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.