Company Spotlight on Hup Seng Industries Berhad (5024)

By Stella Goh – As published in Inve$t Malaysia 8 May 2020 issue

Overview 

Hup Seng Industries Berhad (HUPSENG) was founded in 1991 and is based in Kuala Lumpur. The company is one of the leading and established biscuits manufacturers in Malaysia. 

HUPSENG was listed in Main Market of Bursa Malaysia on 2 November 2000. With a strong line of established brands, “Hup Seng Cream Crackers” is well known for its excellent taste and quality which serves all consumer groups. The products have been awarded the Gold Medal consecutively for years 1994 to 2003 and Grand Gold Medal for years 2004 to 2019 awarded by Monde Selection, Belgium. It also garnered the “International High-Quality Trophy” award in 2017 and won the “25 Years Trophy” in 2018 by Monde Selection, Belgium.

In West Malaysia HUPSENG has 6 sales networks namely the Klang Valley, Kota Bahru, Kuantan, Ipoh, Butterworth and Alor Setar. There are another 7 distributors in East Malaysia located in Kota Kinabalu, Tawau, Sandakan, Kuching, Bintulu, Miri and Sibu. 

Business Model 

HUPSENG’s three main business segments are biscuit manufacturing, beverage manufacturing and a trading division. 

The biscuits range of key iconic brands include a diversified brand portfolio spanning from savory to sweet biscuits and are marketed as “Cap Ping Pong” and “Hup Seng Cream Crackers”. The “Kerk” and “Naturell” brand products are catered to upmarket consumers who prefer high-quality premium products and health conscious consumer groups. 

The beverage segment consists of wholesale coffee mix and various kinds of food stuff. HUPSENG’s beverage range marketed under the “In-Comix” brand has three main categories namely “3 in 1 Instant Coffee Mix”, “Instant Teas”, Nutritious Instant Cereal” among others.

HUPSENG’s trading division engages in the business of sales and distribution of biscuits, confectionery and foodstuff. The company offers Special Cream Crackers, Marie Biscuits, Coffee Marie Biscuits, Coconut Cookies, Butter Cookies, Peanut Butter Sandwich, Lingo Assorted Biscuits, Fancy Assorted Biscuits and many more. The company is also the distributor for other agent’s products such as “Wang Wang” rice crackers etc.


Financial Review 

HUPSENG has paid out a favourable dividend of 6sen per share each year for the past three years. The company has maintained an average dividend payout ratio of 111.73% over the past 3 financial years indicating that the company is paying out more dividend to shareholders than its earnings. And by paying out 100% of its annual net profit as dividends, it has exceeded its own dividend policy practice of paying out at least 60% of its net profit per year as dividends. (refer to Prospects & Challenges and Insight at the end of this article)

HUPSENG has achieved a consistent growth in its quality of earnings over the past 3 years (1.298 times) in FY2019 compared to 1.143 times in FY2018 indicating that the operating cash flow generated from the business is more than the net income suggesting that the business has strong cash flow and is financially sound. 

Based on the computation of liquidity ratio, HUPSENG has achieved a current ratio of 1.960 times in FY2019 over the past 3 years indicating that the company does not face any liquidity issue as it is capable of paying back its current liabilities (RM75.175 million) if any unforeseeable circumstances occur. Even though the current ratio has decreasing to the lowest in FY2019, HUPSENG still able to do so by using the current assets such as inventories, trade and other receivables, prepayments, cash and bank balances amounting to RM147.362 million. 

HUPSENG has a lower gross profit margin of 34.02% in FY2019 as compared to 35.71% in previous year. The gross profit margin is the lowest in FY2019 mainly due to the higher cost of production of RM309.539 million arising from higher and fluctuating material costs.  

Despite the crude palm oil (CPO) price averaging RM2,133 per tonne in the first half of 2019 (1H19), which was significantly lower than the average in 1H18 (RM2,442 per tonne), HUPSENG guided that it had been unable to recognize lower palm oil cost as the closure of many smaller palm oil refiners meant that large players can keep refined palm oil prices high despite lower CPO prices. It resulted in the increase in the materials cost as it is about 40% of the raw material cost made up from CPO. In Q4 2019, the economy started to slow to 3.6%, contracting to 4.3% for the full year (compared to 4.7% growth in 2018) due to lower output of palm oil, crude oil and natural gas, and a fall in exports amid the Sino US trade war.

HUPSENG has achieved the highest Return on Equity (ROE) of 27.36% in FY2019. Based on 3 years CAGR basis, the company’s Return on Equity has grown 0.46%. 

Even though the gross profit margin has decreased in FY2019, the increase in Return on Equity (ROE) can be attributed to the decrease of total equity from RM158.270 million in FY2018 to RM151.801 million in FY2019. And it is also an indication that as there is more sales produced by the company relative to its assets, the more profitable it should be and the higher the ROE it earns since it has an asset turnover ratio of 132.17%. The management of the company is seen as effective and capable in deploying the resources in the company as well. 

HUPSENG has achieved the highest Total Debt to Equity ratio of 0.543 times in FY2019 among three financial years. Even though the Total Debt to Equity ratio of HUPSENG has increased in FY2019, the company is still able to pay off its debt obligations as the Total Debt to Equity ratio based on 3 years is almost lower than half of its liabilities compared to its equity. This may also indicate HUPSENG has a lower risk, since the debt holders have less claim on the company’s assets. 

Cash Flow Statement 

The net cash from operating activities has provided a positive cash flow of RM51.192 million in FY2019 as compared to RM45.95 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion.

The net cash from investing activities in FY2019 (-RM13.696 million) in FY2019 was mainly due to the purchase of Property, Plant and Equipment (RM16.558 million) and purchase of right-of-use-assets (RM127,200). The negative cash flow indicates that the firm is continuing to invest in its business for growth. 

The net cash from financing activities in FY2019 (RM48.295 million) was mainly due to dividend paid on ordinary shares (RM48 million) and repayment for lease liabilities (RM294,586).


Prospect and Challenges 

FY2020 will remain a challenging year due to global protectionism, uncertainty of the US monetary policy in global economy, the unsettled Sino-US trade standoff, the slowdown of China’s economic growth as well as COVID-19 pandemic. HUPSENG plans to further strengthen its product quality, expand its product portfolio, focus on costs management and broaden its distributor network.

HUPSENG had formulated a strong advertising & promotional strategy led by bestselling and high-quality products at strategic consumer touch points in FY2020. Plans were to also be present at hypermarkets and mini markets with stepped up promotions through sampling activities. However the Extended MCO prevented all those plans from being implemented which turned out to be not a bad thing after-all. In their rush to stock up on foodstuff, consumers snapped up everything leaving empty display shelfs in every retail outlet nationwide. 

If not for the Covid-19 pandemic and MCO, the company’s sales teams often go to schools to offer sampling packs to children to allow young generation from the 90’s and 00’s to understand the company’s range of foodstuff. The company is also ready to consider entering the online market to provide greater convenience to consumers. A new cracker line is also slated to be operational by FY2020. The company also is trying out new recipes to expand its product range which should help to improve the utilisation rate of its baking lines.

In 2019, in order to have a more systematic management, HUPSENG had produced a new and upgraded version of its Mobile Sales Systems (MSS) to enhance and simplify the handling and processing of daily orders by the sales teams and enabling the sales team to perform more efficient customer relationship management through better customers’ order information, product information at anytime-anywhere to meet the company’s processing requirements. The MSS also helps to strengthen customer after-sales service and establish a strong relationship. 

Rating System

Return on Equity (ROE) = Excellent 

Revenue [CAGR] = Poor 

Net Earnings [CAGR] = Poor 

Dividend Yield = Good 

Interest Coverage = Excellent 

Quality of Earnings = Excellent 

Hup Seng Industries Berhad Share Price Over 3 Years 

Insight

Based on the calculation of Gordon Growth Model, HUPSENG has an intrinsic value of RM1.133. The current share price of HUPSENG is RM0.955 which makes it in the range of fair value (as at 6 May 2020). HUPSENG has a beta of 0.515 (500 days) indicating that the share price is less volatile than the current market. Based on computation of Compound Annual Growth Rate (CAGR), HUPSENG has an expected market return of 0.79%.

In conclusion, HUPSENG is a favourite among dividend hungry investors because of its consistently strong dividend payout. However investors still need to consider a host of other factors apart from dividend when analysing a company in view of weak global economic outlook and challenges ahead. Whilst in the midst of the extended MCO, we do not know if the company’s production capacity as well as it’s delivery logistics has been affected but we can observe that biscuits and such pre-packed foodstuff were the first to fly off the shelves as soon as the MCO was announced.

Disclaimers

The research, information and financial opinions expressed in this article 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. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor

Company Spotlight on Wellcall Holdings Berhad (7231)

By Stella Goh – As published in Inve$t Malaysia 30 April 2020 issue

Overview 

Wellcall Holdings Berhad (WELLCAL) was founded in 1996 and is based in Lahat, Perak. WELLCAL is involved as Malaysia’s largest industrial rubber hose manufacturer that specializes in manufacturing of rubber hose for Original Equipment Manufacturers (OEM) and manufacturers. 

WELLCAL was listed in ACE Market in 2006 and successfully transferred onto Main Market of Bursa Malaysia on 3 March 2008. Their over 20 years in the rubber hose industry and with over 40 years of industry knowledge has served a solid platform for its presence in the global rubber hose marketplace. The customer base of the company spans from Malaysia to the Middle East, Europe, USA, Canada, Australia, New Zealand, Asia, Russia, Africa and South America.

Business Model 

WELLCAL is focused on being a “One-Stop Complete Industry Hose Sourcing Center” and principally places a lot of emphasis in Research and Development (R&D) to produce a wide and diversified range of high quality and value-added industrial hose products in order to cater to a vast variety of  applications. Their hoses are used in industrial and construction sites, mining, automobile, petroleum, oil & gas, land transportation and food & beverages.

Typically the company produces and exports various types of hoses including extrusion & Mandrel built hoses, single and twin welding hoses, general and multi-purpose air & water hoses, tank truck hoses, sand blast hoses, concrete and cement hoses, food suction & delivery hoses, mining air and water hoses, marine fuel hoses and marine exhaust hoses just to name a few.

Financial Review

WELLCAL has achieved a consistent growth in its quality of earnings over the past 3 years (1.332 times) in FY2019 compared to FY2018 indicating that the operating cash flow generated from the business is more than the net income suggesting that the business has a strong cash flow and is financially sound. 

Based on the computation of liquidity ratio, WELLCAL has achieved the highest current ratio of 4.661 times in FY2019 over the past 3 years indicating that the company does not face any liquidity issue as it is capable of paying back its current liabilities (RM16.504 million) if any unforeseeable circumstances occur. WELLCAL is able to do so by using current assets such as inventories, trade and other receivables, cash and bank balances amounting to RM76.924 million.  

WELLCAL had a higher annual total dividend per share of 5.65sen in FY2019 compared to 5.45sen in FY2018 but was lower than the 6.17sen it paid in FY2017.

Despite the total dividend per share paid in FY2019 being not the highest in 3 years, WELLCAL has been able to pay out a favorable dividend consistently. The company has maintained an average dividend payout ratio of 85.22% over the past 6 financial years. And by paying out 70% of its annual net profit as dividends, it has exceeded its own practice of paying out at least 50% of its net profit per year as dividends. 

The gross profit margin in FY2019 has increased by 13.19% compared to FY2018 mainly due to operational efficiency arising from effective costs management and productivity such as lower raw material purchase costs, better control on stockholding period and maximization of raw material usage to reduce wastage and scrap in the production processes. However the decrease of gross profit margin from 36.89% in FY2017 to 31.98% in FY2018 was mainly due to higher cost of production arising from higher and fluctuating raw materials prices. 

WELLCAL’s Return on Equity (ROE) has increased to 31.62% in FY2019 from 29.45% in FY2018 but was still lower than the 35.35% in FY2017. The company was still able to maintain the ROE at a double digit indicating that it is being well managed and is making good profit relative to shareholder’s capital and reflects the management’s effectiveness and capability in deploying its resources. 

WELLCAL has a decreasing Total Debt to Equity ratio of 0.187 times in FY2019 over the past 3 years indicating that the company is good at paying off its debt obligations. The Total Debt to Equity ratio based on 3 years is less than 0.5 times indicating that the company’s liabilities is less than half of its equity reflecting the company has a lower risk. 

[Note: There is no short-term debts and long-term debts incurred during FY2018 and FY2019] 

Cash Flow Statement 

The net cash from operating activities has provided a positive cash flow of RM49.035 million in FY2019 as compared to RM40.940 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion. 

The net cash from investing activities in FY2019 (-RM5.556 million) in FY2019 was mainly due to the purchase of Property, Plant and Equipment (RM6.202 million) and investment in associate company (RM49) attributed as share of loss in associate company. The negative cash flow indicates that the firm is continuing to invest in its business for growth.

The net cash from financing activities in FY2019 (-RM27.885 million) was mainly due to dividend paid amounting to RM27.885 million. 

Prospect and Challenges 

The outlook and headwinds for the global economy remains challenging, particularly in the industrial rubber hose market. WELLCAL’s strategies are to focus on leveraging its extensive customer network, productivity, quality service and product range to enhance its competitive edge.  

WELLCAL also has initiated its product diversification into composite hoses entering a Joint Venture (JV) 51%: 49% with Sweden’s Trelleborg AB subsidiary Trelleborg Holding AB (THAB) on 15th January 2019. The joint venture has produced Trelleborg Wellcall Sdn. Bhd with the purposes of manufacturing, marketing and selling of composite hoses and fittings to the Asean market with deliveries scheduled to begin in 2020. Typical applications for hoses in composite materials include hoses for road and rail tanker trucks, hoses for aviation fuel and hoses for aggressive chemicals. According to Jean-Paul Mindermann, the President of Trelleborg Industrial Solutions business sector, Trelleborg will contribute technological know-how in composite hoses and WELLCAL, with its operations based in Malaysia, will contribute local knowledge concerning both the market and operations.

Return on Equity (ROE) = Excellent 

Revenue [CAGR] = Average 

Net Earnings [CAGR] = Average 

Dividend Yield = Excellent 

Interest Coverage = Excellent 

Quality of Earnings = Excellent 

Wellcall Holdings Berhad Share Price Over 3 Years 

Insight 

Based on the calculation of Discounted Cash Flow Model, WELLCAL has an intrinsic value of RM0.907 with a margin of safety of +11.80%. The current share price of WELLCAL is RM0.80 which makes it in the range of fair value (as at 29 April 2020). WELLCAL has a beta of 0.809 (500 days) indicating that the share price is less volatile than the current market. Based on computation of Compound Annual Growth Rate (CAGR), WELLCAL has an expected market return of 0.82%. 

In conclusion, WELLCAL is paying out more than half of its Net Profit as dividends. With the consistent dividend policy, it helps to generate investors’ confidence. However investors still need to consider a host of other factors apart from dividend payment when analysing a company in view of the weak global economic outlook and challenges ahead.

Disclaimers 

The research, information and financial opinions expressed in this article 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. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 

Company Spotlight on Petronas Gas Berhad (6033)

By Stella Goh – As published in Inve$t Malaysia 24 April 2020 issue

Overview 

Petronas Gas Berhad (PETGAS) is a Malaysia-based gas infrastructure and centralised utilities company founded in 1983 and is headquartered at PETRONAS Twin Towers, Kuala Lumpur. PETGAS is primarily involved as the world’s largest gas pipeline company that specializes in processing and transporting of natural gas via Peninsular Gas Utilisation (PGU) pipeline network to PETRONAS’ customers in Malaysia and Singapore.

PETGAS was listed in Main Market of Bursa Malaysia on 4 September 1995. With the liberalization of Malaysian gas market, the company foresees exciting new developments ahead for the industry and accelerating momentum towards being a more competitive solutions provider in this new era.

PETGAS’s subsidiaries include Pengerang LNG (Two) Sdn Bhd, Regas Terminal Sg Udang Sdn Bhd and Regas Terminal (Pengerang) Sdn Bhd.

Business Model 

PETGAS is primarily involved in four main core businesses namely Gas Processing, Gas Transportation, Utilities and Regasification.  

In the processing business the upstream natural gas from offshore gas fields in the East Coast of Peninsular Malaysia is processed for its customers in the power-generation & petrochemical industries. The 6 plants in Terengganu are at two complexes namely Gas Processing Kertih (GPK) and Gas Processing Santong (GPS). With a combined capacity of over 2,000 million standard cubic feet per day (mmscfd) of feedgas, the plants have the capability to process and produce salesgas, ethane, propane and butane.

As for its gas transportation business, the processed gas (as a low-carbon fuel and the cleanest of fossil fuels in power generation) is carried through its 2,623km Peninsular Gas Utilisation (PGU) pipeline network across Peninsular Malaysia with a capacity to transport up to 3,500mmscfd of gas to end customers under multi-year agreements with Petroliam Nasional Berhad (PETRONAS). 

The company through its Gas Processing & Utilities (GPU) Division provides utilities such as electricity, steam, industrial gases like oxygen & nitrogen, de-mineralised water, raw water, cooling water and boiler feed water.

Its Gas Transmission and Regasification (GTR) Division operates and maintains the offshore Liquefied Natural Gas (LNG) Regasification Terminal in Sungai Udang, Melaka (RGTSU) and the onshore LNG Regasification Terminal in Pengerang, Johor (RGTP). The facilities receive vessels carrying LNG from around the world and offer a wide range of services including LNG regasification, LNG reloading and Gassing Up Cooling Down.

Financial Review

PETGAS has achieved highest dividend growth of 13.89% from RM0.72 in FY2018 to RM0.82 in FY2019. Based on 3 years of CAGR basis, PETGAS has a dividend growth of 9.77%. 

PETGAS has declared interim dividends of 16sen per share for Q1 and Q2 and upped it to 18sen per share in Q3. For Q4, the board has approved a final dividend of 22sen and a special dividend of 10sen which brought its total dividend for the year to 82sen per share, translating into RM1.6 billion of total dividend declared. PETGAS has a higher dividend payout ratio in tandem with the higher dividend declared.

PETGAS had an increase of gross profit margin from 44.55% in FY2017 to 46.12% in FY2018. The gross profit margin in FY2019 decreased by 5.18% compared to previous year mainly due to the Incentive-Based Regulation (IBR) on its regulated Gas Transportation and Regasification business segments.

Although the gas transportation and regasification on tariffs were regulated, PETGAS was compensated by higher remuneration via the second term of the 20-year Gas Processing Agreement with PETRONAS commencing on 1 January 2019, which influences its operating targets and planned expenditure over the next five years. Even though the Gross Profit Margin achieved in FY2019 is the lowest PETGAS was still able to achieve more than 30% of gross profit margin over the past 3 years indicating the profitability of its core business activities without taking into consideration its indirect costs. 

PETGAS has achieved the highest Return of Equity (ROE) in FY2019 from 13.96% in FY2018 to 14.61%. Based on 3 years CAGR basis the company’s ROE has grown 0.18%. 

The increase in ROE was mainly due to the company being well managed and is making good profit relative to shareholder’s capital and reflects the management’s effectiveness and capability in deploying its resources. 

PETGAS’s quality of earnings had increased from 1.578 times in FY2017 to 1.761 times in FY2018 but decreased in FY2019 to 1.631 times as compared to FY2018. Inspite of this PETGAS was still able to maintain its quality of earnings at more than 1 over the past 3 years indicating that the company’s business is conservative in its approach to income recognition.  

Based on the computation on liquidity ratio, PETGAS has a current ratio of 5.169 times in FY2019 compared to 7.042 times in FY2018. Even though the current ratio in FY2019 has decreased, it indicates that the company does not face any liquidity issue as it is capable of paying back its liabilities of (RM989.528 million) if any unforeseeable circumstances occur. PETGAS is able to do so by using the current assets such as trade and other inventories, trade and other receivables, tax recoverable, cash and cash equivalents amounting to RM5.114 billion. However this may also indicate that the company is not efficiently using its current assets or its short-term financing facilities.

PETGAS has a growing Total Debt to Equity ratio of 0.294 times in FY2019 as compared to 0.256 times in FY2018. Even though the Total Debt to Equity ratio of PETGAS has increased in FY2019, the company still able to pay off its debt obligations as the Total Debt to Equity ratio based on 3 years is lower than 0.5 times which indicates that the company has less than half of liabilities compared to its equity. This may also indicate that PETGAS has a lower risk.

Cash Flow Statement 

The net cash from operating activities has provided a positive cash flow of RM3.357 billion in FY2019 as compared to RM3.311 billion in FY2018 indicating that the company is healthy and has enough cash to use for business expansion. 

The net cash from investing activities in FY2019 (-RM1.098 billion) in FY2019 was mainly due to the purchase of Property, Plant and Equipment (RM1.094 billion), increase in investment in a joint venture (RM31.031 million) and term loan to a joint venture (RM7.226 million). The negative cash flow indicates that the firm is investing in its business for growth.  

The net cash from financing activities in FY2019 (-RM1.850 billion) was mainly due to dividend paid to shareholders (RM1.425 billion), interest expense paid (RM229.525 million), payment to non-controlling interests on redemption of shares (RM73.320 million), repayment of lease liabilities (RM56.579 million), repayment of loan from corporate shareholder of a subsidiary (RM52.938 million) and dividend paid to a non-controlling interest (RM19.690 million). 

Prospect and Challenges 

PETGAS has announced that the Government via the Energy Commission (EC) has approved new gas tariffs under the Incentive-Based Regulation for two years starting from 1 January 2020 until 31 Dec 2022. The tariff has been set at RM1.129 per gigajoule, RM3.455/GJ and RM3.485/GJ respectively for its Peninsular Gas Utilisation facility (PGU), Regasification Terminal Sg Udang in Melaka and Regasification Terminal Pengerang in Johor.

According to the Managing Director and Chief Executive Officer of PETGAS, the company will continue to record excellent operational performance whilst making several significant steps towards securing its future revenue streams and becoming an integrated energy solutions provider. These include acquisition of new customers for steam and electricity for its utilities in Gebang as well as the introduction of new ancillary services at the company’s regasification terminals. 

PETGAS will continue to focus on growing its business as it steps up the new four-year strategy known as R2 Game Plan: 301Q99 Pushing Forward which will help to ensure a sustainable safe, reliable, and efficient operations. A few projects initiated in 2019 will be completed and commissioned in 2020 such as the Liquefied Natural Gas (LNG) bunkering project at Regasification Terminal Sungai Udang (RGTSU) and LNG truck loading service at Regasification Terminal Pengerang (RGTP).

The new propane and butane import facilities in Kemaman that were completed in November 2019 will also enhance the company’s revenue beginning from FY2020. The company also believes it is well-positioned to participate as a key player in the power supply market which is being opened under MESI 2.0. 

Rating System

Return on Equity (ROE) = Average 

Revenue [3 years CAGR] = Average 

Net Earnings [3 years CAGR] = Average 

Basic Earnings per Share (EPS) [3 years CAGR] = Average 

Interest Coverage = Good 

Quality of Earnings = Average 

Price Over 3 Years 

Insight 

Based on the calculation of Discounted Earnings Model, PETGAS has an intrinsic value of RM9.78. The current share price of PETGAS is RM15.38 which makes it an overvalued stock (as at 23 April 2020). PETGAS has a beta of 0.756 (500 days) indicating that the share price is less volatile than current market. Based on the computation of Compound Annual Growth Rate (CAGR), PETGAS has an expected market return of 0.83%.

In conclusion, PETGAS may look attractive to investors as a dividend growth stock. With the consistent dividend payout policy, it will help to generate investor confidence. Its prospect remains bright as it secures more projects that will provide continued growth and accrue long-term benefits for shareholders. However investors still need to consider a host of other factors apart from dividends when analysing a company.  

Disclaimers 

The research, information and financial opinions expressed in this article 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 unintentionalIt would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 

Company Spotlight on Mynews Holdings Berhad (5275)

By Stella Goh – As published in Inve$t Malaysia 10 April 2020 issue

Overview 

Mynews Holdings Berhad (MYNEWS), formerly known as Bison Consolidated Berhad was founded by Dang Tai Luk in 2013. Since its inception in 1997, the company has evolved from a single traditional newsstand to being one of the largest homegrown convenience retail chain stores operator in Malaysia. 

MYNEWS, headquartered in Petaling Jaya was listed on Main Market of Bursa Malaysia as Bison Consolidated Berhad on 29 March 2016. Its current name was adopted on 11 December 2017 in line with the company’s retail business “myNEWS” branding. It’s wholly owned subsidiaries include Mynews Retail Sdn Bhd, Eemerge Incorporated Sdn Bhd, Mynews Kukuh Sdn Bhd, Bison Foods Sdn Bhd, DKE Technology Sdn Bhd and Mynews Management Sdn Bhd. In 2019, it opened 97 new outlets and also obtained Halal Certification for its food production plant (FPC) in Kota Damansara.  


Business Model

MYNEWS is engaged in conceptualization, development, expansion, management and operation of its convenience retail chain stores throughout Malaysia under its trade name myNEWS.com, newsplus, MAGBIT, THE FRONT PAGE as well as WHSmith, which is operated under their equal joint venture with WHSmith Travel, one of the UK’s leading retailers. 

The WHSmith brand retails newspapers, books and convenience products within international airports in Malaysia. The company’s other stores are located throughout Malaysia and Sarawak offering a product mix comprising print media, food & beverage, grocery products and consumer services such as cashless payment, bill payment, mobile & game reloads, Touch N Go reload, SIM starter pack, send & return parcel, IQOS care-corner and myNEWS DASH as their e-commerce platform. It’s first flagship store opened on December 25, 1996. 


Financial Review

Based on past 3 financial years’ revenue chart (above) its revenue grew year-on-year (y-o-y) from FY2017 (+24.08%), FY2018 (+17.72%) to FY2019 (+34.26%). On a CAGR basis, MYNEWS has grown 25.17% based on 3 years. 

The increase in revenue was due to the higher retail sales of RM121.94 or 36.9% while the other operational income increased by RM10.20 million or 18.4% contributed by both existing and new outlets.  

MYNEWS has recorded a RM36.451 million increase in gross profit, translating to a growth of 24.39% from RM149.437 million in FY2018 to RM185.888 million in FY2019. Based on 3 years CAGR, the company’s gross profit has grown 25.31%. 

The increase in gross profit was due to MYNEWS rolling out its in-house Maru Kafe which offers over the counter food such as coffee, ice-cream and hot snacks. This was followed by the rolling out of more in-house produced ready-to-eat (RTE) meals and bakery products from its food production centre (FPC). Except for print media, all other product categories recorded double digit growth. 

The Profit After Tax (PAT) for FY2019 was RM24.324 million, which is RM1.689 million or 6.49% lower compared to RM26.013 million in the previous year as the effective tax rate was relatively higher than last year. The tax expenses included a sum of RM0.76 million for tax underprovided in 2018. In addition MYNEWS could not enjoy any group tax relief for two loss making subsidiaries Mynews Kineya Sdn Bhd and Mynews Ryoyupan Sdn Bhd which operate the food production centre (FPC). 

Cash Flow Statement 

The net cash from operating activities has provided a positive cash flow of RM83.130 million in FY2019 as compared to RM9.540 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion. 

The net cash from investing activities in FY2019 (-RM73.464 million) was mainly due to purchase of Property, Plant and Equipment (RM104.657 million), placement of funds in other investments (RM6 million) and placement of fixed deposits (RM0.113 million). The negative cash flow indicates that the firm is investing in its business for growth. 

The net cash from financing activities in FY2019 (-RM19.048 million) was mainly due to payment of lease liabilities (RM30.544 million), dividend paid (RM6.822 million), repayment of bank borrowings (RM3.525 million) and interest paid (RM3.457 million).  

Is the company able to pay back its liabilities? 

Based on the liquidity ratio calculation, MYNEWS has a current ratio of 1.327 times in FY2019 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities (RM114.916 million) if any unforeseeable circumstances occur. MYNEWS is able to do so by using current assets such as inventories, contract assets, trade and other receivables, amount due from jointly controlled entity, tax recoverable, other investments, fixed deposits with licensed banks, cash and bank balances amounting to RM152.514 million. 

Prospect and Challenges 

MYNEWS launched its Japanese inspired ready-to-eat 130,000 sq ft food production centre (FPC) in Kota Damansara, in partnership with Ryoyi Baking Co Ltd and Gourmet Kineya Co Ltd with a total investment of RM100 million in the FPC. The Japanese-inspired food catered to Malaysian tastes ranging from sandwiches, onigiri, bento, fresh baked breads, hot and cold beverages, curry laksa, nasi lemak and others will be available in MYNEWS’s stores. The products currently being produced are sent to more than 300 MYNEWS’s outlets in Klang Valley. MYNEWS’s DASH online delivery services will also be provided to customers who wish to have their food and other daily needs delivered to their doorstep. 

As at FY2019, MYNEWS had a total of 513 stores compared to 436 stores in FY2018 (an increase of 77 stores year-on-year), with an opening target of about 100 additional stores in 2020. 

At the same time, the company will increase the number of MYNEWS outlets with Maru Kafe concept through the refurbishment of existing stores in addition to making it a standard for as many new stores as possible. Their product mix will continue to be improved with RTE food and beverages as the prime category of growth. MYNEWS will also continue to embrace technology and innovation in retail to improve the stores towards providing better shopping experience. 

Rating System

Return on Equity (ROE) = Average 

Revenue [3 years CAGR] = Good 

Net Earnings [3 years CAGR] = Average 
 
Basic Earnings per Share (EPS) [3 years CAGR] = Average 

Interest Coverage = Good 

Quality of Earnings = Average 

Price Over 3 Years

Insight

Based on the calculation of Discounted Earnings Model, MYNEWS has an intrinsic value of RM1.939. The current share price of MYNEWS is RM0.84 which makes it an undervalued stock (as at 9 April 2020). MYNEWS has a beta of 1.036 (500days) indicating that the share price is more volatile than current market. Based on the computation of Compound Annual Growth Rate, MYNEWS has an expected market return of 0.74%. 

In conclusion, even though the Profit After Tax (PAT) of MYNEWS has decreased in FY2019 due to higher of effective rate, MYNEWS still achieved a strong performance in FY2019 with the highest revenue and gross profit over the past 3 years. The company’s prospect remains bright as the focus on growing its customer reach and driving demand in the ready-to-eat (RTE) segment in near term through higher store openings, while investing in the marketing of Maru Kafe and RTE products to lift overall sales. 

Disclaimers 

The research, information and financial opinions expressed in this article 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. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 

Company Spotlight on ELK-Desa Resources Berhad (5228)

By Stella Goh – Market Data Analyst | 3 April 2020

Overview 

ELK-Desa Resources Berhad (ELKDESA) is an established Malaysia-based investment holding company founded in 1989 and is headquartered in Kuala Lumpur. ELKDESA started its hire purchase financing operation in 2004, in view of continued growth of the automobile industry as well as rapid urbanization taking place throughout the country reflecting Malaysia’s progress towards a high-income nation. ELKDESA’s core focus area was in the under-served hire purchase financing for used motor vehicles. Over the years, the company has successfully established a strong presence and reputation in this segment. 

ELKDESA was listed on Main Market of Bursa Malaysia on 18 December 2012. This significant milestone provided the company with the impetus to expand even further in a dynamic and sustainable manner. 

Business Model 

ELKDESA is involved in two business segments that provide products and services targeted at the consumer market. They are hire purchase financing and other integrated services for used motor vehicles and furniture trading. 

The company’s hire purchase financing division remains its primary business activity and income generator through its subsidiary called ELK-Desa Capital Sdn Bhd. The company has carved a strong presence as a reputable lender in the used motor vehicle sector specifically targeting buyers who are seeking small value financing.  As an extension of its hire purchase financing business, ELKDESA also cross-sells general insurance products to its hire purchase customers. These products are mainly from leading insurance providers such as Tokio Marine Insurance (Malaysia) Berhad and Berjaya Sompo Insurance Berhad. 

Besides that ELKDESA is also focused in the wholesaling of home furniture in domestic market under its subsidiary ELK-Desa Furniture Sdn Bhd. The company has four furniture retail showrooms located in Klang and Shah Alam and has started to distribute its furniture products to more than 800 furniture retailers throughout Malaysia. Although the furniture division is relatively new but is a growing business venture that has the potential to contribute positively to ELKDESA’s earnings and growth in the foreseeable future. 

Financial Review

Based on past 3 financial years’ revenue chart above its revenue grew year-on-year (y-o-y) from FY2017 (+47.25%), FY2018 (+10.20%) to FY2019 (+18.50%). On a CAGR basis, ELKDESA has grown 24.35% based on 3 years.  

ELKDESA’s revenue was due to the higher contribution from both the company’s hire purchase financing business and furniture segment. According to the Annual Report for FY2019, hire purchase financing division remains its main income generator contributing 98% to the company. 

ELKDESA has recorded a RM14.250 million increase in gross profit, translating to a growth of 16.82% from RM84.705 million in FY2018 to RM98.995 million in FY2019. Based on 3 years CAGR, the company’s gross profit has grown 18.84%. 

The rise in gross profit was attributed to the net hire purchase receivables growth of a notable 22% to RM490 million as at 31 March 2019. This was one of the key factors that had led the Division’s increased revenue and gross profit. ELKDESA’s furniture division although icurrently a small and non-core business activity of the company has also contributed positively during the year. (Source: Annual Report 2019) 

The Profit After Tax (PAT) of ELKDESA rose 26.97% from RM25.924 million in FY2018 to RM32.916 million in FY2019. Based on 3 years CAGR basis, the Profit After Tax (PAT) grew by 20.55% which was in line with the growth in revenue and gross profit. 

Cash Flow Statement 

The net cash from operating activities has provided a negative cash flow of (-RM53.977 million) in FY2019 as compared to (-RM25.689 million) in FY2018 as the hire purchase receivables and trade receivables increased in FY2019 compared to previous year. 

The net cash from investing activities in FY2019 (-RM3.042 million) was mainly due to the purchase of Property, Plant and Equipment (RM4.477 million). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2019). 

The net cash from financing activities in FY2019 is RM38.165 million was mainly due to net drawdowns of block discounting payables amounting to RM63.938 million. The company also has to pay dividend (RM20.657 million) and interest (RM5.115 million) to its shareholders. 

Is the company able to pay back its liabilities? 

Based on the liquidity ratio calculation, ELKDESA has a current ratio of 2.449 times in FY2019 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities (RM71.901 million) if any unforeseeable circumstances occur. ELKDESA is able to do so by using current assets such as inventories, other assets, trade receivables, hire purchase receivables, other receivables, deposits, prepayments, current tax assets, short term funds, cash and bank balances amounting to RM176.123 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 

ELKDESA has announced its maiden medium-term notes (MTN) program of up to RM1 billion in nominal value to raise funds for the expansion of its used car hire purchase financing business. According to ELKDESA, the program with a tenure of 10 years will be done via its special vehicle Premier Auto Assets Berhad. The first tranche of the senior MTNs totaling of RM105 million, comprising RM85 million of AAA-rated Class A MTNS and RM20 million of AA3-rated Class B MTNs were issued on 19 July 2019 which are rated by RAM Rating Services Berhad.  

ELKDESA aims to utilize the fresh funds to grow the hirer base of its used car hire purchase financing business, the primary business activity and main income contributor of the company. (Source: The Malaysian Reserve, 19 July 2019). According to the executive director and chief financial officer, Henry Teoh Seng Hee, MTNs will finance their growth. As such, they do not need to worry about insufficient funds to grow their hire-purchase financing business. With the MTNs, the company is expected to leverage up with its gearing ratio expected to almost double to 0.5 times in FY2020, up from 0.28 times as at March 31, 2019. (Source: The Edge Markets, 13 August 2019). 

According to Affin Hwang Capital, they believe there are still ample opportunities for ELKDESA to tap into the used car market. Robust Proton and Perodua sales in 2H 2019 indicated that the mass market is not facing constraints, and that the bottom 40% and middle 40% income groups (B40 and M40) consumption spending is still intact. 

The robust national car sales in 2019 were a good sign boding well for ELKDESA’s prospects. It is highly likely whenever the car owners (B40 and M40 groups) need to upgrade, they would first dispose of their existing cars in the used-car market. This is where the hire purchase financing players such as ELKDESA would finance and the transactions at rates of 8.75% to 10%.  

Rating System

Return on Equity (ROE) = Average 

Revenue [3 years CAGR] = Good 

Net Earnings [3 years CAGR] = Good 

Basic Earnings per Share (EPS) [3 years CAGR] = Good 

Interest Coverage = Good

Quality of Earnings = N.A. 

(*Unable to get Quality of Earnings because Net Cash from Operating Cash Flow is Negative Figure)


Insight

Based on the calculation of Discounted Earnings Model, ELKDESA has an intrinsic value of RM1.972. The current share price of ELKDESA is RM1.15 which makes it an undervalued stock (as at 2 April 2020). ELKDESA has a beta of 0.543 (500days) indicating that the share price is less volatile than current market. Based on the computation of Compound Annual Growth Rate (CAGR), ELKDESA has an expected market return of 0.45%. 

In conclusion, ELKDESA has achieved a strong performance in FY20219 with the highest revenue, gross profit and profit after tax over the past 3 years. The company’s prospect remains bright as the MTNs program is also timely as higher purchase financing for the used car segment remains underserved, with the demand far out-stripping supply. Since ELKDESA has carved a niche as a reputable lender in Klang Valley, I believe it is well poised to drive further growth moving forward.  

Disclaimers 

The research, information and financial opinions expressed in this article 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 unintentionalIt would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 


Company Spotlight on Supermax Corporation Berhad (7106)

By Stella Goh – Market Data Analyst | 27 March 2020

Overview 

Supermax Corporation Berhad (SUPERMX) is an established Malaysia-based investment holding company founded by Dato Seri Stanley Thai and his wife Datin Seri Cheryl in 1987 and is headquartered in Sungai Buloh, Selangor. SUPERMX is primarily involved as a manufacturer, distributor and marketer of high-quality medical gloves. 

SUPERMX was listed on Bursa Malaysia Main Market on 4 August 2000. The company produces up to 24 billion pieces of gloves per year, meeting approximately 12% of the world’s demand for latex examination gloves. Currently SUPERMX has 12 manufacturing plants based in Malaysia equipped with state-of-the-art machinery, energy savings biomass system and a research and development centre.  

Business Model 

SUPERMX produces various types of natural rubber and nitrile latex gloves to over 165 countries such as the USA, European Union, Middle East, Asia and South Pacific countries. The company is also involved in trading of latex gloves, generation of biomass energy, trading and marketing of healthcare products, medical devices and property holdings activities. 

As Malaysia’s very first home-grown contact lens manufacturing company, SUPERMX has obtained the necessary license and approvals to export its products to over 60 markets globally, including the USA and Japan markets which are two of the largest contact lens market presently. The contact lens brand, namely AVEO is distributed via its own global distribution network located in 8 countries, through joint ventures and appointment of authorized dealers in over 50 other countries as well as via e-commerce online sites available in three countries such as USA, Malaysia and UK. The brands owned by SUPERMX such as Supermax, Aurelia and Maxter are trusted and recognized by laboratories, hospitals, pharmacists, doctors and surgeons around the world. (Source: Annual Report 2019) 

Financial Review

SUPERMX has achieved a revenue growth of 17.92% from RM1.304 million in FY2018 to RM1.538 million in FY2019. Based on 3 years of CAGR basis, SUPERMX has a revenue growth of 14.19%. 

The increase in revenue was attributed on the back of increased of volume production arising from its ongoing rebuilding and replacement program as well as the ongoing efforts to fine-tuning and boost operational efficiency and production capacity. The commendable performance was achieved in the face of challenges such as uncertainties caused by the on-going US-China trade war and Brexit, high volatility in raw material costs and increased competition in the global marketplace. Nevertheless, the company is committed to continue working towards maximizing the company’s performance and stakeholders’ interest and values. (Source: Annual Report 2019) 

SUPERMX has recorded a RM70.793 million increase in gross profit, translating to a growth of 17.81% from RM397.523 million in FY2018 to RM468.316 million in FY2019. Based on 3 years CAGR, the company’s gross profit has grown 8.48%. 

The rise in gross profit was due to the increased output from newly commissioned lines at the company’s Perak plant under its rebuilding and replacement program, higher average selling prices (ASP) in response to higher raw material prices, a stronger dollar over the course of the year and resilient global demand for the medical gloves. (Source: Annual Report 2019) 

The Profit After Tax (PAT) rose 11.77% from RM110.142 million in FY2018 to RM123.103 million in FY2019. Based on 3 years CAGR basis, the Profit After Tax (PAT) grew by 8.64% 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 RM235.053 million in FY2019 as compared to RM177.188 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion. 

The net cash from investing activities in FY2019 (-RM112.248 million) was mainly due to the purchase of Property, Plant and Equipment (PPE) (RM112.248 million). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2019) 

The net cash from financing activities in FY2019 (-RM103.973 million) was mainly due to dividend paid (RM32.783 million), repayment of short term borrowings (RM22.322 million), repayment of term loans (RM22.068 million), interest paid (RM19.708 million), purchase of treasury shares (RM7.710 million) and repayment of finance lease payables (RM0.234 million). 

Is the company able to pay back its liabilities? 

Based on the liquidity ratio calculation, SUPERMX has a current ratio of 1.056 times in FY2019 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities (RM601.868 million) if any unforeseeable circumstances occur. SUPERMX is able to do so by using current assets such as inventories, receivables, tax assets, amounts owing by subsidiaries, amounts owing by associates, cash and bank balances amounting to RM635.712 million. 

Prospect and Challenges 

SUPERMX’s wholly owned subsidiary Maxter Glove Manufacturing Sdn Bhd has entered a RM20 million sale and purchase agreement (S&P) with Nishimen Industries (M) Sdn Bhd to acquire the industrial land measuring 16,654 square metres in Kapar. (Source: TheStar, 13 March 2020). The proposed acquisition was for future expansion of it’s manufacturing capacity in a strategic location near its existing cluster of manufacturing plants (Plant No.12), which will facilitate the management control, operational synergies and efficiency. (Source: The Edge Markets, 13 March 2020) 

Towards end of 2019, the company has completed the acquisition of land in Meru, Klang on which it plans to build Plant #13, #14 and #15 that will contribute another 13.2 billion pieces of gloves to the group’s installed capacity over the next five years up to year 2024.  (Source: The Malaysian Reserve, 26 February 2020). SUPERMX also plans to build a new manufacturing plant (Plant 16th) over the next few years, which will increase the production capacity by about 4.5 billion pieces per year. (Source: TheStar, 13 March 2020) 

For the contact lens business, the revenue is on the rise as SUPERMX continues to spend on advertising and promotions and managed its costs well. Even though this venture on the whole is not quite contributing to the company’s performance yet, it is becoming less of a strain on its performance which is positive for the company. SUPERMX will continue to work to obtain all the necessary licenses and approvals in order to export the products to more countries across the world. The company has spent over RM100 million to-date on this venture and remains optimistic and confident that over the medium to long term, it is building a business that will be value enhancing to all stakeholders. (Source: Annual Report 2019) 

Rating System

Return on Equity (ROE) = Average 

Revenue [3 years CAGR] = Average 

Net Earnings [3 years CAGR] = Average 

Basic Earnings per Share (EPS) [3 years CAGR] = Average 

Interest Coverage = Average 

Quality of Earnings = Average 

Insight 

Based on the calculation of Discounted Earnings Model, SUPERMX has an intrinsic value of RM1.873. The current share price of SUPERMX is RM1.57 which makes it at a fair value stock (as at 26 March 2020). SUPERMX has a beta of 1.001 (500 days) indicating that the share price is more volatile than current market. Based on the computation of Compound Annual Growth Rate (CAGR), SUPERMX has an expected market return of 0.43%.

In conclusion, SUPERMX has achieved a strong performance in FY2019 with the highest revenue, gross profit and profit after tax over the past 3 years. The company’s prospect remains bright as the company continues to expand its manufacturing capacity via acquisition, which enables the company to grow its business to ultimately accrue long-term benefits. The demand growth is expected to continue particularly in the near-term given the ongoing COVID-19 outbreak across the globe. 

Disclaimers 

The research, information and financial opinions expressed in this article 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 unintentionalIt would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 

Company Spotlight on Teo Seng Capital Berhad (7252)

By Stella Goh – Market Data Analyst | 13 March 2020

Overview 

Teo Seng Capital Berhad (TEOSENG) is an investment holding company founded in 2006. It is primarily involved in layer farming (the rearing of chickens for eggs production) but has over the years expanded its products and services to include five main categories ie chicken eggs, animal feeds, paper egg trays, organic fermented fertiliser and animal health products. Of the above products, old chickens and manure are by-products of Teo Seng’s layer farming operations. 

TEOSENG was initially listed in Bursa’s ACE Market on October 2008 and later transferred to Bursa’s Main Board on August 2009. Over the years, the company has expanded significantly and aggressively from a small farm operation with daily production of 100,000 eggs to its current capacity of 3.50 million eggs per day. All its 25 farms are in Johor operating on the All-In-All-Out (AIAO) system and Closed-House system. These systems are the most internationally recognized systems in layer farming industry which provides advantages in terms of biosecurity and productivity. The company exports approximately 40% of eggs to overseas, mainly to Singapore (30%) and Hong Kong. (Source: Annual Report 2018) 

Business Model 

TEOSENG’s core business activities principally involved in the production of eggs, manufacturing and trading of paper egg trays for both internal and external sale, production of animal feeds mainly for own layer farming activities as well as production of organic fertilizers by using chicken manure. 

The company also specializes in healthcare solutions as the animal health products are essential for growth of livestock and they can be divided into two categories, namely Farm Animal Products and Companion Animal Products. Some examples include anti-parasite, antibiotics, disinfectants, equipment, feed additives, herbal solutions, pesticides, supplements, vaccine and pet food. Thus, TEOSENG in having its own animal health product division enables it to enjoy priority in terms of product supply and knowledge. 

Financial Review 

TEOSENG has achieved a revenue growth of 15.58% from RM424.209 million in FY2017 to RM490.285 million in FY2018. Based on past 5 years of CAGR, the revenue growth was 8.19%.  

The increase in revenue was due to the higher sales from both its poultry farming business as well as its investment and trading business as the results of upgrading farm infrastructure and facilities brought increased production efficiency. (Source: 4th Quarterly Results 2018) 

TEOSENG has recorded a RM32.613 million increase in gross profit, translating to a growth of 53.49% from RM60.971 million in FY2017 to RM93.584 million in FY2018. Based on 5 years CAGR, the company’s gross profit has grown 9.69%.  

The increase in gross profit was due to the lower cost of feeds, continuous growth in sales of eggs as well as the positive results brought about by the upgrading of farm infrastructure and facilities for better production efficiency. TEOSENG’s brand of premium eggs known as Omega Lutein, enhanced for buyers who require a higher degree of nutrition has been growing in sales and now contributes 2% of the sales volume. Meanwhile, the company’s investment and trading business saw higher gross profit on the back of increasing demand of the existing and new animal health products. 

The Profit After Tax (PAT) rose 778.41% from RM3.460 million in FY2017 to RM30.393 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 5.39% 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 RM64.825 million in FY2018 as compared to RM6.338 million in FY2017 indicating that the company is healthy and has enough cash to use for business expansion. 

The net cash from investing activities in FY2018 (-RM28.089 million) was mainly due to the purchase of property, plant and equipment (PPE). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2018) 

The net cash from financing activities in FY2018 (-RM27.832 million) was mainly due to the repayment of hire purchase payables (RM9.377 million), repayment of term loans (RM9.246 million), net movements in banker’s acceptances (RM9.220 million), interest paid (RM8.310 million) and dividend paid (RM1.499 million). 

Is the company able to pay back its liabilities? 

Based on liquidity ratio calculation, TEOSENG has a current ratio of 1.101 times in FY2018 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities (RM185.837 million) if any unforeseeable circumstances occur. TEOSENG is able to do so by using current assets such as biological assets, inventories, trade & other receivables, tax recoverable, cash and bank balances amounting to RM204.612 million. 

Prospect and Challenges 

TEOSENG has signed a memorandum of agreement (MoA) with Solarvest Holdings Berhad to install solar photovoltaic panels (PV) across all its chicken farms and factories. The company said it has earmarked approximately RM13 million for the installations which involve about 4,000 kilowatt-peak (kWp) of electricity output. This renewable energy generated will be used for the daily operations of its facilities and is expected to generate savings to its electricity costs and will positively contribute to the global environment conservation efforts. The move is in line with TEOSENG’s environmental sustainability goals and supports the government’s green energy ambition. (Source: theedgemarkets.com, 21 November 2019) 

Despite unforeseeable circumstances such as egg price in Peninsular Malaysia experienced prolonged unattractive market consolidation due to local oversupply situation in the year, the company is confident that they are well-equipped with all the necessary human capital to resolve the issues. TEOSENG is focusing on sustainable earnings growth through continuous innovation and passionate advocacy of their brand, achieving operational excellence and further developing their HR talents and corporate culture. Farm improvements and expansion was always a top priority as it represents the core business for the company. (Source: Annual Report 2018) 

The company also is looking to expand its business overseas and is sourcing for the right partners to ensure a seamless entry into new markets by establishing market strategies to capture more market share in both domestic and overseas markets as well as growing their product range to meet the customers’ demand. (Source: Annual Report 2018) 

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 

Quality of Earnings = Average 

Insight 

Based on the calculation of Discounted Earnings Model, TEOSENG has an intrinsic value of RM5.844. The current share price of TEOSENG is RM0.94 which makes it an undervalued stock (as at 12 March 2020). TEOSENG has a beta of 0.958 (500 days) indicating that the share price is less volatile than the current market. Based on the computation of Compound Annual Growth Rate (CAGR), TEOSENG has an expected market return of 4.46%.

In my opinion, TEOSENG’s prospect remains bright due to its active innovation, investment in cost-cutting technology and passionate advocacy of their brands. Despite the local’s eggs oversupply situation the company still able to deliver growth performance in its revenue, gross profit and profit after tax as compared to the results in FY2017. The Return on Equity has also improved from 1.391 times in FY2017 to 10.940 times in FY2018. I believe the company has potential to achieve outstanding performance in the future. 

Disclaimer 

The research, information and financial opinions expressed in this article 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. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 

Company Spotlight on Hartalega Holdings Berhad (5168)

By Stella Goh – Market Data Analyst | 6 March 2020  

Overview

Hartalega Holdings Berhad (HARTA) is an established Malaysia-based investment holding company founded by Kuan Kam Hon and is headquartered in Kuala Lumpur. HARTA is primarily involved in the business of producing latex and nitrile gloves. It has grown to be the world’s largest nitrile glove producer with the capability of manufacturing 34 billion gloves per year and with plans to progressively expand to 44.7 billion gloves in 2020.

HARTA was listed on Bursa Malaysia’s Main Market on 17 April 2008. The group has continued the technological innovations that help to ensure their gloves are manufactured with equal emphasis on efficiency and quality, a key reason why they are trusted as the Original Equipment Manufacturer (OEM) for some of the world’s biggest brands.

The company has a workforce of 7,800 people based in 8 dedicated manufacturing facilities. It has won many prestigious accolades in both local and international front. The latest was in 2019 for Gold in Export Excellence, Exporter of The Year and The Edge Billion Ringgit Club Corporate Awards. It has also received recognition from Forbes Asia, KPMG and Asia Money.

Business Model

HARTA provides a comprehensive range of products known for its superior quality and critical protection. Examples include nitrile gloves, latex gloves, surgical gloves and laboratory gloves.

As the most automated glove production company, its automated process not only improves efficiency but also eliminates product contamination resulting from human contact. HARTA produces soft stretchy nitrile gloves that emulate the properties of natural rubber latex. The nitrile gloves also eliminate the chances of protein allergy risks that are usually associated with rubber latex.

All gloves produced by HARTA are purchased by healthcare practitioners, food processing workers, lab workers and other professionals. Presently, HARTA’s export markets span across North America, Europe, Asia Pacific, Africa, Russia and Middle East.

Financial Review

Based on past 5 financial years’ revenue chart above, its revenue grew year-on-year (y-o-y) from FY2015 (+3.51%), FY2016 (+30.75%), FY2017 (+21.59%), FY2018 (+32.04%) to FY2019 (+17.52%). On a CAGR basis, HARTA has grown 20.62% based on 5 years. The group’s strong revenue was achieved on the back of improved sales volume which grew by 10.1% year-on-year to 28 billion pieces of gloves. The US and European Union remain key export markets accounting for 54% and 25% of their total exports respectively. (Source: Annual Report 2019)

HARTA has recorded a RM93.441 million increase in gross profit, translating to a growth of 15.20% from RM614.762 million in FY2018 to RM708.203 million in FY2019. Based on 5 years CAGR basis, the gross profit has grown 13.99%.

The increase in gross profit for HARTA was supported by increased contribution from the United States and Europe in tandem with the growing global demand for nitrile gloves. The group was well-positioned to meet this demand growth given their continuous expansion in production capacity via their Next Generation Integrated Glove Manufacturing Complex (NGC). (Source: Annual Report 2019).

The Profit After Tax (PAT) of HARTA rose 3.48% from RM439.632 million in FY2018 to RM454.938 million in FY2019. On a CAGR basis, the Profit After Tax (PAT) grew by 14.29% 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 RM627.399 million in FY2019 as compared to RM403.949 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion.

The net cash from investing activities in FY2019 (-RM428.602 million) was mainly due to the additions to capital work-in-progress (RM398.412 million), additions to Property, Plant and Equipment (PPE) (RM33.057 million) and additions to intangible assets (RM1.459 million). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2019)

The net cash from financing activities in FY2019 (-RM206.644 million) was mainly due to dividend paid (RM286.177 million) and interest paid (RM10.620 million).

Is the company able to pay back its liabilities?

Based on liquidity ratio calculation, HARTA has a current ratio of 2.179 times in FY2019 indicating that the company does not face any liquidity issues as it is capable of paying back its liabilities (411.889 million) if any unforeseeable circumstances occur. HARTA is able to do so by using current assets such as inventories, trade & other receivables, tax assets, cash, bank balances and short-term investments amounting to RM897.442 million.

Prospect and Challenges

HARTA has allocated RM630 million for Plant 6 and Plant 7 at their Next Generation integrated Glove Manufacturing Complex (NGC) in Sepang as well as RM115 million to integrate the Industry 4.0 technologies for all activities related to gloves production and manufacturing by connecting to computers for data analytics and artificial intelligence (AI). (Source: New Straits Times, 26 July 2019)

HARTA said the NGC Plant 5 was fully commissioned during the quarter while first line of Plant 6 was expected to begin commissioning in Q1 2020 with annual installed capacity of 4.7 billion pieces. For Plant 7, which has commenced construction, would cater to small orders focusing more on specialty products with an annual installed capacity of 3.4 billion pieces. (Source: New Straits Times, 5 November 2019). According to managing director Kuan Mun Leong, the company’s annual installed capacity allows it to ramp up the output from the current 36.6 billion pieces of gloves to 44.7 billion pieces per annum by FY2022. (Source: The Malaysian Reserve, 7 August 2019)

HARTA has launched the world’s first non-leaching antimicrobial glove (AMG) in United Kingdom.  The unprecedented innovation provides active protection against healthcare-associated infections (HAIs). The antimicrobial glove is developed in collaboration with antimicrobial Research and Development (R&D) company Chemical Intelligence UK, which has built-in antimicrobial technology proven to kill micro-organisms in order to prevent the spread of infections. This product is set to be available in hospitals around the world and is being produced at a lower cost in order to reduce the barriers to access. With this technology, the bacteria coming into contact will be exposed to the antimicrobial activity, which in independent testing, achieved up to a 5-log (99.999 per cent) kill rate within just 5 minutes of contact. (Source: New Straits Times, 7 June 2018)

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Average

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

Interest Coverage = Good

Quality of Earnings = Average

Insight

Based on the calculation of Discounted Earnings Model, HARTA has an intrinsic value of RM14.126. The current share price of HARTA is RM6.23 which makes it an undervalued stock (as at 5 March 2020). HARTA has a beta of 0.719 (500 days) indicating that the share price is less volatile than the current market. Based on the computation of Compound Annual Growth Rate (CAGR), HARTA has an expected market return of 4.93%.

In conclusion, HARTA has achieved a strong performance in FY2019 with the highest revenue, gross profit and profit after tax over the past 5 years. Its prospect remains bright as the expansion of Next Generation Integrated Glove Manufacturing Complex (NGC) is set to increase capacity from RM36.6 billion to RM44.7 billion pieces of gloves per annum by FY2022 boosted by the adoption of Industry 4.0 technologies, Internet of Things and integrated manufacturing operations. The demand growth is expected to continue particularly in the near-term given the ongoing COVID-19 outbreak across the globe.

Disclaimers

The research, information and financial opinions expressed in this article 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. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.

Company Spotlight on MY E.G. Services Berhad (0138)

By Stella Goh – Market Data Analyst | 27 February 2020  

Overview

MY E.G. Services Berhad (MYEG) is an MSC-status Malaysia-based investment holding company founded by Wong Thean Soon on 17 February 2000 and headquartered in Petaling Jaya, Selangor. MYEG is primarily involved as a service provider that engages in the development and implementation of e-Government services for the Malaysian Government and the provision of other related services of e-Government projects.

MYEG was listed in ACE Market in 2005 and successfully transferred onto the Main Market of Bursa Malaysia on 7 January 2009. The group operates more than 100 service centres across Malaysia by providing both e-Government and commercial services to agencies such as Dewan Bandaraya Kuala Lumpur (DBKL), Jabatan Insolvency Malaysia (JIM), Jabatan Pengangkutan Jalan (JPJ), Jabatan Pendaftaran Negara (JPN), Polis Diraja Malaysia (PDRM), Jabatan Imigresen Malaysia and others.

Business Model

MYEG builds, operates and owns the electronic channel to deliver services from various government agencies to Malaysian citizens and businesses. The overall e-Government initiatives focus on allowing citizens to retrieve information and perform transactions with various services suppliers in a convenient and timely manner by utilizing the Electronic Services (e-Services) platforms.

The company’s business can be categorized into two strategic business divisions. For example, Government to Citizen (G2C) and Government / Enterprise Solution (GES). G2C services refer to services such as motoring driving theory test bookings, issuance and renewal of licenses, electronic bill payment as well as online information services such as checking of traffic summonses and electronic bankruptcy or liquidation searches. While GES are non-Internet based services such as software and enterprise solutions, system development and maintenance as well as services rendered are at the e-Services Centres. The other services include renewal of foreign worker permits, Zakat payments, Kuala Lumpur City Hall assessment and summons payments.

Financial Review

Based on past 5 financial years’ revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2014 (+43.65%), FY2015 (+28.80%), FY2016 (+99.08%), FY2017 (+31.76%) to FY2018 (+51.47%). On a CAGR basis, MYEG has grown 49.03% based on 5 years. The increase in revenue was mainly attributed to over 80% from commercial services with the remaining 20% coming from the e-Government services fuelled by demand growth.

MYEG has recorded a RM128.999 million increase in gross profit, translating to a growth of 45.43% from RM283.959 million in FY2017 to RM412.958 million in FY2018. Based on 5 years of CAGR basis, the group’s gross profit has grown 49.77%.

The increase in gross profit for MYEG is due to the strong uptake for the group’s services, ranging from concession services such as online foreign workers work permit renewal and rehiring programs from the Immigration Department and online road tax renewal for the Road Transport Department (JPJ). The ancillary and commercial services like online auto insurance renewal and foreign worker insurance renewal also further contributed to the group’s profits. (Source: Annual Report 2018).

The Profit After Tax (PAT) of MYEG has a decrease of 37.03% from RM200.048 million in FY2017 to RM125.970 million in FY2018. The PAT was moderated by an impairment of RM95.45 million due from an associate company and an impairment of equipment amounting to RM76.29 million in relation to the abolishment of the Govt Service Tax (GST) regime prior to the introduction of the Sales & Service Tax (SST) regime. (Source: Annual Report 2018).

Cash Flow Statements

The net cash from operating activities has provided a positive cash flow of RM168.853 million in FY2018 as compared to RM84.804 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 FY2018 (-RM65.239 million) was mainly due to the purchase of Property, Plant and Equipment (PPE) of (RM47.485 million), purchase of other investment (RM19.579 million), acquisition of investment properties (RM6.443 million), purchase of joint venture (RM2.726 million) and advances to a joint venture (RM13,000). The negative cash flow indicates that the firm is investing in its business for growth. (Source: Annual Report 2018).

The net cash from financing activities in FY2018 (-RM125.386 million) was mainly due to the dividend paid to shareholders (RM61.308 million), purchase of treasury shares (RM52.804 million), repayment of term loans (RM19.358 million), repayment of hire purchase and finance lease obligations (RM2.676 million) and repayment of revolving credit (RM1.2 million).

Is the company able to pay back its liabilities?

Based on liquidity ratio calculation, MYEG has a current ratio of 1.6032 times in FY2018 indicating that the company does not face any liquidity issues as it is capable of paying back its liabilities if any unforeseeable circumstances occur. MYEG is able to do so by using current assets such as inventories, financing receivables, trade receivables, other receivables, deposits & prepayments, amount owing by a joint venture, current tax assets, fixed deposits with licensed banks, cash and bank balances amounting to RM358.142 million.

Prospect and Challenges

MYEG has successfully developed an extensive artificial intelligence (AI)-powered coronavirus risk profiling system in a partnership with China’s Phoenix Travel Worldwide Co., with capabilities that include historical geolocation and anomaly tracking for foreign visitors. The system will be offered to the governments of Malaysia and Philippines. (Source: The Edge Markets, 19Feb2020).

According to the company, the system encompasses analytics of a vast number of available data points, including visitors’ previous known whereabouts as well as heart rate and blood pressure readings crossed referenced against public transportation ridership and exposure to the locations with incidences of infections. (Source: The Malaysian Reserve, 26 Feb 2020).

MYEG‘s subsidiary in Indonesia, PT Cartenz Inti Utama (Cartenz Group) has secured additional government mandates to roll-out its tax monitoring system to 30 more cities, marking an expansion of the program that has already been undertaken actively in Jakarta. The project tenure ranges from one year to three years and it is renewable upon expiry. (Source: The Edge Markets, 14Jan2020).

Since the unveiling of the joint venture in 2018, the group has started the implementation of real-time monitoring of business transactions for tax computation purposes, with installations in retail merchant premises and presently ongoing in Jakarta under a pilot program offered at no charge. Following the successful implementation in Jakarta, the group has recently been contracted by the governments of seven other provinces in Indonesia to deploy, on a chargeable basis, the tax monitoring system to cover a total of 30 cities. (Source: Digital News Asia, 14Jan2020)

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

Quality of Earnings = Average

Insight

Based on the calculation of Discounted Earnings Model, MYEG has an intrinsic value of RM1.622. The current share price of MYEG is RM1.18 which makes it an undervalued stock (as at 26 Feb 2020). MYEG has a beta of 1.462 (500 days) indicating that the share price is more volatile than the current market. Based on the computation of Compound Annual Growth Rate (CAGR), MYEG has an expected market return of 4.96%.

In conclusion, MYEG has achieved an outstanding performance in FY2018 with the highest revenue and gross profit over the past 5 years. It’s prospect remains bright as the expansion of tax monitoring system to more regions in Indonesia represents an important milestone for MYEG, not only in the strengthening of its position as a leading e-Government services provider in Indonesia, but also in the widening of its footprint in the country’s retail sector.

Disclaimers

The research, information and financial opinions expressed in this article 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. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.

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.

Site last updated July 6, 2020 @ 3:54 am