Case Study of Airasia Group Berhad (5099)

By Stella Goh – Market Data Analyst | 2 January 2020

Overview

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

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

Business Model

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

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

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

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

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

Financial Review


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

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

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

Cash Flow Statement

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

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

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

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

Prospect and Challenges

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

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

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

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

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

Rating System

Return on Equity (ROE) = Good

Revenue [5 years CAGR] = Average

Net Earnings [5 years CAGR] = Good

Basic Earnings per Share [5 years CAGR] = Good

Interest Coverage = Average

My Insight

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

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

Disclaimers

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

Case Study of Top Glove Corporation Bhd (7113)

By Stella Goh – Market Data Analyst | 25 December 2019

Overview

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

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

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


Business Model

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

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

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


Financial Review

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


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


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


Cash Flow Statements

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

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

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

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


Prospect and Challenges

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

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

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

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

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


Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Average

Basic Earnings per Share [5 years CAGR] = Average

Interest Coverage = Average


My Insight

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

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


Disclaimers

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

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

By Stella Goh – Market Data Analyst | 19 December 2019

Overview 

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

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

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


Business Model 

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

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

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

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


Financial Review 

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

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

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


Cash Flow Statement 

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

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

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

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


Prospect & Challenges 

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

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

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


Rating System 
 

 
 
Return on Equity (ROE) = Average 

Revenue [5 years CAGR] = Average 

Net Earnings [5 years CAGR] = Good 

Basic Earnings per Share [5 years CAGR] = Good 

Interest Coverage = Good 


My Insight 

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

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

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

 

Case Study of Mega First Corporation Berhad (3069)

By Stella Goh – Market Data Analyst | 12 December 2019

Overview

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

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


Business Model

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


Financial Review

Revenue

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


Gross Profit

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


Net Profit After Tax

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


Cash Flow Statements

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

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

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

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


Prospect and Challenges

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

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

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

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


Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Average

Basic Earnings per Share [5 years CAGR] = Average

Interest Coverage = Good


My Insight

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

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


Disclaimers

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

Case Study of Guan Chong Berhad (5102)

By Stella Goh – Market Data Analyst | 27 November 2019

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.

Case Study of QL Resources Berhad (7084)

By Stella Goh – Market Data Analyst | 20 November 2019

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.

Case Study of Kronologi Asia Berhad (0176)

By Stella Goh – Market Data Analyst | 8 November 2019

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.

Case Study of Elsoft Research Berhad (0090)

By Stella Goh – Market Data Analyst | 30 October 2019

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.

Case Study of Revenue Group Berhad (0200)

By Stella Goh – Market Data Analyst | 21 October 2019

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.

Case Study of Scientex Berhad (4731)

By Stella Goh – Market Data Analyst | 10 October 2019

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.

Site last updated April 3, 2020 @ 3:39 am