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.