Company Spotlight on Supermax Corporation Berhad (7106)

By Stella Goh – Market Data Analyst | 27 March 2020

Overview 

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

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

Business Model 

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

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

Financial Review

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

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

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

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

The Profit After Tax (PAT) rose 11.77% from RM110.142 million in FY2018 to RM123.103 million in FY2019. Based on 3 years CAGR basis, the Profit After Tax (PAT) grew by 8.64% which was in line with the growth in revenue and gross profit.

Cash Flow Statement 

The net cash from operating activities has provided a positive cash flow of RM235.053 million in FY2019 as compared to RM177.188 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion. 

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

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

Is the company able to pay back its liabilities? 

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

Prospect and Challenges 

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

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

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

Rating System

Return on Equity (ROE) = Average 

Revenue [3 years CAGR] = Average 

Net Earnings [3 years CAGR] = Average 

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

Interest Coverage = Average 

Quality of Earnings = Average 

Insight 

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

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

Disclaimers 

The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentionalIt would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 

Company Spotlight on Teo Seng Capital Berhad (7252)

By Stella Goh – Market Data Analyst | 13 March 2020

Overview 

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

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

Business Model 

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

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

Financial Review 

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

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

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

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

The Profit After Tax (PAT) rose 778.41% from RM3.460 million in FY2017 to RM30.393 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 5.39% which was in line with the growth in revenue and gross profit. 

Cash Flow Statement 

The net cash from operating activities has provided a positive cash flow of RM64.825 million in FY2018 as compared to RM6.338 million in FY2017 indicating that the company is healthy and has enough cash to use for business expansion. 

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

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

Is the company able to pay back its liabilities? 

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

Prospect and Challenges 

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

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

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

Rating System 

Return on Equity (ROE) = Average 

Revenue [5 years CAGR] = Average 

Net Earnings [5 years CAGR] = Average 

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

Interest Coverage = Average 

Quality of Earnings = Average 

Insight 

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

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

Disclaimer 

The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor. 

Company Spotlight on Hartalega Holdings Berhad (5168)

By Stella Goh – Market Data Analyst | 6 March 2020  

Overview

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

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

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

Business Model

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

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

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

Financial Review

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

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

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

The Profit After Tax (PAT) of HARTA rose 3.48% from RM439.632 million in FY2018 to RM454.938 million in FY2019. On a CAGR basis, the Profit After Tax (PAT) grew by 14.29% which was in line with the growth in revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has provided a positive cash flow of RM627.399 million in FY2019 as compared to RM403.949 million in FY2018 indicating that the company is healthy and has enough cash to use for business expansion.

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

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

Is the company able to pay back its liabilities?

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

Prospect and Challenges

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

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

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

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Average

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

Interest Coverage = Good

Quality of Earnings = Average

Insight

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

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

Disclaimers

The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.

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

By Stella Goh – Market Data Analyst | 27 February 2020  

Overview

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

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

Business Model

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

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

Financial Review

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

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

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

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

Cash Flow Statements

The net cash from operating activities has provided a positive cash flow of RM168.853 million in FY2018 as compared to RM84.804 million in the previous year indicating that the company is healthy and has enough cash to be used for business expansion.

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

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

Is the company able to pay back its liabilities?

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

Prospect and Challenges

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

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

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

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

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Good

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

Interest Coverage = Good

Quality of Earnings = Average

Insight

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

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

Disclaimers

The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.

Case Study of Foundpac Group Berhad (5277)

By Stella Goh – Market Data Analyst | 19 February 2020  

Overview

Foundpac Group Berhad (FPGROUP) is a Malaysia-based investment holding company founded in 2015 and headquartered in Bayan Lepas, Penang. FPGROUP is primarily involved as an import-export company that has made a significant impact in the manufacturing and engineering industry.

FPGROUP was listed on Bursa Malaysia’s Main Market on 29 December 2016. FPGROUP nurtures alliances with a reputable network of vendors and contractors in order to provide an unequalled standard of excellence. The group has acquired accreditation with ISO 9001 as proof of their quality and commitment to excellence.

Business Model

FPGROUP is primarily involved in the design, development, manufacturing, marketing and sale of precision engineering products such as stiffeners, integrated circuit (IC) test sockets, hand lids, and related accessories as well as manufacturing and sale of laser stencils. Examples are final test stiffeners, probe and card stiffeners, accessories for stiffeners, high pin court sockets, fine pitch sockets, high power or high frequency sockets, tri-temp test sockets, module test sockets and toggle clamp hand lids.

FPGROUP’s customers are primarily large multinational semiconductor manufacturers, outsourced semiconductor assembly and test companies (OSATs) and printed circuit board (PCB) design houses as well as fables semiconductor companies. All FPGROUP’s products are distributed within Malaysia as well as exported to countries including Singapore, China, Hong Kong, Taiwan, France and the UK.

Financial Review

FPGROUP has achieved a revenue growth of 26.49% from RM35.534 million in FY2018 to RM44.946 million in FY2019. Based on the past 5 years CAGR basis, the gross profit growth was 8.27%.

The increase in revenue from the Asia market was mainly contributed by existing and new customers in China, Hong Kong and Taiwan for both precision engineering and laser stencil segments. While the increase in revenue contributions from North America and Europe markets were mainly contributed by existing customers in North America and Germany for the precision engineering segment. (Source: Annual Report 2019)

FPGROUP has recorded a RM6.073 million increase in gross profit, translating to a growth of 35.76% from RM16.983 million in FY2018 to RM23.056 million in FY2019. Based on 5 years CAGR basis, the group’s gross profit has grown 12.71%. The increase in gross profit was due to the hike in revenue generated by precision engineering segments, namely stiffeners and related accessories.

Based on Annual Report 2019, the precision engineering segment recorded a surge in revenue from Asia, North America and Europe markets by RM2.761 million, RM2.223 million and RM2.088 million respectively as compared to FY2018. Besides, the laser stencil segment also generated a hike in revenue from other Asian markets by RM1.947 million.

The Profit After Tax (PAT) of FPGROUP rose 58.08% from RM8.011 million in FY2018 to RM12.664 million in FY2019. On a CAGR basis, the Profit After Tax (PAT) grew by 6.57% which was in line with the growth in revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has provided a positive cash flow of RM9.650 million in FY2019 as compared to RM5.406 million in the previous year indicating that the company is healthy and has enough cash to be used for business expansion.

The net cash from investing activities in FY2019 (-RM5.208 million) was mainly due to the purchase of Property, Plant and Equipment (PPE) of RM6.758 million. The negative cash flow indicates that the firm is investing more in its business for growth. (Source: Annual Report 2019).

The net cash from financing activities in FY2019 (-RM5.175 million) was mainly due to the dividend paid to shareholders of the company (RM5.186 million) and dividend paid to non-controlling interests (RM262,500).

Is the company able to pay back its liabilities?

Based on liquidity ratio calculation, FPGROUP has a current ratio of 12.86 times in FY2019 indicating that the company does not face any liquidity issues as it is capable of paying back its liabilities if any unforeseeable circumstances occur. FPGROUP is able to do so by using current assets such as inventories, receivables, prepayments, current tax assets, cash and cash equivalents amounting to RM53.491 million. However, this may also indicate that the company is not efficiently using its current assets or its short-term financing facilities.

Prospect and Challenges

According to the group Chief Executive Officer Ong Cheng Hoon, FPGROUP plans to produce parts for the automotive industry next year and it has installed a new production line to manufacture the critical automotive parts. The group was in the process of applying for the IATF 16949 certification which will qualify it as a first and second tier producer of critical automotive parts. The certification is expected in 1H 2020 and commencement of commercial operations in 2H 2020. The negotiations as a key supplier of critical automotive components with European and Asian carmakers are expected to be concluded in FY2020. (Source: StarBiz, 16 Dec 2019).

According to The Star Business, FPGROUP expects its first-half performance for the financial year ending 30 June 2020 to improve by double digit percentages, driven by the implementation of 5G infrastructure and transmission towers. The group Chief Executive Officers Ong Choon Heng told StarBiz that for the first half of 2020, more than RM25 million worth of test sockets, stiffeners and laser stencils would be shipped to semiconductor test equipment customers in United States, Europe and China compared to about RM21 million achieved in the corresponding period of the preceding year. (Source: StarBiz, 23 Sep 2019).

The test sockets and stiffeners are attached to semiconductor test equipment to check integrated circuits and printed circuits boards used in a wide range of 5G hardware, electronic home appliances, consumer electronics and semiconductor parts. According to Ong, the rollout of 5G technology is expected to hit US$2.7 trillion by the end of FY2020. (Source: StarBiz, 23 Sep 2019).

FPGROUP’s stencils enable the electronic manufacturing services (EMS) companies to manufacture at a lower cost. Moving forward, the group will continue to focus on the high-mix and low-volume product business model. The group’s strategy is to compete with the other test socket and stiffener manufacturers in terms of quality so that they can price their products higher to generate better margins. (Source: StarBiz, 23 Sep 2019).

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Average

Net Earnings [5 years CAGR] = Average

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

Interest Coverage = NIL

*Interest Coverage is NIL because there is no interest income incurred. (Source: Annual Report 2019)

Insight

Based on the calculation of Discounted Earnings Model, FPGROUP has an intrinsic value of RM1.495. The current share price of FPGROUP is RM0.95 which makes it an undervalued stock (as at 18 Feb 2020). FPGROUP has a beta of 1.784 (500 days) indicating that the company is more volatile than the current market. Investors may face higher risk. Based on the computation of Compound Annual Growth Rate (CAGR), FPGROUP has an expected market return of 5.22%.

In conclusion, FPGROUP has achieved an outstanding performance in FY2019 with its highest revenue and gross profit over the past 5 years. FPGROUP’s prospect remains bright as the rollout of 5G in China, Europe and the United States is expected to generate demand for integrated circuits for use in the hardware of 5G transmission towers. The company is expected to perform well in the future as the Internet of Things (IoTs) needs a lot of high-end equipment to test and automate hence creating a strong demand for semiconductor test equipment.


Disclaimers

The research, information and financial opinions expressed on ShareInvestor.com website are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely.

Case Study of Kejuruteraan Asastera Berhad (0193)

By Stella Goh – Market Data Analyst | 12 February 2020  

Overview

Kejuruteraan Asastera Berhad (KAB) is an established Malaysia-based electrical and mechanical engineering company founded in 1997 and headquartered in Kuala Lumpur. KAB specializes in providing comprehensive and one-stop solutions in electrical and engineering services for main contractors, project owners and property developers operating in Malaysia. 

KAB was listed in ACE Market on 17 November 2017. KAB holds a Class A certification (highest electrical contractor certification) from Energy Commission Malaysia and a Grade 7 (highest grade) license from Construction Industry Development Board (CIDB). 

Business Model 

KAB covers all aspects of electrical, mechanical and associated engineering services for both commercial and residential buildings. 

KAB offers installation, testing and commissioning of electrical systems, electrical distribution systems, communication & information technology networks, generator sets, street lighting, lifts and escalators, fire protection, extra-low voltage (ELV) systems, air-conditioning and mechanical ventilation systems. 

The company also derived additional revenue from sales of cables, switches, trunking, pipes and electrical accessories which are required for projects to its sub-contractors. 

Financial Review 

Based on the past 4 financial years of revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2015 (+52.93%), FY2016 (+6.92%), FY2017 (+23.01%) to FY2018 (+21.43%). On a CAGR basis, KAB has grown 25.01% based on 4 years. The increase in revenue was mainly attributed to 54.6% from commercial projects, 43.6% from residential projects and 1.8% from others.

KAB has recorded RM3.415 million increase in gross profit, translating to a growth of 15.55% from RM22 million in FY2017 to RM25.4 million in FY2018. Based on four years CAGR basis, the gross profit has grown 31.29%. The increase in gross profit was due to the rise in demand for electrical & mechanical engineering services specifically in new construction and property projects. 

The Profit After Tax (PAT) of KAB rose 26.58% from RM6.8 million to a new high of RM8.6 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 21.91% which was in line with the growth of revenue and gross profit. 

Cash Flow Statement 

The net cash from operating activities has obtained a positive cash flow of RM1.4 million in FY2018 as compared to RM2 million in the previous year. The decrease in net cash from operating activities was mainly due to the increase in working capital requirements and taxes paid for the group’s ongoing operations. Even though the cash flow is lower in FY2018, the company still has enough cash for business expansion. 

The net cash from investing activities in FY2018 (-RM867,196) was mainly due to the purchase of Property, Plant and Equipment (PPE) of (RM901,144) and acquisition of subsidiary unquoted shares (RM1,052). The negative cash flow indicates that the firm is investing more in its business for growth. (Source: Annual Report 2018) 

The net cash from financing activities in FY2018 (-RM267,314) was mainly due to fixed deposits pledged as securities (RM5.1 million), dividend paid (RM3.2 million), repayment of bank’s factoring (RM2.5 million), repayment of term loans (RM1.9 million) and repayment of finance lease liabilities (RM376,691).  

Is the company able to pay back its liabilities?  

Based on liquidity ratio calculation, KAB has a current ratio of 1.8544 times in FY2018 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities if any unforeseeable circumstances occur. KAB is able to do so by using current assets such as contracts, trade and other receivables, deposits & prepayments, amount due from subsidiary companies, deposits with licensed banks, cash and bank balances amounting to RM84.1 million.  

Prospect and Challenges 

KAB has achieved an order book estimated at RM350 million, translating into 2.5 times revenue in FY2018 after winning the job for three blocks of serviced apartment and hotel at Lot 162, Sungai Besi. (Source: TheEdge, 10 January 2020). 

KAB has won a RM20 million electrical installation services contract from Kerjaya Prospek Group Bhd for a hotel, office and serviced apartment project in Kuala Lumpur. The project known as Bloomsvale located at Jalan Klang Lama, which comprises two 53-storey blocks and another 25-storey block has commenced since last week and is expected to be completed by 1 November 2022. (Source: TheEdge, 30 January 2020). 

In early 2018, KAB has set up KAB Technologies Sdn Bhd (KABT) to provide project management and consultancy for upgrading M&E systems for buildings to save on energy costs. KABT will use the data collection devices and the Internet of Things (IoT) such as sensor network and communication modules to gather the building usage data. (Source: TheEdge, 21 January 2020). 

In FY2019, KABT has also entered an 80:20 joint venture (JV) with Resources Data Management Asia Sdn Bhd to develop new technology solutions as well as identify strategic business developments and revenue recognition. (Source: TheEdge, 21 January 2020).  

KAB is also venturing into solar energy generation via the acquisition of 30% stake in Leverage Edge Sdn Bhd (LSB), where the partnership is expected to boost its chances next year in Large-Scale Solar 4 (LSS4) tender. Apart from the energy efficiency solutions and solar energy generation businesses, KAB also provides combined heat & power co-generation, waste heat recovery solutions and is currently participating in some tenders. (Source: TheEdge, 21 January 2020). 

Rating System 

Return on Equity (ROE) = Average 

Revenue [4 years CAGR] = Good 

Net Earnings [4 years CAGR] = Good 

Basic Earnings per Share (EPS) [4 years CAGR] = Good 

Interest Coverage = Average 

Insight 

Based on calculation on Discounted Earnings Model, KAB has an intrinsic value of RM2.529. The current share price of KAB is RM1.960 which is in the range of fair value. (Based on 11Feb2020). KAB has a beta of 0.917 (500 days) indicating that the company is less volatile than the current market. Investors may face a lower risk. Based on the computation of Compound Annual Growth Rate (CAGR), KAB has an expected market return of 5.25%. 

In conclusion, KAB has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax increased year-on-year basis. KAB has actively sought joint ventures and is looking to invest in the Internet of Things (IoT) which can help to enhance its position in the electrical and industry sector. Based on intrinsic value calculated, KAB has 29.03% upside potential in share price.  

Disclaimers 

The research, information and financial opinions expressed on ShareInvestor.com website are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely. 

Case Study of JHM Consolidation Berhad (0127)

By Stella Goh – Market Data Analyst | 22 January 2020

Overview 

JHM Consolidation Berhad (JHM) is an established Malaysia-based company founded in 2005 and headquartered in Bayan Lepas, Malaysia. JHM is a one stop solution provider for high precision, high speed stamping, including tooling design, fabrication as well as production of Micro-Electronic Components (MECs).  

JHM was listed in ACE Market in Year 2006 and is seeking to transfer their listing quotation for entire issued share capital to Main Market of Bursa Malaysia by third quarter of this year. (The Star Property, 1Jan2020). Geographically, the company exports its products to People’s Republic of China, United States of America, United Kingdom and Singapore. 

There are 6 wholly subsidiaries of JHM such as Morrissey Technology Sdn Bhd (MTSB), Morrissey Assembly Solutions Sdn Bhd (MASSB), JH Morrissey Sdn Bhd (JMSB), Morrissey Mettalurgy Manufacturing Sdn Bhd (MMMSB), Morrissey Integrated Dynamics Sdn Bhd (MIDSB) and Mace Instrumentation Sdn Bhd (MISB). 

Business Model 

JHM principally engaged in the manufacturing of precision miniature engineering metal parts & components, assembly of electronic components by using surface mount technology (SMT), assembly of automotive rear lighting for well-known car manufacturers in North America countries as well as in Japan, and production on high brightness of emitting diodes (HB LED) application to support 3D effects. 

The group also involved in the broad portfolio of innovative equipment, services and niche products for aerospace. They design, SMT production and assembly of interior lighting for aerospace. 

Financial Review 

Based on the past 5 financial years of revenue chart above, the group’s revenue grew year-on-year (y-o-y) from FY2014 (+3.45%), FY2015 (+82.86%), FY2016 (+47.51%), FY2017 (+27.03%) to FY2018 (+7.57%). On a CAGR basis, JHM has grown 30.69% based on 5 years. The increase in revenue was mainly attributed to 71% for Automotive Segment Industry, 28% for Industrial Products and 1% for others. 

JHM has successfully recorded RM3.965 million increase in gross profit, translating to a growth of 6.99% from RM56.7 million in FY2017 to RM60.7 million in FY2018. Based on five years CAGR basis, the group has grown 48.94%. The increase in gross profit was due to the contribution from Mace instrumentation Sdn Bhd (MISB), growing of automotive sectors, results from Mechanical Business Unit and unrealized gain on foreign exchange of RM2.22 million in FY2018.    

The Profit After Tax (PAT) of JHM rose 19.60% from RM29.6 million in FY2017 to a new high of RM35.4 million in FY2018. On CAGR basis, the Profit After Tax (PAT) grew by 77.30% was in line with the growth of revenue and gross profit.

Cash Flow Statement 

The net cash from operating activities has obtained a positive cash flow of RM26.0 million in FY2018 compared to RM17.1 million in FY2017 indicates that the company is healthy and have enough cash used for business expansion. 

The net cash from investing activities in FY2018 is (-RM12.7 million) was mainly due to purchase of Property, Plant and Equipment (PPE) (RM8.5 million), net cash outflow from acquisition of a subsidiary (RM3.9 million), acquisition of non-controlling interests (RM1.5 million) and placement of fixed deposits (RM0.158 million). The negative cash flow indicates that the company is investing more in its business to grow. 

The net cash from financing activities in FY2018 is (-RM10.8 million) was mainly due to the payment of finance lease (RM15.7 million) and dividends paid (RM8.4 million).  

Is the company able to pay back its liabilities?  

Based on my liquidity ratio calculation, JHM has a current ratio of 2.858 times in FY2018 indicating that the company does not face any liquidity issue as it is capable of paying back its liabilities if any unforeseeable circumstances occur. JHM is able to do so by using current assets such as inventories, trade receivables, other receivables, deposits, prepayments, tax recoverable, cash and bank balances amounted to RM182.7 million. 

Prospect and Challenges 

JHM was buying a factory in Kedah for RM16.6 million by cash and the group have signed the sale and purchase agreement (SPA) with Bernas Wirama Sdn Bhd. The acquisition will enable JHM to expand their production floor in order to increase their production capacity. The board views it as a strategic move for JHM group to own the property, to improve and enhance the operational efficiencies in long-term. (The Edge, 2 April 2019).  

On 26 March 2019, JHM has entered a two years Memorandum of Understanding (MoU) with Universal Alloy Corporation Europe (UACE) in order to create an efficient and effective supply chain for machined sub-assembled aerospace components and products. UACE will provides technical and manufacturing capabilities insertion programs as and when needed by JHM. They understand that the MoU is one of four signed as part of strategic objectives of Malaysia’ National Policy on Industry 4.0 for Industry 4WRD. They noted that there was also another MoU signed between JHM and MTC AeroSystems of Hungary to supply software systems for JHM. (The Edge, 28 March 2019).  

Rating System

Return on Equity (ROE) = Average 

Revenue [5 years CAGR] = Good 

Net Earnings [5 years CAGR] = Excellent 

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

Interest Coverage = Good 

My Insight 

Based on my calculation on Discounted Earnings Model, JHM Consolidation Berhad has a fair value of RM4.372. The current market value of JHM is RM1.68 which is undervalued (Based on 20Jan2020). JHM has a beta of 1.659 (500 days) indicates that the company is more volatile than current market, which means the investors / traders are actively trading in this stock. While for short-term trader, they may face higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), JHM has an expected market return of 5.54%. 

In conclusion, JHM Consolidation Berhad has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax (PAT) have been increased years by years from FY2014 to FY2018. JHM’s prospect remains bright will be supported by vibrant automotive segment, and by industrial segments such as gradual and steady take-off strategic aerospace segment, especially after the successful qualification of initial sample parts. I believe the company can grow very well in the future as the 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 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. 

Case Study of GHL Systems Berhad (0021)

By Stella Goh – Market Data Analyst | 15 January 2020


Overview

GHL Systems Berhad is an investment holding company founded in Year 1994 and headquartered in Kuala Lumpur. GHLSYS was primarily involved as a leading payment service provider in Asia Pacific, specializing in payment related solutions and services for banks, merchants, telco, billers and other e-commerce players such as oil & gas, retail, transportation companies etc.

GHLSYS was listed in ACE Market on April 2003 and successfully transformed into Main Market of Bursa Malaysia on February 2007. With more than 20 years of experience in e-payment industry, the group successfully built a solid reputation in revolutionizing the ASEAN payment industry. They transformed the manual payment methods into a complete digital approach by simplifying the distribution payment as well as collection catering to all merchants in the region.

Presently, GHLSYS has business operations spanning across Malaysia, Philippines, Cambodia, Indonesia, Singapore and Australia.



Business Model

GHL Systems Berhad principally involved in the business segments such as shared services, solution services and transaction payment acquisitions.

GHLSYS provides a full range of solutions and services to banks and merchants affiliated to the acceptance of payment devices on sale, maintenance and rental basis. For examples, POS terminals and other payment acceptance devices which can perform electronic payments for credit cards, debit cards, e-Wallet, loyalty points capture, redemption transactions, loan repayment and other bank or merchant specific requirements.

The group also engaged in developing and selling in-house software and hardware programs, implementation services which enables the banks and merchants acquire a secure payment network and other related services such as installation, training and maintenance. They are also accredited by reputable organizations and governing bodies such as VISA, MasterCard, JCB, UPI, Alipay, MEPS, SIRIM, and Line Encryption Working Group.

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 (+157.58%), FY2015 (+28.16%), FY2016 (+16.34%), FY2017 (+3.15%) to FY2018 (+17.89%). On CAGR basis, GHLSYS has grown 36.11% based on 5 years. The increase in revenue was mainly attributed to 61% for Transaction Payment Acquisition (TPA), 34.2% for Shared Services and 4.8% for Solution Services.


GHL Systems Berhad has successfully recorded a considerable RM21,150 million increase in gross profit, translating to a double-digit growth of 20% from RM105.7 million in FY2017 to RM126.9 million in FY2018. Based on 5 years CAGR basis, the group has grown 25.75%. The increase in gross profit was mainly due to the increase in sales of EDC terminals in Malaysia and Thailand, higher rental fees and transaction fees collected, and better performance by geography from Thailand and Philippines, particularly in Transaction Payment Acquisition (TPA) segments.


The Net Profit After Tax (PAT) of GHLSYS rose 19.89% from RM20.5 million in FY2017 to a new high of RM24.6 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 36.62% was in line with the growth of revenue and gross profit.

Cash Flow Statement

The net cash from operating activities has obtained a cash flow of RM2.5 million in FY2018 which is lesser than FY2017 amounted to RM56.4 million. Even though the cash flow is lesser in FY2018 compared to previous years, the company still have enough cash used for business expansion.

The net cash from investing activities in FY2018 is (-RM52.7 million) was mainly due to the purchase of Property, Plant & Equipment (PPE) (RM22.6 million), purchases of intangible assets (RM0.021 million), acquisition of subsidiaries (34.4 million), acquisition of additional interests in other investment (RM2.1 million), and placement in deposit pledged (RM4.5 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 of RM82.7 million was attributed to drawdown of term loans (RM79.9 million), drawdown of hire purchase (RM6.6 million) and proceeds received (Executive Share Scheme exercised, private placement and resale of treasury shares) (RM85.7 million). GHLSYS had also need to pay for term loans, Islamic facility, hire purchase creditors and banker’s acceptance with a total amounting to RM89.5 million.

Does the company able to pay back its liabilities? Based on my liquidity ratio calculation, GHLSYS has a current ratio of 1.096 times in FY2018 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, trade & receivables, current tax assets, cash and bank balances amounted to RM371.4 million.

Prospect and Challenges

GHLSYS is partnered with Mastercard, has launched a tokenized e-payments solution that offer simple, more secure and seamless digital payment experiences for consumers. For examples, the Mastercard Digital Enablement Services (MDES) for Merchants (M4M) is offered by GHLSYS’s fintech arm, eGHL (first payment service provider in Southeast Asia) for online and in apps transactions. The MDES will be used to protect user’s card information and sensitive accounts numbers, with a digital token that is unique to only the customer and the merchant. (Source: TheEdge, 6Jan2020)

GHLSYS plans to roll out 10,000 of merchant acquisition for Bank Negara Indonesia (BNI) and becomes e-Wallets provider in Indonesia starting in first quarter of 2020 (1Q2020). The groups also have started pilot program for money lending business in Malaysia and Thailand after they received the money lending license in August 2019, which will allow them offer financing to its merchant base. (Source: TheEdge, 6Dec2019).

GHLSYS via its 100% subsidiary GHL (Thailand) Co Ltd together with Thanachart Bank Public Company Limited have jointly launched smart payment terminals in Thailand as they see big opportunities to bring cashless payments to a wider range of business. The payment acceptance options in Thanachart banks include both PromptPay and credit / debit cards which follows the Thai QR Code Specification and WMVCo standards for Payment Systems. These services are expected help to reduce dependency on cash, as more business are gearing towards new e-payment methods. (TheEdge, 24July2019).


Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Good

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

Interest Coverage = Good

My Insight

Based on my calculation on Discounted Earnings Model, GHL Systems Berhad has a fair value of RM4.291. The current market value of GHLSYS is RM1.64 which is undervalued. (Based on 13 Jan 2020). GHLSYS has a beta of 0.579 (500 days) indicates that the company is less volatile than current market, which also indicates investors / traders are not actively trading in this stock. While for short-term trader, they may face lower risk. Based on my computation of Compound Annual Growth Rate (CAGR), GHLSYS has an expected market return of 5.51%. GHLSYS has a Return of Equity (ROE) of 6.042%, which is slightly decreased from 7.459% from last year which means slightly unhealthy.

In conclusion, GHL Systems Berhad has achieved an outstanding performance in FY2018 as the revenue, gross profit and net profit after tax (PAT) have been increased years by years from FY2014 to FY2018. GHLSYS prospects remain bright by looking at the growth of cashless payment such as Mastercard Digital Enablement Services (MDES) and smart payment terminals. I believe the company can grow very well in the future as the electronic and digital payments are on the rise around the globe.

However, investors or traders must be cautious that the decreasing of Return on Equity (ROE) of the company indicates that the management’s effectiveness in utilization resources to generate return, for each dollar invested in the company, is decreasing.

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.

Case Study of Frontken Corporation Berhad (0128)

By Stella Goh – Market Data Analyst | 9 January 2020


Overview 

Frontken Corporation Berhad is an established Malaysia-based investment holding and provision management services company founded in the Year 1996, primarily involved as a leading service provider of surface and mechanical engineering in the Asia Pacific region.  

FROTNKN was listed on ACE Market in the Year 2006 and successfully transformed into Main Market of Bursa Malaysia on 19 November 2008. Most of the key players of FRONTKN in oil and gas (O&G), petrochemical, power generation, semiconductor and electronics manufacturing industries come from Singapore market, while the group also has a presence in Malaysia, Philippines, Indonesia, Thailand, Vietnam and Japan.  


Business Model 

Frontken Corporation Berhad was principally involved in the business by providing various specialised engineering services such as thermal spray coating, cold build coating, plating and conversion coating, specialised welding, precision cleaning abrasive blasting, machining and grinding. 

Through the surface technologies, the group provides components protection, lifetime expansion, performance and efficiency improvement to customer’s equipment. FRONTKN also provides assessment, assembly, balancing, recovery and upgrading work on industrial rotating or non-rotating equipment such as pumps, turbines, compressors, diesel engines, generators and motors. 


Financial Review 


Based on the past 5 financial years of revenue chart above, the group has successfully recorded a considerable RM30,637 million increase in revenue, translating to a growth of 10.33% from RM296.6 million in FY2017 to RM327.2 million in FY2018. Based on 5 years CAGR basis, the group has grown 11.41%. The increase in revenue was mainly due to the growth of semiconductor-related business with strong support from its customers and improvement in engineering business from their subsidiaries in Malaysia, Singapore and Taiwan. 


Frontken Corporation Berhad has successfully achieved a tremendous high record of gross profit by 20.75% from RM104.8 million in FY2017 to RM126.6 million in FY2018. Based on the past 5 years of CAGR basis, the gross profit has grown 21.02%. The growth of gross profit was mainly driven by stronger demand in the cloud computing business, demand for a wafer of LED chips, ramp up production of advanced node chip and the better performance from their oil and gas (O&G) division. 


The Profit after Tax (PAT) of FRONTKN rose 56.56% from RM36.4 million in FY2017 to a new high of RM57 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 161.67% was in line with the growth of revenue and gross profit. 

Cash Flow Statements 

The group has generated net cash from operating activities of RM63.3 million in FY2018 as compared to RM69 million in the previous year. The decrease in net cash from operating activities was mainly due to the increase in working capital requirements and taxes paid for the group’s ongoing operations. Even though the cash flow is lesser in FY2018, the company still has enough cash used for business expansion.  

The net cash from investing activities in FY2018 is (-RM7.1 million) was mainly due to the purchase of property, plant and equipment (PPE) (RM7.5 million) and additional investment or acquisition of subsidiaries (RM7.1 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 in the negative zone (-RM27.8 million) was primarily due to repayment of term loans (RM16.7 million). The others factor including interest payment (RM0.568 million), the dividend issued by the company (RM7.3 million), a dividend paid by the subsidiary to non-controlling interests party (RM2.6 million) and payment of hire purchase payables (RM0.545 million).  

Based on liquidity ratio calculation, FRONTKN has a current ratio of 2.8303 times in FY2018 compared to 2.2225 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, trade receivables, deposits, prepaid expenses, amount owing by subsidiaries, amount owing by associate, current tax assets, short-term investments, fixed deposits with licensed banks, cash and bank balances amounted to RM277.6 million. 

Prospect and Challenges  

According to the chairman and chief executive officer (CEO) Nicholas Ng, the group is seeing more opportunities in oil and gas (O&G) sector, especially with more activities in Pengerang, Johor where the Petronas Refinery and Petronas Chemical Integrated Development (Rapid) project is developed. (Source: TheEdge, 25 March 2019) 

Through Research & Development, the group will innovate more efficient ways in advanced materials and surface engineering technology to produce new and improved coatings which will use in protection against material degradation and to improve the productivity of industrial processes. (Source: Annual Report 2018). The demand for semiconductor will accelerate further once 5G is rolled out globally. (Source: Quarterly Report, 20 September 2019). 

FRONTKN also plans to strengthen its foothold in the Chinese market where it sees huge opportunities and probably involves in setting up new facilities, instead of servicing China-based clients from its existing Taiwan and Singapore facilities. (Source: TheEdge, 25 March 2019) 

The group also will take some time to identify a strategic location for the new facility to be closer to most major wafer fabrication equipment sprawled across the country. By 2020, the group should be able to cater to its customers’ wafer fabrication process node of up to five nanometers. (Source: TheEdge, 25 March 2019) 

Rating System

Return on Equity (ROE) = Average 

Revenue [6 years CAGR] = Average 

Net Earnings [6 years CAGR] = Excellent 

Basic Earnings per Share (EPS) [6 years CAGR] = Excellent 

Interest Coverage = Excellent 

My Insight

Based on my calculation on Discounted Earnings Model, Frontken Corporation Berhad has a fair value of RM7.72. The current market value of FRONTKN is RM2.38 which is undervalued. (Based on 6Jan2020). FRONTKN has a beta of 1.229 (500 days) indicates that the company is more volatile than the current market, which also indicates investors / traders are actively trading in this stock. While for short-term trader, they may face a higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), FRONTKN has an expected market return of 5.59%.  FRONTKN has also achieved a double-digit of Return on Equity (ROE) which is 16.08% in FY2018 considered as healthy as compared to 10.60% in FY2017. 

In conclusion, Frontken Corporation Berhad has achieved outstanding performance in FY2018 as the revenue, gross profit and net profit achieved a new high over the past year. FRONTKN prospect remains bright by looking at the growth of semiconductor and Oil & Gas division. I believe the company can grow very well in future as the Internet of Things (IoT) and Industry 4.0 will need much high-end equipment to test and automate. 

Disclaimers 

The research information and financial opinions expressed byShareInvestor.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 own action. It would be best if you did your research to make your own investment decision wisely. 

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.