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.