by Dr Chia Song Kun based in Shah Alam, which primarily involved as a leading provider of the agro-good corporation. QL has also successfully become the largest egg producers in Southeast Asia with a production rate of approximately 5.7 million of eggs per day and acts as the largest surimi producers in Asia, who made 50,000 tonnes per year.

QL was listed in ACE Market on 30th March 2000 and successfully transformed into Main Market of Bursa Malaysia on 22nd January 2002. The QL’s replication strategy involves the deployment of technology, capital and management expertise into populous emerging markets and they are focusing on the growth strategy of building up his customers’ food segment. Presently, the company have operations in Malaysia, China, Indonesia and Vietnam.

Ever since QL has grown tremendously. Presently, QL is worth around 11,957 billion in the market capitalisation. Today, it is a homegrown success story in Malaysia. Let’s find out what are the ways lead them to success.

Business Model

QL is a diversified resource and agricultural-based group with three principal core activities such as Integrated Livestock Farming (ILF), Marine Products Manufacturing (MPM) and Palm Oil Activities (POA).

As a leading poultry player in Malaysia, QL distributes animal feed raw materials such as soybean meal and corn, consumer brands as well as operating the broiler and layer farms. For Marine Products Manufacturing, QL engaged in deep-sea fishing aquaculture, manufacturing and sale of fish meal, surimi fish paste and surimi-based products which are widely used in processed food in Asia. The QL’s marine product consumer brands known as Mushroom and Figo, are distributed across Asia, Europe and North America. While for Palm Oil Activities, the group involved in plantations, crude palm oil milling and clean biomass energy.

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 (+10.16%), FY2016 (+5.41%), FY2017 (+5.54%), FY2018 (+8.34%) to FY2019 (+10.91%). On a CAGR basis, QL has grown 8.05% based on 5 years. The increase in revenue was mainly attributed to 64% for Integrated Livestock Farming (IFM), 28% for Marine Products Manufacturing (MPM) and 8% for Palm Oil Activities (POA).

QL Resources Berhad has successfully recorded a considerable RM81,283 million increase in gross profit, translating to a double-digit of growth of 13.42% from RM605.5 million in FY2018 to RM686.8 million in FY2019. The increase in gross profit achieved by the upturn in the manufacturing of their marine products (MPM) unit and Integrated Livestock Farming. For examples, the recovery of fish catches, improved prawn aquaculture, completion of new facilities and production output, convenience stores business and regional poultry operations ramping up to meet the global demand have helped the group to buff up its performance.

The Net Profit After Tax (PAT) of QL rose 4.54% from RM215.7 million in FY2018 to a new high of RM225.5 million in FY2019. On a CAGR basis, the Profit After Tax (PAT) grew by 6.22% was in line with the growth of revenue and gross profit.

Cash Flow Statement

The net cash from operating activities decreased from RM303.7 million in FY2018 to RM291.7 million in FY2019 was mainly due to the company was unable to sell out their biological assets (RM20.4 million), inventories (RM196.6 million), and unable to receive money owed by his customers on time (RM9.4 million). The company also have an increase in trade payables (RM50.8 million), contract liabilities (RM14.7 million) and bills payables (RM53.1 million), respectively.

The net cash from investing activities in FY2019 is (-RM296.7 million) was mainly due to the increase of acquisition activities such as investment properties (RM0.216 million), prepaid lease payments (RM0.628 million), Property, Plant & Equipment (PPE) (RM305.7 million) and increase in investment associates (RM1.7 million). The negative cash flow from investing activities indicates that the company is investing more in its business for expansion.

The net cash from financing activities in FY2019 is (-RM35.2 million) was mainly due to the largest number increased in acquisition of non-controlling interest (RM16.5 million), dividends paid for non-controlling interests (RM5.8 million) and owners of company (RM73 million), payment for interest (RM41 million), repayment of finance lease liabilities (RM0.132 million) and terms loans & revolving credit (RM307.1 million).

Does the company able to pay back its liabilities? Based on my computation of liquidity ratio, QL has a current ratio of 1.524 times in FY2019 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 biological assets, inventories, current tax assets, trade & other receivables, prepayment & other assets, derivative financial assets, cash and cash equivalents amounting to RM1.3 billion.

Prospect and Challenges

QL has set an initial target to open 300 stores of FamilyMart in FY2022. Presently, the group has successfully opened 109 FamilyMart stores and plan to double the number to 170 stores by the end of FY2020. The expansion will be centred at Klang Valley, Melaka, Negeri Sembilan and Johor. (Source: TheEdge, 30Aug2019). The Japanese convenience stores offer a variety range of Ready-To-Eat (RTE) and microwavable meals, soft-served ice-cream and coffee not only attracted the youngster but also the Muslim friends to come over since the FamilyMart’s central kitchen operator known as QL Kitchen Sdn Bhd have received halal certification from the Department of Islamic Development Malaysia in May 2019. (Source: The Malaysian Reserve, 11Nov2019)

For Marine Products Manufacturing (MPM), QL plans to increase the capacity of Hutan Melintang plants in Perak by acquiring more land and investing in automation. The group also plans to increase their current fleet size from 28 boats to 38 boats and increase the aquaculture production capacity from 2,000 tonnes per year to 6,000 tonnes per year within the next five years. (Source: TheEdge, 3 July 2019). The group’s prospect is going forward as there are about 30% of QL’s surimi products are exported with the largest market being the United States, while other markets include Indonesia and China, where QL supplies certain fish balls to hotpot chain HaiDiLao (only in Xi’an) among others. For surimi snacks produced, 60% are exported particularly to South Korea and Japan, where the snacks are consumed with alcoholic beverages. (Source: TheEdge, 22 April 2019)

For Integrated Livestock Farming (ILF), QL plans increase the layer production in Peninsular Malaysia and broiler production in Sabah and Sarawak. (Source: TheEdge, 3 July 2019) While for Palm Oil Activities, the group expects bearish outlook continues in FY2020 mainly due to lower crude palm oil prices. The POA growth potential is expected to be supported by growing palm maturity from Indonesia where it expected to provide higher fresh fruit brunches. (Source: TheEdge, 3 July 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 = Average

My Insight

Based on my calculation on Discounted Earnings Model, QL Resources Berhad has a fair value of RM9.167. The current market value of QL is RM7.37 which is in the range of fair value. (Based on 15Nov2019). QL has a beta of 0.500 (500days) indicates that the company is less volatile than the current market, which indicates that investors/traders are not actively trading in this stock, they may face lower risk. Based on my computation of Compound Annual Growth Rate (CAGR), QL has an expected market return of 6.15%.

In conclusion, QL Resources Berhad has achieved outstanding performance in FY2019 as the revenue, gross profit and net profit after tax have increased based on the years-on-years basis as they are venturing into new markets by collaborating with a big restaurant and China supermarket by supplying surimi-based products, and the expansion of FamilyMart shops in Malaysia. 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 | 20 November 2019

Case Study of Kronologi Asia Berhad (0176)

Overview

Kronologi Asia Berhad is an established Malaysia-based investment holding company founded in Year 2002 based in Petaling Jaya, which primarily involved as a regional Enterprise Data Management (EDM) solution provider. KRONO preserve, protect and manage the content with an innovative breakthrough known as “as-a-services” and enterprise solutions on-premise, cloud-based and hybrid solutions.

KRONO was listed in ACE Market of Bursa Malaysia on 15th December 2014. Being a data storage specialist for over 15 years, KRONO has made deployments in more than 620 sites, serviced by support from 11 offices in the Asia Pacific. They had diversified customer bases such as airports, airlines, port operators, food and beverages companies, banks, financial institutions, stock exchanges, smart cities, government agencies and telecommunications, media and broadcasting companies. KRONO serve them by unlocking the business value of their digital content, powering innovation, ensure data integrity cum sovereignty.

KRONO is presently located in Malaysia, Singapore, Thailand, Philippines, Indonesia, India, Taiwan, Hong Kong and China.

Business Model

The company engaged in the business by providing Enterprise Data Management (EDM) solutions ranging from EDM Infrastructure Technology (IT), EDM Managed Services (MS), Investment Holdings and Others.

The EDM Infrastructure Technology (IT) segment consists of both hardware and software. The EDM hardware refers to computer components used to record, store and retain digital data, while EDM software supports for the process of data backup, storage, recovery and restoration as well as some value-added solutions such as installation, configuring and implementation of EDM infrastructure and technology solutions. For EDM Managed Services (MS) segment, it comprises of health checks capacity planning, remote monitoring, and disaster recovery services. While for Investment Holdings segment, they engaged in business by providing funds and investment-related services. The Others segment provides administrative support services and licensing fees to subsidiaries for research and development costs incurred.

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 (+29.62%), FY2015 (+12.24%), FY2016 (+32.48%), FY2017 (+77.62%) to FY2018 (+12.95%). On a CAGR basis, KRONO has grown 31.06% based on 5 years. The increase in revenue was mainly attributed to 94% for EDM Infrastructure Technology (IT) segment and 6% for EDM Managed Services (MS) segment.

 

Krono Asia Berhad has successfully achieved a tremendous high record of gross profit by 19.31% from RM33.8 million in FY2017 to RM40.3 million in FY2018. Based on the past 5 years of CAGR basis, the gross profit has grown 20.48%. The growth of gross profit was mainly driven by EDM Infrastructure Technology (IT) segment, contributed by enhanced performance of the country markets that the Group currently operates in as well as the full consolidation of financial results from Group’s acquisition of Quantum Storage (Hong Kong) Limited which has been acquired in December 2017.

The Profit After Tax (PAT) of KRONO rose 34.79% from RM12.1 million in FY2017 to a new high of RM16.3 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 23.92% was in line with growth of revenue and gross profit.

 

Cash Flow Statement

The net cash from operating activities have obtained a positive cash flow of RM27.8 million in FY2018 was mainly due to the company was able to sell out their inventories with an amount of RM1.5 million, received due date’s receivables from its clients with an amount of RM10.6 million and received a deferred income of RM8.5 million. The company also have paid back its payables and associate amounted to RM15.6 million and RM2.6 million, respectively.

The net cash used in investing activities in FY2018 is (-RM19,638,660) was mainly due to the purchase of Property, Plant and Equipment (PPE) with an amount of RM6,482,028 and money used for investment in an associate amounting to RM12,553,024. The negative cash flow from investing activities indicates that the firm is investing more in its business for expansion.

The net cash from financing activities have decreased from RM31,829,071 in FY2017 to RM26,766,433 in FY2018 was mainly due to the largest number increased of repayment for financial liabilities with an amount of RM2,735,198 equivalents to 662.78% and interest paid of RM1,098,512 equivalents to 134.03% in FY2018 compared to previous years.

Does the company able to pay back its liabilities? Based on my computation of liquidity ratio, KRONO has a current ratio of 2.163 times in FY2018 compared to 1.470 times in FY2017 indicate that the company do not face any liquidity problem as they are capable to pay back its liabilities on due by using the current assets such as inventories, trade & other receivables, amount due from associates, tax recoverable, other investment, fixed deposit, cash and bank balances.


Prospect and Challenges

The acquisition of Sandz Solution (Singapore) Pte Ltd in December 2018 for RM75 million from Desert Streams Investment Ltd will continue to be an important business driver for KRONO. (Source: TheEdge, 1Nov2019). The synergies achieved from the enlarged Group will continue to strengthen the offerings of both EDM Infrastructure Technology (IT) and EDM Managed Services (MS) via the experience and network of Sandz Group in the Philippines. (Source: Annual Report FY2018).

KRONO aims to grow its customer base by at least 40% to 50% based on years-on-years basis. The chief executive officer (CEO) and executive director Edmond Tay Nam Hiong stated that the group has a diversified customer base of 650 clients, is banking on its services segment to propel the next stage of growth, as it observes the growing interests in technology adoption, especially among smaller-scale of business. They plan to acquire more new customers through seeding programs, which allow them to test out the services offered before onboarding, besides retaining customers with new and innovative solutions and trying to sell more within the existing customers. (Source: TheEdge, 1Nov2019).

In next year, KRONO plans to roll out new solutions related to artificial intelligence (AI) and Internet of Things (IoT) and expand deeper into their existing overseas market. (Source: TheEdge, 1Nov2019). The Malaysia Palm Oil Board is also engaging with KRONO to find out new ways to extract palm oil. KRONO may face huge challenges to manage, store and use the data as they need to do genomics science on the palm oil, which will involve many data. (Source: TheEdge, 17Sep2019).

 

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Good

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

My Insight

Based on my calculation on Discounted Earnings Model, Kronologi Asia Berhad has a fair value of RM1.336. The current market value of KRONO is RM0.78 which is undervalued. (Based on 7Nov2019). KRONO has a beta of 2.014 (500days) indicates that the company is more volatile than the current market, which indicates that investors/traders actively trading this stock and for short term trader, they may face higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), KRONO has an expected market return of 6.24%. KRONO has a Return of Equity (ROE) of 9.944%, which is slightly decreased from 10.976% from last year which means slightly unhealthy.

In conclusion, Kronologi Asia Berhad has achieved outstanding performance in FY2018 as the revenue, gross profit and net profit after tax increasing based on years-on-years (y-o-y) basis. KRONO’s prospect remains bright by looking at the growth of both EDM Infrastructure Technology (IT) & EDM Managed Services (MS) and new solutions related to artificial intelligence (AI) and Internet of Things (IoT). I believe the company can grow very well in the future. However, investors or traders must be cautious that the decreasing of ROE of the company, this indicates that the management ability on effectiveness in resources utilisation to generate return for each dollar invested in the company, decreasing.

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 | 8 November 2019

Case Study of Elsoft Research Berhad (0090)

Overview

Elsoft Research Berhad is an established technology company founded in 1996, which primarily involved in research, design, development and manufacturing of automated test equipment (ATE) and burn-in systems in Malaysia. The company’s name derived from two words, namely electronics and software which symbolises its core competency in electronic design and software innovation.

ELSOFT was listed in ACE Market on 2 August 2005 and successfully transformed into Main Market on 22 January 2015 in Bursa Malaysia. There is three primary markets that ELSOFT is targeting which is Automotive, Smart Devices and General Lighting Industries. Elsoft has four main subsidiaries known as Siangtronics Technology Sdn Bhd (STSB), Elsoft Systems Sdn Bhd (ESSB), Leso Corp Sdn Bhd (LESO) and Butterfly House Sdn Bhd (BHSB).

Business Model

As a leading provider of Lighting Emitting Diodes (LED) test and burn-in system, ELSOFT mainly provides cost-effective automated test equipment (ATE) solutions to the semiconductors, optoelectronics and automation industries. They have developed motion controllers, own standard industrial IO Boards, LED Tester, Automated LED Test Equipment, LED Burn-In System and Solar Cell Tester which will be used by its customers to test optoelectronics devices such as Lighting Emitting Diodes (LEDs), imaging sensor, automotive lighting and so on before the products have launched into the market.

Financial Review

Based on the past 5 financial years of revenue chart above, ELSOFT’s revenue grew year-on-year (y-o-y) from FY2014 (+79.01%), FY2015 (+10.19%), FY2016 (+27.89%), FY2017 (+1.16%) to FY2018 (+21.45%). On a CAGR basis, the revenue has grown 25.38% based on 5 years. The Research and Development (R&D) efforts made by ELSOFT in FY2017 was the key success factor to drive up the company’s revenue as the demand of R&D activities from smart device industry increases as well as most of the cars nowadays are switching to LED lights in FY2018.


Elsoft Research Berhad has successfully achieved a tremendous high record of gross profit by 30.45% from RM35.2 million in FY2017 to RM46 million in FY2018. Based on the past 5 years of CAGR basis, the gross profit has grown 30.93%. The growth of gross profit was driven by higher demand for latest technology of Automated Test Equipment (ATE) such as infrared, laser devices, automotive headlamp and next generation of LED flash in FY2018.


The Profit After Tax (PAT) was grown from RM29.8 million in FY2017 to RM39.8 million equivalents to 33.29% in FY2018. On CAGR basis, the Profit After Tax (PAT) grew by 29.73% was in line with the growth of revenue and gross profit of the company which is also mainly attributable to R&D activities from smart devices industry.

Based on past 5 financial years of dividend chart above, the dividend paid by ELSOFT has increased years on years from RM7.2 million in FY2014 to RM30.4 million in FY2018. The company has declared 4 tax-exempted interim dividends in respect of FY2018 amounting to RM0.0459 per ordinary share based on the enlarged share capital after the issuance of new ordinary share under bonus issue and share split of which representing a dividend payout ratio of 77%. (Source: Annual Report 2018)

ELSOFT has a dividend payout policy of 40% of its net profit, but it has been consistently distributing more than 70% of its profit to their shareholders since FY2016 which is consistent with the growth momentum.

Cash Flow Statement

The net cash from operating activities has increased by 66.7% from RM28.8 million in FY2017 to RM48 million in FY2018. The increased operating cash flow was mainly due to the company was able to receive due to date’s receivables from its clients with an amount of RM10,018,118. The company also have paid back the payables, and contract liabilities amounted to RM994,271 and RM1,154,202.

The net cash used in investing activities have obtained a negative cash flow in FY2018 (-RM21,756,232) was mainly due to the purchase of Property, Plant and Equipment (PPE) and other investments for business expansion amounting to RM670,383 and RM76,284,926. The negative cash flow from investing activities indicates that the firm is investing more in the business.

The net cash used in financing activities have increased from RM21,593,680 in FY2017 to RM28,669,576 in FY2018 was mainly attributable to the purchase of treasury share and dividend payment amounting to RM297,828 and RM30,398,748.

Does the company able to pay back its liabilities? Based on my computation of liquidity ratio, ELSOFT has a lower current ratio of 5.787 times in FY2018 compared to 7.198 times in FY2017. Even though the current ratio has slightly decreased, the company still capable of paying back its liabilities by using current assets such as inventories, current tax assets, other investment, trade & other receivables, cash and bank balances with a total amount of RM92,467,209.

Future Challenges

A 100% owned subsidiary of ELSOFT, known as System Sdn Bhd (ESSB) has successfully obtained the Certification of Standard ISO 9001:2015 Quality Management System valid from 16 August 2018 to 15 August 2021. The achievement of ISO 9001:2015 certification demonstrates that ELSOFT is committed to achieving outstanding performance and providing superior quality products and services which can meet their customer’s expectation. (Source: Annual Report 2018)

According to the publication released by Semiconductor Trade Statistic, the demand for a semiconductor was up 13.7% in FY2018 to US$468.8 billion and expected to be slow down by 13.3% in FY2019 and to be picked up again in FY2020. ELSOFT has experienced weaker demand for ATE in smart devices, automotive and general lighting industries for the beginning of FY2019.

The Research and Development (R&D) activities play an important role in FY2019 for both smart devices and automated industries. The ongoing R&D activities such as ATE for infrared & laser device testing, next-generation for ATE smart device industry / automotive industry will focus more on improvement of existing products and development of new products for new application for customers.

Despite global economic uncertainties, ELSOFT is confident and prepared to take up new opportunities to broaden its customer base and product range due to their solid fundamental and healthy financial stand.

Rating System


Return on Equity (ROE) = Good
Revenue [5 years CAGR] = Good
Net Earnings [5 years CAGR] = Good
Basic Earnings per Share (EPS) [5 years CAGR] = Good

My Insight

Based on my calculation on Discounted Earnings Model, Elsoft Research Berhad has a fair value of RM2.047. The current market value of ELSOFT is RM1.02 which is undervalued. (Based on 23Oct2019). ELSOFT has a beta of 1.003 (500days) indicates that the company is slightly volatile than the current market. Based on my computation of Compound Annual Growth Rate (CAGR), ELSOFT has an expected market return of 6%. ELSOFT has a very strong fundamental as it achieved a very high Return on Equity (ROE) of 35.213% in FY2018 compared to 27.775% in FY2017 indicate that the company is healthy.

In conclusion, Elsoft Research Berhad has achieved outstanding performance in FY2018 as the revenue, gross profit and net profit after tax increasing years by years from FY2011 to FY2018. Given the strong financial position, the Group is firmly committed to continuing its investment in R&D activities to adapt the needs and demands of rapidly changing technology development. Despite global economic uncertainties, ELSOFT is well prepared for the challenges for the year and beyond. I believe the company able to grow very well in the future since the Internet of Things (IoT) and 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 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 action. You need to do your research to make your own investment decision wisely.

Written by Stella Goh | 30 October 2019.

Case Study of Revenue Group Berhad (0200)

Overview

Revenue Group Berhad is a company established in the Year of 2003, which primarily involved as an electronic integrated payment platforms provider in Malaysia. REVENUE provides best practice services and a wide range of robust options to help their client’s business adapt the latest technological framework with a low operational work, and the integrated technical experts provide supporting infrastructure for their needs especially in the field of IT and businesses.

REVENUE  listed in ACE Market of Bursa Malaysia since 18th July 2018. With over 15 years of experience in the electronic payment industry, REVENUE has been servicing different customers such as banks, non-bank institutions, physical store, merchants, online store merchants, and e-money payment scheme. For examples, Ambank, Affin Bank Real Rewards, Comex GeneSys, Visa, MasterCards, Malaysian Electronic Payment System (MEPS), VeriFone, Petronas, Touch n’ Go etc.

Business Model

REVENUE engaged in the business by providing complete and customizable payment solutions which cover all aspects of terminals, network infrastructure, management and applications to satisfy their customers. For examples, they have come out with the solutions such as EMW Smart Card Technology, Terminal Management System, Loyalty System, Consumer Behavioural Management System, Web-Based Payment System and Payment Transaction Management System.

REVENUE also offer a wide range of technology-led multi-channel payment solutions through the flagship platform called revPAY. The flagship revPAY will be used to connect the front-end and back-end solutions and used to facilitate the acceptance of payment transactions across various payment channels from physical Electronic Data Capture (EDC) terminals, E-commerce transactions and Quick Response (QR) Payment.

 

Financial Review



Based on the past 4 financial years of revenue chart above, the group’s revenue grew years-on-years (y-o-y) from FY2016 (+78.83%), FY2017 (+3.11%), FY2018 (+33.32%) and FY2019 (+67.86%). On a CAGR basis, REVENUE has grown 42.52% based on 4 years. The growth of revenue mainly attributed to 58.49% for Electronic Data Capture (EDC), 33.68% for electronic transaction processing segments and the rest attributed from the solutions and services business segment.

The Malaysia market remains the largest market contributing to the Group’s revenue accounting for approximately of 99.69% of total revenue in financial period to data.

Revenue Group Berhad has achieved a tremendous high record by approximately 41.05% from RM22.9 million in FY2018 to RM32.3 million in FY2019. On a CAGR basis, the gross profit has grown 38.31% based on 4 years. The gross profit of REVENUE increased was mainly due to the higher sales of Electronic Data Capture (EDC) terminals, increase in the rental of EDC terminals and processing income, as well as the contribution of 2 months revenue from the newly acquired subsidiary companies namely Anypay Sdn Bhd and Buymall Services Sdn Bhd.

The REVENUE’s overall Profit After Tax (PAT) increased marginally by RM2.2 million or 31.4% from RM7.0 million in FY2018 to RM9.2 million in FY2019. Based on a CAGR basis, the Profit After Tax (PAT) grew by 44.59% was in line with the growth of revenue and gross profit achieved by Revenue Group Berhad.

Cash Flow Statement

Based on the 4th Quarter Financial Result of cash flow statement, REVENUE has a decreased of net cash from operating activities from RM13.2 million in FY2018 to RM1.4 million in FY2019. The decreased of cash flow from operating activities indicate that the company unable to receive the due date’s receivables from customers on time, and they had paid back their creditors and amount due owed to the directors as well as to pay for the derivative’s financial liabilities.

The net cash from investing activities has a negative figure in FY2018 (-RM9 million) was mainly due to the purchase of Property, Plant and Equipment (PPE) for business expansion, and acquisition of other investment such as Anypay Sdn Bhd and Buymall Services Sdn Bhd which can help the firm grow for their business.

The net cash from financing activities have increased from RM2.6 million in FY2018 to RM18.1 million in FY2019 was mainly attributed to the proceeds from the issuance of shares amounted to 20.6 million. REVENUE had also paid for the share issuance expenses, finance lease payables, and term loans with a total amounting to RM3.5 million.

Does the company able to pay back its liabilities? Based on my computation of liquidity ratio, REVENUE has a current ratio of 1.930 times in FY2019 compared to 1.189 times in FY2018 indicate that the company do not have face any liquidity problem as they are capable of paying back its liabilities on due by using the current assets such as trade receivables, other receivables, tax recoverable, fixed deposit, cash and bank balances.

Future Challenges

REVENUE has collaborated with TNG Digital Sdn Bhd to launch the additional online shopping options for TNG e-Wallet users to shop in Alibaba-owned Taobao and Tmall marketplace by using the e-Wallet application via REVENUE’s revPAY platform. Taobao and Tmall are the world’s largest E-commerce marketplaces, with monthly active mobile users of 755 million in June 2019. The collaboration would further enhance the REVENUE’s bottom line going forward and drive up the electronic transaction processing segment as the e-Wallet has been using widely by Malaysian due to the attractiveness of cash rebates and the needs for day-to-day transactions. (Source: TheEdge, 2 Oct 2019).

REVENUE have acquired 51% of stake in Buymall Services Sdn Bhd and 70% of stake in Anypay Sdn Bhd. Buymall operates as an online marketplace which provides procurement services for consumer goods from oversea e-commerce websites as well as cross-border logistics and last-mile delivery for Malaysian. (TheEdge, 31 July 2019) For examples, Buymall will open a new segment for Revenue Group, with the target tourists from China who visit Malaysia. The Chinese tourists who come to Malaysia can buy duty-free and duty-paid items online and have them delivered to their hotels by using the Buymall’s services. (TheEdge, 15 Apr 2019)

While with the Anypay bill payment gateway, REVENUE wants to add other solutions to the EDC terminals. For examples, the terminal in 7-Eleven can accept the card and bill. Customers can find few top-ups in the Anypay application such as Maxis account, or even those overseas telcos and IDD cards via the EDC terminals. (TheEdge, 15 Apr 2019)

REVENUE also have announced that they will collaborate with Hong Leong Bank Bhd to offer payment acceptance and services to Singapore’s NETS cardholders to shop at retail outlets under GCH (Malaysia) Sdn Bhd and Guardian Health and Beauty Sdn Bhd in Malaysia. The exchange rate of NETS is cheaper than the rate offered by Visa and Mastercard; therefore REVENUE expects the transaction value processed can increase significantly, and they aim for the NETS payment acceptance to be available nationwide via its Digital Electronic Data Capture (EDC) or android terminals by the end of next year. (TheEdge, 18 July 2019)

My Insight

Based on my calculation on Discounted Earnings Model, Revenue Group Berhad has a fair value of RM2.847. The current market value of REVENUE is RM1.52 which is undervalued. (Based on 9Oct2019). REVENUE has a beta of 2.284 (500days) indicates that the company is more volatile than the current market. Based on my computation of Compound Annual Growth Rate (CAGR), REVENUE has an expected market return of 5.85%. Even though the Return on Equity (ROE) has decreased from 28.821% in FY2018 to 15.599% in FY2019, it still considered as healthy as the company can achieve a double-digit of ROE.

In conclusion, Revenue Group Berhad has achieved outstanding performance in FY2019 as the revenue, gross profit and net profit after tax has been increased years by years from FY2016 to Fy2019. REVENUE’s prospect remains bright by looking at the growth on the back of e-Wallet shop in Alibaba-owned Taobao and Tmall, e-payment adoption, acquisition of Buymall Services Sdn Bhd and Anypay Sdn bhd, as well as NETS payment acceptances and android terminals. I believe the company can grow very well in the future.

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. 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 action. You need to do your research to make your own investment decision wisely.

Written by Stella Goh | 21 October 2019

Case Study of Scientex Berhad (4731)

Overview

Scientex Berhad is an established company founded in 1968, which primarily involved as a leading global producer in the manufacturing packaging industrial products and acted like a premier property developer with integrated property projects spread over 3,265 acres of lands in Peninsular Malaysia.

SCIENTX were listed in Main Market of Bursa Malaysia on 8th February 1990. With 50 years of experience, SCIENTX has built an enviable reputation as one of the fastest-growing conglomerates with diversified business in Malaysia, Vietnam, and the United States of America.

 

Business Model

SCIENTX engaged in 4 categories of packaging products such as Industrial Packaging, Consumer Packaging, Automotive Packaging and Green Energy Products.

SCIENTX produces the stretch film, Flexible Intermediate Bulk Containers (FIBC) bags, form-fill & seal bags, woven bags and raffia products for Industrial Packaging. While for Consumer Packaging, SCIENTX manufacture plastic wrapping for bread, beverages, instant noodles, fresh products and feminine products. Polymer products such as Polyvinyl chloride (PVC) leather cloth and Thermoplastic Polyolefin (TPO) sheets for automotive sectors. Few of the clients include Perodua, Proton, Ford, Toyota, Honda, and so on. In FY2012 to FY2014, the company has installed three nanotechnology stretch film line which produces the world’s thinnest stretch film known as Nano6. Currently, the high-end Nano6 product is for customers in Japan and Europe.

In property development, SCIENTX focuses on affordable homes. Previous and current ongoing projects like Scientex Kulai, Scientex Klebang, Scientex Senai and Scientex Skudai.

 

Financial Review Based on the past 5 years of revenue chart above, y-o-y revenue growth from FY2014 (+29.41%), FY2015 (+13.28%), FY2016 (+22.16%), FY2017 (+9.19%) to FY2018 (+9.31%). On a CAGR calculation basis, revenue has grown 16.40%. The increase in revenue was mainly due to the higher sales volume achieved from the manufacturing divisions with higher utilisation in Malaysia plants as well as the expansion of production capacity through the newly established stretch film plants in Phoenix, Arizona, United States of America and integration of Klang Hock Plastic Industries Sdn Bhd in Malaysia.

The gross profit has been increasing from FY2014 (+18.24%), FY2015 (+22.89%), FY2016 (+32.80%), FY2017 (+3.37%) to RM518.3 million equivalents to (+5.09%) in FY2018. On a CAGR calculation basis, the gross profit has grown 15.95% based on 5 years. The generated growth was mainly due to the higher demand for product packaging.

The Profit After Tax (PAT) was grown from RM151.5 million in FY2014 to RM294 million equivalents to 13.12% in FY2018. On a CAGR calculation basis, the Profit After Tax (PAT) grew by 21.19% was in line with the growth of revenue and gross profit of the company.

Based on the past 5 financial years of dividend chart above, the dividend paid by SCIENTX increased years by years from RM47.1 million in FY2014 to RM97.8 million in FY2018. The board has declared a total dividend in respect of FY2018 amounting to 20 Sen per ordinary share or RM97.8 million which comprises of 33.7% net profits of FY2018. (Source: Annual Report 2018)

SCIENTX is committed to enhance shareholder value by delivering satisfactory results in the coming financial year and continue to maintain the dividend payout policy for at least 30% of its net profit to shareholders annually.

Cash Flow Statement

The net cash from operating activities has increased in FY2018 amounted to RM392.4 million from RM322.8 million in FY2017. The increased operating cash flow indicates that the company is healthy and have enough cash used for business expansion.

The net cash from investing activities has a negative figure in FY2018 (-RM702.8 million) was mainly due to the purchase of land held for development, acquisition of a subsidiary, net of cash and cash equivalents acquired, and purchase of property, plant and equipment. The negative cash flow from investing activities indicates that the firm is investing more on their business to grow and believe that it may generate a positive return on additional investment.

The net cash from financing activities has increased tremendously to RM290.8 million in FY2018 from RM21.8 million compared to the previous year. The increase in figures was mainly due to proceeds from short-term borrowings and term loans, which the company use the cash to boost land acquisition for development, fund merger acquisition, pay a dividend and other activities.

Does the company able to pay back its liabilities? Based on my computation of liquidity ratio, SCIENTX has a current ratio of 1.063 times in FY2018 compared to 1.282 times. Even though there is a slight decrease in this ratio, the company is still capable of paying back its liabilities by using current assets such as inventories, trade receivables, cash and cash equivalents.

 

Future Prospect & Challenges

Scientex Berhad has been participated in the expansion on its landbanks for property development aggressively.

The subsidiary of SCIENTX, Scientex (Skudai) Sdn Bhd has acquired a land bank of 3,611 acres after the completion of the latest purchase of six parcels of land in Penang measuring of 179.9 acres for RM109.59 million. The acquisition will be funded by internally generated funds, bank borrowings and issuance of Sukuk Murabahah. The land purchase is expected to be completed in the first half of FY2020. SCIENTX also has entered into a sale and purchase agreement for six parcels of freehold land in North Seberang Perai via its wholly subsidiary known as Scientex (Skudai) Sdn Bhd. (Source: TheStar, 15Jun2019)

A land in Gombak also has been acquired by SCIENTX with a total of RM123.28 million to boost property development landbank, with a focus on building affordable homes. Another wholly-owned subsidiary, Scientex Park (M) Sdn Bhd has made a proposed acquisition for five parcels of land in Selangor, three parcels measuring of 150.17 acres in Rawang for RM111.21 million and two parcels in Kundang measuring RM16.3 acres for RM12.07 million. (Source: TheEdge, 13 May 2019)

Another wholly-owned subsidiaries known as Scientex Quatari Sdn Bhd paid in full for the proposed acquisition of two parcels of freehold agriculture land in Durian Tunggal, Melaka measuring 208.9 acres for RM68.25 million has been made on 15 Aug 2018. All lands acquired will be developed into mixed-property development. (Source: TheStar, 15Jun2019)

Based on The Edge March 2019, SCIENTX will reinforce their position in the global flexible packaging market and Malaysia’s affordable homes segments which are guided by their vision to achieve one million metric tonnes in manufacturing capacity and build 50,000 affordable homes by FY2028.

SCIENTX has takeover Daibochi Bhd by acquiring 42.41% stake in Daibochi for RM221.1 million of RM1.59 per share. The merger acquisition can consider as good news for both companies because they have the biggest international profile among packaging players, and they deal with industrial customers and players who are manufacturers. The takeover offer is aimed for expanding SCIENTX’s reach in the global flexible plastic packaging market, while combined expertise of both companies would also benefit Daibochi Bhd to improve on operating efficiency. (The Malaysian Reserve, 12Feb2019)

My Insight

Based on my calculation on Discounted Earnings Model, Scientex Berhad has a fair value of RM13.427. The current market value of SCIENTX is RM8.63 which is undervalued. (Based on 25 Sep 2019). SCIENTX has a beta of 0.382 (500days) indicates that the company is less volatile than the current market. Based on my computation of Compound Annual Growth Rate (CAGR), SCIENTX has an expected market return of 6.11%. SCIENTX has also achieved a double-digit of Return on Equity (ROE) which is 16.433% in FY2018 considered as healthy even though the ROE has a slightly decreased from 16.664% in FY2017.

In conclusion, SCIENTX has solid growth as the revenue, gross profit and profit after tax are increased years by years. The company has a bright prospect in the future by looking at the expansion of its business in property development to acquire landbanks with the focus on building affordable homes. The merger acquisition on Daibochi Bhd will significantly boost operating efficiency and to capture new growth opportunities. I believe the company can grow very well in the future.

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 | 10 October 2019.

Case Study of Pentamaster Corporation Berhad (7160)

Overview

Pentamaster Corporation Berhad is an investment holdings and provision of the management services company founded in the Year 1991 in Penang, which primarily involved as an automation manufacturing and technology solution provider. PENTA provides a flexible and high quality of services, cost-effective solutions, delivery system and automation system to satisfy their customers.

PENTA listed in the Main Market of Bursa Malaysia on 11th October 2004. With more than 25 years of experiences and proficient skills, they served customers from various part of globe such as United States, Europe, Africa, Asia Pacific & ASEAN countries.

 

Business Model

PENTA engaged in the integrated and customised solutions ranging from semiconductors, computer, automotive, electric & electronics, pharmaceutical, medical devices, food & consumer goods to general manufacturing. For examples, i-ARMS incorporates intelligent conveyor system such as RFID (radio frequency identification), MEMS (manufacturing execution system) solution, robotic system, high-speed sorters and vision system. The core competencies of PENTA include mechanical engineering design, software programming technology, control engineering & technology, imaging vision technology, electronics & instrumentation design.

Financial Review


Based on the past 5 financial years of revenue chart above, PENTA’s revenue grew y-o-y from FY2014 (+20.35%), FY2015 (+3.15%), FY2016 (+81.74%), FY2017 (+87.04%) and FY2018 (+48.56%). On a CAGR basis, revenue has grown 44.36%. The growth in revenue is driven by the improvement of contributions from both automated equipment (AE) and automated manufacturing solution (AMS) business segments, which constituted approximately 80.0% and 18.8% of the total Group’s external revenue respectively. Automated equipment (AE) remains the Group’s major revenue due to strong demand for smart sensor test equipment and solutions from the telecommunication segment. For examples, the increasing prevalence of smart sensors adopted in the latest smartphone upgrade, as well as smartphone peripherals include wearable items such as wireless headphone products and watch. While for automated manufacturing solutions (AMS), the increases of group’s revenue was mainly due to the higher demand for integrated manufacturing solutions from customers in both telecommunication and automotive segment.

The gross profit of PENTA grew with a high record by approximately 70.97% from RM80.6 million in FY2017 to RM137.8 million in FY2018. Especially in the Year 2018, the gross profit of PENTA increased was due to the continuation of strong sale orders achievement throughout FY2018 with four consecutive quarter-on-quarter growth especially from its flagship test solutions in ambient and proximity sensors, 3D sensors test equipment and solutions.

The Profit After Tax (PAT) was grown from RM6 million in FY2014 to RM94 million equivalents to 139.80% in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 101.19% was in line with the growth of revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has increased in FY2018 amounted to RM74.9 million from RM34.1 million in FY2017. The increased cash flow from operating activities indicates that the company is healthy and have more money for necessary options such as business expansion, share buyback, pay dividends, reduce debts and save on interest.

The net cash from investing activities has a negative figure in FY2018 (- RM18.6 million) was mainly due to the purchase of intangible assets, investment property, plant and equipment. When the company has reported negative cash flow from investing, indicate that the firm is in the growth mode, and believe it can generate a positive return on additional investment.

The net cash from financing activities has increased from RM3.8 million in FY2017 to RM179.6 million in FY2018 due to the proceeds from the disposal of shares and proceeds of the issuance of shares to non-controlling interests of a subsidiary. An increase in this number indicates that the cash has come into the company and will help to boost assets levels and to fund its operation.

Based on my computation of liquidity ratio, PENTA has a current ratio of 3.2778 times in FY2018 compared to 2.0185 times in FY2017, indicate that the company do not face any liquidity issues, and capable of paying back its liabilities by using current assets such as inventories, trade receivables, derivative financial assets, other receivables, deposits, prepayments, cash and cash equivalents.

Future Prospect & Challenges

Pentamaster has achieved an outstanding order book amounted to RM239 million, based on the purchased orders secured from customers at the end of June 2019. There are 90% made up by the automated test equipment (ATE), and the remaining of 10% was made up by the factory automation solution (FAS). (Source: TheEdge 19 Aug 2019)

Based on the Annual Report FY2018, the new proprietary products for wafer testing developed by PENTA are VCSEL (Vertical Cavity Surface Emitting Laser) / LiDAR (Light Detection and Ranging) probing test machine known as TROOPER and burn-in test machine known as ZETA. With these technologies’ advancements, the groups expect better earnings delivery in 2nd half of 2019 driven by VCSEL wafer level testing and burn-in machine, higher utilisation of Batu Kawan Plant and positive momentum in 3D-sensing adoption such as Structured Light (SL) and Time of Flight (TOF) applications among Android-based smartphones players. (Source: TheEdge 19 Aug 2019)

PENTA also is making progress in catering the medical segment with several projects involving its i-ARMS (intelligent automated robotic manufacturing system) being developed for precision manufacturing automation in the medical field for its clients. During FY2018, PENTA has completed the new production plant in Batu Kawan, Penang, which has helped to increase the production floor space by approximately 90,000 sq.ft. This new plant was custom-built and equipped with a clean room with an ISO Class 9 environment categorisation, to cater for the Group’s AMS segment which targets potential customers in the medical field. (Source: Annual Report FY2018)

My Insight

Based on my calculation, Pentamaster Corporation Berhad has a fair value of RM6.945. The current market share price of PENTA is RM3.85 which is undervalued based on the intrinsic valuation. (Based on 12 September 2019). PENTA has a beta of 1.757 (500days) indicates that the company is more volatile than the market. Based on my computation of Compound Annual Growth Rate (CAGR), PENTA has an expected market return of 6.19%. PENTA has a very strong fundamental and it can achieve an ROE with double-digit even though the Return on Equity (ROE) has decreased from 24.981 times in FY2016 to 16.033 times in FY2018, it still can be considered as a good company.

In conclusion, PENTA has achieved a fantastic performance in FY2018 compared to the other financial years due to the increase tremendously higher for revenue, gross profit and profit after tax. By looking at the growth of automated test equipment (ATE) and automated manufacturing solution (AMS), the prospects of the company remain bright, as it considers as the Internet of Things (IoT) and Industry 4.0 will need a lot of high-end equipment to test and automate. I believe the company can grow very well in the future.

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. 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 action. You need to do your research to make your own investment decision wisely.

Written by Stella Goh | 17 September 2019.

Case Study of Serba Dinamik Holdings Berhad (5279)

Overview

Serba Dinamik Holdings Berhad (Stock code: 5279, SERBADK) is an investment holdings and provision of management services company founded in the Year 1993, which primarily involved as Global Integrated Engineering Services’ total solutions provider to broad industries such as Oil & Gas, Power, Water, Petrochemical and Steel.

SERBADK is listed in the main market on 8 February 2017 and currently has few operational offices not only located in Malaysia but also in Indonesia, United Arab Emirates (UAE), Qatar, Bahrain and United Kingdom (UK). Their global reach can be through their associates’ span in Singapore, Australia, New Zealand, USA, Mexico, Switzerland, Italy and Netherland.

Business Model

SERBADK provides engineering services & solutions ranging from Operation & Maintenance Services, Engineering, Procurement, Construction & Commissioning (EPCC), System Integration, IT Solutions, Education & Training and Global Trading. The engineering services & solutions such as Oil & Gas (O&G) production platform, Crude O&G refineries, petrochemical manufacturing plants, Liquefied Natural Gas (LNG) & Compressed Natural Gas (CNG) plants, Power Production Plants, Water & Utility Plants, Chemical Plants and Biogas & Biomass Plant.

Financial Review

Based on the past 5 financial years of revenue chart above, SERBADK has achieved y-o-y growth from FY2014(+40.95%), FY2015 (+85.63%), FY2016 (+54.56%), FY2017 (+25.55%) and 2018 (+20.6%). On the CAGR basis, the revenue has grown 44.37%. The growth is mainly attributable to increase of successful tender of projects both locally and overseas, an increase in Operation & Maintenance activity in the Middle East as well as the revenue recognition from the Engineering, Procurement, Construction & Commissioning (EPCC) contracts secured through their asset ownership model.
SERBADK has increased its gross profit from FY2014 (+21.89%), FY2015 (+108.84%), FY2016 (+60.77%), FY2017 (+29.49%) to RM582.32 million equivalents to (+20.33%) in FY2018. On a CAGR basis, the gross profit has grown 51.24% based on 5 years. On Annual Report FY2018, operations and maintenance segment were the main profit contributor making up of 90.04% of gross profit for the year while EPCC segment and other supporting services segment provided of 9.60% and 0.36% of gross profit for the year respectively.

The Profit Before Tax (PBT) grew from RM67.68 million in FY2014 to RM437.63 million equivalents to 26.46% in FY2018. Similarity, the Profit After Tax (PAT) also grown from RM67.37 million in FY2014 to RM392.84 million equivalents to 28.89% in FY2018. The Profit Before Tax (PBT) and Profit After Tax (PAT) both grew by 59.46% and 55.39% on a CAGR basis respectively. Based on Annual Report FY2018, the growth is mainly attributable to the revenue of CAGR of 44.37% in FY2018 together with the improvement in efficiency and reducing of overheads.


Financing & Liquidity

Based on the chart shown above, the finance costs increasing from FY2014 until FY2016 with a slight decrease in FY2017 but increase tremendously higher (+15.65%) in FY2018 compared to the previous year. Based on my computation of liquidity ratio, indicates that SERBADK has a current ratio of 2.568 times in FY2018 compared to 1.633 times in FY2017. An increasing of current ratio in FY2018 from FY2017 indicates that SERBADK do not face any liquidity problems and capable to pay off their obligations when comes due in FY2018 by using the current assets such as inventories, contract assets, trade & other receivables, deposits & prepayments, current tax assets, cash & cash equivalents and other investment.

Cash Flow Statement

The net cash from operating activities had a slight decrease in FY2018 amounted to RM83.24 million from RM85.34 million in FY2017. The company is still healthy, with this amount of cash generated.

The net cash from investing is increased from RM354.11 million in FY2017 to RM858.63 million in FY2018 due to increase of acquisition of property, plant and equipment, acquisition of shares in associates, decrease terms of deposit pledged to bank, and dividend received from a quoted associate.

The net cash from financing activities is increased from RM378.22 million in FY2017 to RM1.24 billion in FY2018, according to the Annual Report FY2018. The increased financing activities is due to the issuance of Sukuk which used to provide working capital as well as to refinance the existing borrowings to drive down the financing cost and cost of capital. SERBADK also has issues RM300 million of Islamic Medium-Term Notes (IMTNs) with a tenure of 5 years priced at 4.95%, RM500 million of IMTNs with tenure of 10 years priced at 5.30% as well as RM10 millions of Islamic Commercial Papers that are short-term tenure.

The cash and cash equivalents of SERBADK has increased from RM265.41 million in FY2017 to RM695.90 million in FY2018 indicates that company have more cash during the year.

Future Prospect & Challenges

Serba Dinamik has achieved an outstanding order book amounted to RM9.4 billion, putting it on track to meet its target of RM10 billion this year. While for the tender books, SERBADK has achieved RM15 billion, with a 30$ to 40% of success rate. (Sources: TheEdge 28Aug2019)

SERBADK has successfully secured an engineering, procurement, construction, and commissioning (EPCC) contract in Uzbekistan worth an estimated of US$250.3 million equivalent to RM1.05 billion. The EPCC jobs such as 90-tonne per day chlorine processing plant in Hazarasp Free Economic area in Khorezm region, as well as 26MW/h steam turbine independent power plant to be completed in 2 years later. Starting from 8 August 2019 until 7 August 2021. (Sources: TheEdge 14Aug2019)

Besides, SERBADK also has secured two operations and maintenance contracts from Petronas Carigali Sdn Bhd in March 2019. The first contract is the provision of maintenance services for weir gas compressor is effective from 10 June 2019 until 9 June 2020. The second contract is the provision of maintenance for capstone micro-turbine generator effective from 18 June 2019 until 17 June 2022. (Sources: TheEdge 14Aug2019)

According to Annual Report FY2018, SERBADK also expanding the hydropower projects and investment by adding 20MW EPCC projects in LAOS in addition to their existing 30MW hydropower plant in Kota Marudu, Sabah. The water and utility front with their existing water treatment plants EPCC projects will also expand in Terengganu and their Chlor-Alkali plant in Tanzania. Furthermore, SERBADK also exploring and investing in prospects of industry 4.0 opportunities. For examples, SERBADK partnered with Microsoft to develop Augmented Reality / Virtual Reality solutions for industrial applications as well as acquired 30% of stake in eNoah iSolution India Group to enhance their IT capabilities.

My Insight

Based on my calculation, Serba Dinamik Holdings Berhad has a fair value of RM14.516. The current market value of SERBADK is RM4.36 which is undervalued. (Based on 4 September 2019) SERBADK have a beta of 0.879 (500days) indicates that the company is less volatile than the market. Based on my computation of Compound Annual Growth Rate (CAGR), SERBADK has an expected market return of 6.18%.

In my opinion, SERBADK has a bright prospect in the future due to its actively engaging and participating in various bidding large projects. Even though the Return on Equity has a slightly decreasing from FY2017 to FY2018, it still able to achieve an ROE with double-digit which is 18.747 times. I believe the company can achieve outstanding performance and secure more contracts in the future.

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 | 5th September 2019.

Case Study of Econpile Holdings Berhad (5253)

Overview

Econpile Holdings Berhad is an investment holdings company established by the Group of Managing Director, Mr The Cheng Eng, which principally involved as a leading specialists’ provider for piling and foundation services in Malaysia. There are two wholly subsidiaries of companies under ECONBHD such as Econpile (M) Sdn Bhd and Tropical Broadway Sdn Bhd. Econpile (M) Sdn Bhd engaged in the business of piling and foundation services for property development while for Tropical Broadway Sdn Bhd engaged in the business of rental for investment property and machinery. ECONBHD also holds a Grade 7 License from the Construction Industry Development Board of Malaysia, which allows the Group to tender projects of unlimited values in the categories of building and infrastructure works.

Business Model

ECONBHD provides piling and foundation services such as earth retaining systems, earthworks, substructure and basement construction works, which are mainly for high-rise property development and infrastructure nationwide such as in Klang Valley, Penang, Johor, Pahang, Sabah and Sarawak. The notable projects completed since inception such as bored piling for Klang Valley Mass Rapid Transit, Pavilion Shopping Centre, as well as a deep basement for Elite Pavilion, W Hotel and The Residences. The company also involved in the construction of bridges, elevated highways, electrified-double tracking projects and power plants. ECONBHD also generates some recurring revenue from construction contracts and rental income such as investment holding rental of investment properties and machinery, trading of machinery and some related accessories at a full-fledged workshop located in Rawang.

Financial Review

Based on the past 5 financial years as above, the net profit for the year is increasing years by years start from FY2014 (+11.32%), FY2015 (+50.27%), FY2016 (+44.91%), FY2017 (+19.58%) until FY2018 (7.84%), marking its best-ever full-year net profit.

According to the Annual Report FY2018, it stated that the revenue derived from piling and foundation works for property developments contributed of RM548.5 million equivalent to 75.3% of the year 2018 group revenue (shown above), with a growth of 4.7% from RM523.3 million previously. While for the infrastructure and other projects, it increased more than three times from RM49.6 million, contributed to the remaining of RM179.9 million or 24.7%.

Gross profit increased 1.4% from RM130.1 million in FY2017 to RM131.9 million in FY2018 due to the larger proportion of infrastructure works. The gross profit margin lower from 22.4% in FY2017 to 18.1% in FY2018 mainly due to the hike of steel price.

ECONBHD also incurred with higher operating expenses of RM26.7 million in FY2018 from RM24.9 million in FY2017 due to higher expenditure managing the larger base of ongoing projects. It resulted in the finance costs of the company also increased by 41% from RM1.7 million in FY2017 to RM2.4 million in FY2018.

Based on the chart shown above, Since the finance cost is increasing from 2015 until 2018, is the company able to pay back its liabilities? Based on my computation of liquidity ratio, indicate that ECONBHD has a current ratio of 2.086 times in FY2018 compared to 2.177 times in FY2017. Although there is a slightly decreasing in this ratio, the company still do not face any liquidity problems and are capable of paying off the obligations when comes to due in FY2018 by using the current assets such as trade and other receivables, prepayments, other assets, cash and cash equivalents.

Cash Flow Statement

Net Cash from Operating activities in FY2018 amounted to RM11.3 million, which is lower than the FY2017 figure of RM52.8 million. But it still considers healthy with this amount of cash generated.

The Net cash from investing is decreased in FY2018, which is RM4.4 million, while RM 32.2 million in FY2017 due to lower capital expenditure.

Net cash from financing activities in FY2018 is in a negative figure which is (- RM19.2 million), while in FY2017 is (- RM22.452 million). It was due to 2 factor, lower dividend payout in 2018 camper to 2017 and debt reducing by paying back partial loan.

Total cash and cash equivalents of ECONBHD has decreased to RM24.2 million in FY2018 compared to RM36.4 million in FY2017 to fund the working capital requirements of a larger project portfolio.

Future Prospect & Challenges

According to Annual Report FY2018, management has stated that ECONBHD has an outstanding order book of RM1.1 billion and it successfully secured over of RM450 million in new projects, which comprising a healthy mix of new property development and infrastructure projects.

The biggest project is known as Pavillion Damansara Heights, which sits between two Mass Rapid Transit stations. In FY2018, they have carried out the basement works in Phase One as well as moving into initial stages of Phase Two. However, ECONBHD also successfully tendered for and won its first Light Rail Transit (LRT) contract amounting to RM208.7 million to undertake the bored piling and general infrastructure works for Packages GS04 of the 37 kilometres of LRT3 Line. Besides, ECONBHD also secured RM119.1 million contracts to perform the bored piling, projects, pile caps substructure and basement work for the redevelopment of TNB quarters. Last but not least, some investment banks stated that ECONBHD could be a potential beneficiary for the revival of East Coast Rail Link (ECRL) project. As a specialist’s contractors, ECONBHD may responsible for piling for this project. (Sources: TheSunDaily 15Apr2019)

How can ECONBHD maintain its strong record spanning for three decades? With experience technical expertise it helps the company to secure more jobs and capture for future growth. The strategies that they implement is to submit tender for property-related projects and optimise the fleet and workforce capability.

In line with the new government, it brings an adverse impact on the infrastructure sector in Malaysia. ECONBHD continues to tender for mixed development projects in Klang Valley to secure more property related jobs going forwards as their core expertise of piling works and substructure works in an urban environment. Besides, ECONBHD also enhances its operational efficiency by enhancing the skillsets of their workforce through extensive training to improve their business process with stringent planning and careful execution.

My Insight

Based on my calculation, Econpile Holdings Berhad has a fair value of RM1.446. The current market value of ECONBHD is RM0.785 (Based on 23 August 2019 is undervalued. While for dividend, ECONBHD has declared a first single-tier interim dividend with a total of 1.6 Sen in respect of FY2018. Based on the AR 2018, the dividend payout of RM21.4 million constitute of 24.6% of net profit in FY2018 thus complying with a minimum of 20% dividend policy. ECONBHD also have a beta of 1.783 (500days) indicates that the company has slightly volatile than the market. Based on my computation of CAGR calculation, ECONBHD has an expected market return of 6.24%.

In my opinion, the prospect of this company is very exciting because ECONBHD successfully secured a few projects and this company have a very strong fundamental. Even though the Return on Equity has a slightly decreasing from FY2016 to FY2018, it still able to achieve an ROE with double-digit which is 23.563 times. I believe that the company can achieve a fantastic performance in the future.

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. 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 you. You need to do your research to make your own investment decision wisely.

Written by Stella Goh | 26 August 2019

Case Study of Perak Transit Berhad (0186)

Overview

Perak Transit Berhad is an investment holding company, which principally involved in the operations of an integrated terminal complex and provides public transportation services in Malaysia. It has an integrated public transportation terminal (IPTT) in Ipoh, Perak which is also known as Terminal Meru Raya (New Name), before that it is known as Terminal Aman Jaya.

On 5 September 2008, Perak Transit Berhad was incorporated as a private limited company in Malaysia. While on 6 October 2016, it has been listed in ACE Market and successfully transform into Main Market listed in Bursa Malaysia on 19 December 2018.

Business Model

Perak Transit Berhad has a robust recurring income-driven from Terminal Meru Raya (Aman Jaya) in Ipoh, Perak. Besides provide management services for bus operations, they also diversify their business into different sectors such as rental space for advertisement, seminar room, office, shop, booth, kiosks, bus services and petrol station operation. Their primary revenue of this company comes from Bus Services and Petrol Station Operation. Under the government’s development of blueprint, the operation of bus terminal by Perak Transit became a monopolised business model in Perak.  All the buses, as well as taxi, are charged entrance fees and other fees (included with tax) for the usage of basement car park and lavatory. Besides, all buses will refill the petrol at the designated petrol station owned by Perak Transit Berhad before they set off to a specific location.

Based on the past five financial years as above, the profit for the year is increasing years on years start from FYE2014 (+86.92%), FYE2015 (+42.32%), FYE2016 (+13.22%), FYE2017 (+33.56%) until FYE2018 (+24.18%). According to Warren Buffet, he said that he only would consider for the company which have listed for about ten years or above. For PTRANS, it listed on FYE2016 until FYE2018 which is three years. It does not meet the requirement for Warren Buffet. However, the revenue, EBITDA, total assets of the company also keep on increasing years by years.

The most important thing that an investor will concern is since the borrowings for the company are increasing due to the business expansion, is the company able to pay back his liabilities? Based on my computation of liquidity ratio, we indicate that PTRANS have a slightly decreases in the current ratio in FY2018, which is 1.1910 times compared to FY2017, which is 1.5071 times. However, PTRANS still do not face any liquidity problem and it even capable of paying off the obligations when it comes to due in FY2018 by using the current assets such as inventories, trade and other receivables, other assets, cash and bank balances.

 

Cash Flow Statement

Based on the cash flow statement of PTRANS, the Net Cash from Operating activities in FY2018, which is RM27,211,160 is lower than FY2017, which is RM40,719,562. Is this a bad sign for the company? If we look more closely, you will realise PTRANS paid out a massive amount of the trade and other receivables and buy more other assets in FY2018 which cost him RM16,692,674 and RM4,799,623. While in FY2017 trade and other receivables only cost him RM506,605 and RM4,799,623 in other assets which are lower than FY2018. Therefore, it results in the net cash from operating activities decreased in FY2018 when compared to FY2017.

Based on the cash flow from investing activities, the Net cash from investing activities is increasing in FY2018, which is RM80,875,258 from RM74,538,392 in FY2017. It was due to purchase more new property, plant and equipment in FY2018, which cost him RM81,353,339, which is higher than FY2017 with the amount of RM71,245,621. Therefore, it results in the net cash from investing activities was higher in FY2018.

While based on the cash flow from financing activities, the net cash flow from financing activities in FY2018, which is RM50,294,965 is higher compared to FY2017, which is RM25,028,092. An increase in this number indicates that the cash has come into the company will help to boost the asset levels.

Future Prospect & Challenges

Perak Transit (PTRANS) has built a new bus terminal in Kampar. I believe that the Kampar Terminal will be served well as a transportation hub in the university town with UTAR, TARC and Westlake International School amidst a growing population. However, based on The Edge newspaper, the full certification of completion and compliance (CCC) has yet to be received as inspection are still ongoing, while the management is also addressing some issues of the routing of electricity to supply in Terminal Kampar, it shall be resolved in the 4th Quarter of FY2019. They expect that the terminal can be fully operation start in 1st Quarter of FY2020, which is after 2 to 3 months of renovations work for new tenants.

According to the Managing Director Dato’ Sri Cheong Kong Fitt, has stated that the bus terminal is the core business for the company which intends to expand more for future earnings growth. PTRANS had received a Letter of Intent from SPAD on the appointment as network operator for the SBST Programme for a period of 8 years. Following by the Terminal Kampar’s operational commencement, the management will subsequently look to take the new project next year to replicate experience and expertise from operating terminals Aman Jaya and Kampar to develop the new bus terminals in Bidor and Tronoh which would individually cost between RM150 million and RM200 million with two years construction period. Besides, Bidor and Tronoh, Perak Transit also has been acquiring land in Kinta but also exploring opportunities for construction and management of Terminal in Termerloh, Pahang, Kemaman, and Terengganu.

My Insight

Based on my calculation, Perak Transit Berhad has a fair value of RM0.947. The current market value of Perak Transit Berhad is RM0.19 (Based on 15 August 2019). However, for the Discounted Earnings Model, it shows that Perak Transit currently is undervalued. PTRANS is committed to maintaining its dividend payout around 35%, which is above the official policy of 25% or more. As a side note, the management has guided that the dividend payout would now occur twice a year (from three times a year previously). (Sources: The Edge). PTRANS also has a beta (500days) of 0.863 indicates that the company is less volatile than the market. Based on my computation of Compound Annual Growth Rate (CAGR), PTRANS have an expected market return of 6.18%.

In my humble opinion, although the company share capital is vast and the debt is high, we can see that the prospects of this company are very bright. I believe that the company can sustain the business with stable income with stable recurring income.

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 you.

Written by Stella Goh | 19 August 2019.

Site last updated November 27, 2019 @ 7:05 am