Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.

Thursday, March 26, 2015

SCGM: One of the Best Quarters

Just went back from vacation and found out that SCGM Berhad had released its third quarter report last week. The overall performance was good to me. 

The group managed to chalk up an impressive performance, probably the best for the past 7 quarters. 

Highest revenue, albeit a little bit higher than Q1FY2015. 

Highest operating profit margin and net profit margin. The lower cost of goods sold due to the drop of crude oil price definitely helped the group. Furthermore, SCGM group purchased its raw material locally but export some of its products. The weakening of RM against USD and SGD currency gave them a helping hand. I foresee its profit margin will stable at one point as the customers will request lower selling price for its products. You hardly find a plastic manufacturer with a 2-digit profit margin. 

As a result, it's no surprise that the group managed to record highest net profit among the past few quarters. 

On separate note, its cash balance dropped a lot due to high capex incurred and dividend payment in this financial year. High capex was for the new production line of plastic cup. 

Given the good cash generability of the group, it should be no problem for the group as its strong operating cash flow should cover its cash outflow. 

For the financial year to date, export sales amounted to 46% of total sales. 

Capex for the new production line were delivered at Jan 2015. 

For the prospects column, the board is quite confident going forward to the next financial year. Better export sales and also the contribution from the new product line. 

The board also mentioned that the input cost like power will impact on its margins. I thought there was a tariff drop last month? 

And surprisingly, the board decided to pay dividend every quarter. For the financial year-to-date, the group had declared 9 cents dividends. There should be another dividend payment for the last quarter of the financial year. 

I will continue to hold this counter. Not so recommend to buy now since its current price is quite high. I will sell it off if there is a sudden surge in price or its growth does not meet my requirement as its current valuation is highly depends on its growth and good fundamental. 

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