跌破眼镜的 Zhulian :(

Zhulian always in my watch list all this while thanks to its good fundamental, dividend payout and future prospect. But its latest quarter result just released few hours ago really nothing but disappointing. Unexpected and surprisingly disappointing indeed. 

Revenue for its 4th quarter dropped more than 30% quarter to quarter as well as year on year. 

Share of profit of equity accounted investee at which mostly contributed by Thailand dropped even more by 60% and 56% quarter to quarter and year on year respectively. 

Management mentioned drop in revenue was due to soft local spending. This one is understandable as I think everyone of us also expecting a tougher consumer sentiment this year as the price of everything but salary had increase, even the kangkung now also not cheap already, not to mention the GST that going to be implemented next year. Purchasing power will be greatly affected. 

Apart from that, the management did mention the rising political uncertainties in Thailand may also cause an impact to their export demand. The political issue in Thailand may treated as an annual event, but this time it really affected the group a lot. Perhaps, the distributors no time to promote their products currently, protesting is more important :)

However, in terms of full year result, it showed a little bit increase in financial year 2013 for its revenue and net profit thanks to its strong showing in quarter two and three. Balance sheet remains strong with no borrowings. Operating cash flow increased a bit due to better changes in working capital as a result of lower trade receivables and payables. ROE remained more than 15%. 

16 cents dividend for the full year of 2013. Dividend yield is around 3.5%, but probably the share price tomorrow will drop a lot. I hereby will continue to put it into my watchlist and continue to monitor its performance for the next 2-3 quarters and better it's to find out what the actual causes for this sudden drop in sales. 

But one thing for sure on Zhulian case is consumer sentiment is weak currently, perhaps will continue for a while now. Have to take note on those consumer stocks. 

~ wEllcAll (WELLCAL) 緯鉅集團 AnAlysIs ~

I guess investors who prefer dividend incomes surely will know this company, Wellcall Holding Berhad. Wellcall is located at Ipoh, ya, my hometown. It mainly manufactures industrial mandrel and extrusion hoses that cater to few applications markets and it’s the largest industry rubber hose manufacturer in Malaysia. Mandrel hoses have higher margin than extruded hoses. 

Based on past few years result, the group showed a good upward trend in terms of net profit albeit a sudden drop in FY2009 as the group was affected by the economic downturn and the demand for industrial hose is driven by the economic activity. The revenue for its latest financial year dropped around 15%, but still recorded a better bottom line thanks to lower raw rubber cost and favourable currency exchange rate.

Gross profit margin and net profit margin averagely at 25% and 15% respectively. There was a big drop in margin in FY2011 as the raw rubber cost was sky high that time. Bear in mind that the raw material cost contributed around 70% of the group’s operation cost. So any big changes in rubber price will has significant impact on the group’s earnings.

For the past few years, the dividend payout ratio was around 100%. Perhaps, this is the reason why the price is trading at a high PE currently. Based on the latest result and trading price of RM3.55, dividend yield is around 5% but PE is around 20 which is considered high for its market capitalization. 

In terms of balance sheet, current ratio and acid test are high. No borrowings at all and always keep a considerate amount of cash in hands since listed. Cash conversion cycle is good at around 50 days and able to clear the inventory in 2 month time. ROE is more than 15% and showed an upward trend as the group recorded better net profit years after years and kept a stagnant amount of shareholders’ equity due to the high dividend payout ratio. It’s similar to ROIC as the group has low non-current liabilities and stagnant shareholders’ equity with better earnings all this while. 

In terms of cash flow, the group able to keep a very good record of stable and increasing operating cash flow. Besides, the group spare a very small amount of its operating cash flow for capital expenditures every years. However, the group purchased a land adjacent to its current factory in FY2013 and planned to build a new factory on it only for mandrel hose production and be ready at Q1 2015. It’s believed that the new factory able to raise its mandrel hose production capacity by 100% in 2 stages. Total capex is around RM28-35 mil, 50 to 50 loan and fund internally. Not sure this will affect the dividend payout ratio or not but surely its sales team need to gear up to get orders by the time the new factory is fully commenced. Free cash flow and owners’ earnings are good with owners’ earnings/sales more than 5% which indicated it generated a healthy cash return to shareholders every years. 

Some additional notes are

• 1 bonus share for every 2 existing shares held in the company in FY2008
• Due to the nature of more than 90% of its products are exports, weaker US dollar will affect its result.
• Higher income tax from year 2011 onwards due to the expiry of pioneer tax rate relief.
• Most of Wellcall's production equipment is designed and built by the group itself, providing a substantial barrier to entry for competitors seeking to make mandrels of equivalent quality & cost.
• The group has built a strong customer relationship and a good reputation in the industry. Most of its customers have been in business with the group >10 years.
• Electricity and fuel cost are only 1.6% of total production costs. Thus, the tariff hike will not have much impact on it probably.
• The group maintains a buffer of 1 to 2 month worth of natural rubber and 2-3 months of synthetic rubber to buffer against volatile raw material prices.
• The group is focus on production automation and R&D to improve the productivity and efficiency to reduce their dependence on manual labour.
• Propose a share split of 1 ordinary share of RM0.5 each into 2.5 ordinary share of RM0.20 each to increase share liquidity, target to finish by this year.
• Trade receivables, payables and cash mostly denominated in RM.

So in terms of PE, it's considered quite high for its market capitalization but the dividend yield is still okay with distribution every quarter like Prestariang and Zhulian. I did a reverse discounted cash flow on it, the market is currently predicting a 6.5% growth for its owners' earnings only. With the raw rubber price still in no good mood to show an upward trend and a strong USD dollar against Ringgit currently, both elements will help Wellcall sustaining its bottom line this year although the drops in revenue last year is a bit of concern but the management did point out that it was due to softening in H1FY2013 as customers tightening their inventory control. 

Fundamentally, I do not see any bad thing of Wellcall. Furthermore, it's from Ipoh. I must support a bit. HaHa. Perhaps, dividends may be more than 20 cents this year? Who knows 

Cash Conversion Cycle

When you look at the balance sheet of one company,it must have inventory, trade receivables and trade payable under the current assets and current liabilities columns respectively. 

Inventory, as the name applies is the raw materials, semi-finished products or finished products that are ready for sale. One metric to evaluate it is through inventory turnover days which is defined as number of days the company takes to sell the inventory on hand. (Source:Investopedia) and its formula is as below, 

Inventory Turnover Days = (365 x Average Inventory) / Cost of Good Sold

The higher the days, the longer the company takes to clear its inventory, but it still depends on the company's business nature as if the products is perish or their products are fast become obsolete, of course the company will keep the inventory low to avoid written off. 

Trade Receivables, is the money the company will received within one year. One should be careful if the company has high trade receivables as this means that the company is slow at collecting money from their customers and lending money to them at an interest free rate. One metric to evaluate it is through receivable turnover days which measure a company's effectiveness in extending credit as well as collecting debts (Source:Investopedia) and its formula is as below, 

Receivables Turnover days = (365 x Average trade receivables) / Revenue

The lower the days, of course is better for the company as it proved that their cash collection is efficient. Some companies have high receivable turnover days because they extend the credit limit to their customers in order to get the business orders especially those companies in a competitive industry. 

Meanwhile trade payable is the opposite of trade receivables, which is the money the company owed to the vendors or suppliers and need to pay them within a year. It's also can be evaluated through payable turnover days too. 

Payable Turnover days = (365 x Average trade payable) / Cost of Good Sold

Of course it will be good for the company to have high payable turnover days as the company can maximize their cash flow and spent the money else way to generate income for the company before paying the bills. In other terms, the vendors are actually lending money to the company without charging any interest after provide their services or products to the respective company. 

And the last one is the summary of all three metrics above which is the cash conversion cycle. It measure the amount of time each net input dollar is tied up in the production and sales process before it's converted into cash through sales to customers. It also means to measure the time between outlay of cash and cash recovery. (Source:Investopedia)

Cash Conversion Cycle = Inventory turnover + Receivable turnover - Payable turnover

The shorter the cycle or days, the lesser the capital is tied up in the business process. It's best to compare the metric among the companies within the same industry like F&B companies probably have better cycle than construction companies as construction business orders are mainly contract based and in credit mode. 

I made a rough comparison between Amway, Zhulian and Hai-o which are in MLM industry. Amway consistently keeps a low inventory level, thus it needs a lower number of days to clear their inventory compared to Zhulian and Hai-O. 

Apart from that, Zhulian's gross margin is the highest among three due to its low cost of goods sold. Thus, you will see that its inventory turnover and trade payable turnover ratio is quite high. 

Zhulian is the best when dealing with trade payable turnover, thus having some spare cash to spend before paying to their suppliers or vendors. 

Hai-O is the worst among three which has inconsistent and high cash conversion cycle as the cash is tied up in their production or sales department.

Prestariang (PRESBHD) update

CIMB investment bank published a report, Training for a Major Leap yesterday about Prestariang Berhad. There were few positive updates from the CEO too.

1) The existing oil & gas school is already operating at full capacity. The group is seriously looking to scale up the oil & gas training business which is another good engine growth. Currently training 240 students with RM13k per students which is equal to around RM3 million revenue. This speaks the attractiveness about the education industry in terms of revenue and profit margin.

2) The group finalised its new distribution terms with Autodesk. Thus, the group able to distribute the software to private sector as previously the group only able to deal with public higher education institutions. This will be another positive earnings transparency as the management is looking to double the size of the business to RM60m in 2-3 years' time. The gross margin of software licensing is believed to be around 5-30%. 

3) Jan student intake for UniMy was strong but did not disclose any enrolment numbers. The management target to breakeven in FY2014. This is good as the group spent around RM6 mil in FY2013 for administration purpose. This will improve the bottom line of the group's financial next year.

4) Else way, the group also looking at regional expansion which have synergies with its core business. Well, this is a long term plan. Nothing much to talk about at this term.

In short, everything seems to be going well for Prestariang. Good company with room for growth. The price may be little bit high now but the price will probably increases along with the result in future. Waiting opportunity to further invest into it.

In separate note, I invested a small portion in Dutch Lady yesterday as things are looking good in Dutch Lady. This stock will serves as my dividend stock. In fact, all my holdings except Scientex give me a dividend yield of >5% to meet one of my targets to achieve certain passive income from the dividends. 

Relook into Matrix Concepts

Last week, there was a sharp fall in Matrix Concepts Holding Berhad's share price from the highest of RM3.93 to the lowest of RM3.31 in just a matter of few trading days. I look back its latest result to check whether I missed out anything. 

The group still have around RM593 mil unbilled sales and the ongoing GDV able to keep the group busy for the next 2 years too. The take up rate is averagely 63.1% at which the major township, BSS having a take up rate of 78.4%.

For the 9-months FY13, the group recorded a revenue of RM430.3mil and a bottom line of RM112 mils and a good gross profit margin and net margin of 44% and 26.1% respectively. There is still one more quarter to go before the end the financial year, but it already surpass its previous year result in terms of net profit thanks to the better margin for industrial property and sales of land. 

EPS may reach 50 cents for the full year of 2013. Thus, its PE will be in the region of 7.0 at the price of RM3.50 with a total of 25.4 cents dividends already declared up to date.  

The group is at a net cash position too with a cash balance of RM244 mil, giving it a strong position to enlarge its land bank in the future. 

Before this, the group purchased a land in Labu for RM47.5 mil which was internally funded. The group also purchased a land in Rasah Kemayan for RM59.3 mils which was 40% internally funded while the rest through borrowings. Both lands are situated at nearby of BSS with a total GDV of RM1.5 bil commence in 2015. 

In addition, the group also purchased a land in KL near PWTC for RM43.6 mil ( 40% internal funds, 60% bank borrowings) to build mixed development of high-rise apartments. 

After all these land purchasing, the group left around Rm155 mil cash in hands. (244 - 47.5 - 23.72 - 17.44) but gearing will be up a bit. 

Based on the 3rd quarter result, its has an operating cash flow of RM120 mil too for the 9 months period.

Thus, the group still has the ability to pay dividend quarterly next financial year due to its strong cash flow. 

Furthermore, the group insisted that the group's buyers are mainly owner occupier and they did not use DIBS scheme too. Thus, the group is not much affected by the cooling measures announced in Budget 2014.

So, its fundamental remained intact. A sudden drop of price gives an opportunity for the buyers to purchase more. Conservatively assume the dividend for the next financial year is around 20 cents, the DY will be above 5%. 

But bear in mind that the CEO, Dato Lee Tian Hock disposed certain amount of his shares in Matrix at the price of RM3.18 - RM3.25 in open market at early Dec. So just keep monitoring. 

Monthly E-statement from Bursa Malaysia

There is a new service from Bursa Malaysia that enables CDS account holders to receive CDS statements electronically via email instead of hardcopies being delivered using ordinary mail. It launched the service at the beginning of Dec last year. 

I guess everyone of us receive a monthly hardcopy statement from Bursa regarding the number of shares we're holding on the respective companies and I think majority of us also kind of ignoring it since we know what are the companies we bought and at the same time we also receive statements from our investment houses. 

So, this service is a good way to eliminate the hardcopies and at the same time save some paper. 

Simple log on to this link and register it.

You will need a so-called password phrase for the registration. You will get the password phrase at the latest hardcopy statement Bursa sent to you. 

I did mine last week and received their replied yesterday regarding my successful application and will receive e-statement with immediate effect.