Chin Well: Email enquiry to IR (25/5)

Just sent an email to Chin Well group's IR regarding some of the issues related to the group as below. 

1) There was an article from Bloomberg mentioned that EU had renew another five years tariffs on screws and bolts from China last month which will expire in Mar 2020. Are you able to confirm regarding this anti-dumping duty extension?

- Yes, the extension took effect on 28-March 2015 for a 5-year period.

2) If the anti dumping duty being extend, how well can Chin Well benefit from this? Does the management foresee better sales or normal as previously?

- Chin Well is one of the 9 Malaysian companies whose exports to EU are exempted from any duty. We do expect higher sales from EU as happened in 2009 when the earlier anti-dumping duty was imposed.

- However you must understand that currently, EU is seeing a mixed bag of fortunes in economy, where some countries are doing better than others. With this duty being extended, we hope that sales will pickup when the economies rebound.

3) With the recent quantitative easing being implement in Europe and the strengthening of RM against EUR, is that any drop in orders from Europe countries?

- EU demand is as above where some countries are faring better than others.

- We always give customers the option of whether to pay in USD or EUR. For EUR sales, we tell the customer that we add a certain percentage of currency hedge risk on top of sales. Our sales is 50-50 between USD and EUR.

4) With the recent drop in steel rod price, how long does Chin Well need to benefit from the lower raw material cost?

- Typically raw materials make up about 60-70% of our production cost. Our inventory turnover period is about 6 months.

5) Based on the sensitivity analysis for foreign currency risk described in AR2014, the group will face decreased PBT as a result of strengthening of RM against EUR and weakening of RM against USD. Is my interpretation correct? In this case, both currency movement is acting unfavourable to the group.

- As mentioned above, we impose a “forex risk fee” for EUR to safeguard our interest. Some of our imports are in USD so there is natural hedge.

6) There is an article mentioned that Chin Well group benefit from the GST implementation. Could you explain more on this?

- For one thing, the 6% GST is lower than the previous 10% sales service tax (SST), so prices of goods would be lower. Also, all players have to impose GST, whereas some players did not include SST. That’s why we welcome GST, because it levels the playing field in the whole industry!

Real Nutriceutical Group (瑞年国际): Stable & Growing

Continue from previous post

The group was in net cash position all this while although its borrowings was in upward trend. Borrowings surged up in 2014 due to acquisition of 60% equity stake in Magic Galaxy. 

Current ratio and acid test were more than one. Depreciation / PPE ratio was less than 10%. Trade receivables / Revenue ratio is quite high at 45%, but its cash conversion cycle is manageable around 60 days. 

PPE contributed around 40% of its total assets which is quite a norm for a manufacturer in my opinion. Invested capital is contributed by 80% shareholders' equity and the rest from borrowings which is quite healthy to me. 

ROE and ROIC were dropping throughout the years as the growth rate in capital was faster than the growth in operating performance. ROE and ROIC were around 14% and 18% respectively. 

Operating cash flow was quite good, net cash from operating / net profit ratio was more than one. 

But somehow the group spent a lot in capex since 2011 to expand its production capacity as well as technical know-how for the past few years. Capex / Sales ratio was around 28% and the amount of capex spent was around its net profit recorded which is quite high

Thus, it's not surprise its free cash flow was negative from 2011 to 2013. The group able to chalk up a positive FCF in 2014 and even recorded a 5% FCF / Sales ratio. Things remained to be seen whether the group able to continue to record a good positive FCF moving forward. Else, the group need to look for external funds to fund its capex or worst case, they are cooking the book which is a nightmare for the investors. 

Mr Wang FuCai is the Founder, Chairman as well as the CEO of the company. He is responsible almost everything related to the group. He has 30 years of experience in the health care and pharmaceutical industry. 

He currently having around 22.9% ownership of the group. 

Some of the recent corporate movements of the group

1) In May 2013, the group issued a convertible bond worth HK200 million with 6% annual interest and conversion price of HKD3.0 which is higher than current price. Thus, probably nobody will convert it. 

2) The group acquired 60% Magic Galaxy for RMB200 million whose core business is manufacturing of high end eye drop products in PRC. 

3) The group entered into MoU in Jan 2015 to acquire Ailire Investment who operates over 600 integrated drug retail chain stores which have strong business presence and retail network for medicine sales in China. The group target to get RMB100 million from each retail shops to get HKD600 million increased in sales. This probably will be the main growth aspect from the group in 2015. 

4) The group plans to spin off its beverage business through a separating listing on the stock exchange. The group's beverage business only able to record around RMB450 million sales in FY2014. Thus, I think the proceed raised will not be that high. 

5) In April 2015, the group issued a private placement of about 130 million new shares to third parties at HK2.36 per share to raise HK303 million. Perhaps HKD2.36 a good support? 

In terms of valuation, PE ratio is around 4.4, dividend yield is quite low due to low payout. Enterprise value multiple is quite low at 2.4, thanks to its high operating profit. 

Perhaps, is a good company to invest in? Have to take note of its capex amount and cash flow. 

Reference
- Annual Report
- Company website

PJDev: Q3FY15 Result Update

PJ Development just released its 3rd quarter result yesterday. There are some stuff I wished to record down here for reference in case I forget in future.

~ Income Statement ~

Overall, the group posted a slightly better result compared to corresponding quarter last year at PBT level. But the group recorded a much higher effective tax rate this quarter due to losses in certain subsidiaries that are not available to set-off against taxable profits in other subsidiaries within the Group as mentioned in the statement. Thus, a lower net profit.

In terms of diluted EPS, the 10% increased in adjusted weighted average number of ordinary shares compared to corresponding quarter last year didn't help much neither.

In terms of balance sheet, there is nothing more special than the great increase in the land held for property development. This was probably due to the shares subscription of Yarra that took place in Jan and Feb respectively to fund the acquisition of a freehold land located in Victoria, Australia.

As a result, it's not hard to see a big jump in the group's total borrowings too. If look at the breakdown of the borrowings, the increases in borrowings were mostly denominated in Australia Dollar. So, probably used it to fund the Yarra's development.

In terms of cash flow, the increases in land held and development costs caused its net operating cash flow in negative number.

~ Segment Reporting ~

If compared to Q2FY15, the reason the group's performance dropped was obviously seen at segment reporting.

Both Construction and Hotel segments contributed to the poorer performance. Revenue recognition for Properties and Construction segment normally based on POC method in Malaysia. Thus, it should not be a problem as long as the property sales are good and there is no delay in executing the contract. It's just matter of when the revenue would be recognized based on the cost incurred up to date.

Hotel segment is a concern as the management did not state the reason why the segment recorded a loss in this quarter. Not sure whether it's due to startup cost incurred for the upcoming new D'Majestic and Swiss-Inn or not.

Cable division was not doing quite well with its profit margin dropping compared to last year.

Good thing is the Building Material segment continue to show good performance compared to last year. The Acotec wall panel probably continue to gain acceptance by the industry players. 

So, that's.

No unbill sales was given in the quarter report. But probably still good and the management mentioned the response of the new launch of Genting Windmill was good.

We still have to wait for few months before the corporate exchange between OSK and PJ Dev to take place.

Pintaras Jaya: Q3 result update

Pintaras Jaya just released its 3rd quarter result for FY2015 days ago.

At first glance, the result appeared to be quite good that showed great improvement compared to corresponding quarter last year. But in fact, it's showing a worrying sign. 

Revenue increased around 18% to RM57 million, but there was not much improvement on operating level. Bear in mind that there was an one-off expanse of RM4.0 million on ESOS implementation last year. If excluded the one-off expanse, PBIT grew a bit only. 

It showed that its operating profit margin had dropped. Management stated there it was due to on-going projects are in the completion stages of implementation as well as higher depreciation charge as a result of capex spent earlier. 

In terms of prospects, it may not sound so good from the management's point of view neither. 

All this while, I normally will record the contract sums and duration announced by the group on the Bursa website. 

Based on my record, the group only left 3 on-going projects on hands. 

The group really need to be more aggressive to bid more contracts, but first the overall construction industry must be in good condition and hopefully, the group able to secure few more contracts to replenish its order book in short while. 

11th Malaysia Plan will be announced in 2H15, the group is hopeful to secure some jobs, likely from MRT2 and LRT3 projects as well as property development jobs. 

And what's more, hopefully the group does not need to lower its profit margin in order to secure more contracts as high profit margin Pintaras exhibited all this while served as plus point for the investors to demonstrated its competitive advantage over its competitors. 

Let's see how the group moving forward. 

Real Nutriceutical Group (瑞年国际): Amino acid-based nutritional supplements player

Real Nutriceutical is a provider of health-related products, with a primary focus on amino acid-based nutritional supplements in Chinese market. The group is the largest manufacturer of amino acid-based nutritional supplements in China for the past 10 years. 

The group basically has 3 segments, namely nutritional supplements and general health food, health drinks and pharmaceuticals. 

The group has manufacturing facilities in Wuxi and Nanjing of Jiangsu Province. One of the Wuxi plants is capable of producing nutritional supplements and general health food products in the form of tablets, capsules, liquid and powder. The other Wuxi plant produces health drinks including herbal tea and amino acids drinks. The group manufacture high end eye medicine and anti-cancer drugs at our pharmaceutical manufacturing plant in Nanjing. All production lines in operation are GMP compliant.

The Group has been invited as the first and only member from China to join the International Council on Amino Acid Science ("ICAAS"), a highly recognized international institution in the study of amino acid science.

For ten consecutive years from 2006 to 2015, the Group’s amino acids tablets have been approved as the only official gift for oral consumption by the delegates of The National People’s Congress of the People’s Republic of China (NPC) and National Committee of the Chinese People’s Political Consultative Conference (CPPCC) 

The group sell their nutritional supplements and general health food products to a network of regional and local distributors to a wide range of retail points of sale in 29 provinces in China. For its health drink, the group sell through distributors to convenience stores, restaurants and supermarkets while its pharmaceutical products were sold to about 600 hospitals

The group also sell our products through the Real Nutri Health Stores and internet direct sales platform.

At the end of 2014, its health and nutritional supplement products were sold through third parties’ retail outlets of approximately 77,000 points in China.

There were around 200 Real Nutri Health Stores as to date to build closer bond with products' end users, provide free body checks, health consultations and activities.

Apart from that, the registered members of its Real Nutri Health Club increased to over 350,000. The group able to collect and analyse data from their club members' consumption preference.

Revenue had been steadily increasing for the past few years. The group's performance dropped a bit in 2012 due to dropped in product sales. Profit margin was quite stable. 

Dividend payout was quite low at around 10% but dividend declared increased from 4cents in FY2010 to 7.2cents in FY2014 recently. 

Majority of the group's revenue comes from its health & supplement segment with high gross profit margin of around 80%. The group tried to penetrate HK market before with its amino acid supplements but to no avail after few years of below par result. 

Health drinks segment contributed the second to the group's performance. Gross profit margin jumped in FY2014 due to lower outsources of health drink manufacturing to subcontractors. This scenario probably will continue moving forward. 

Performance of its pharmaceutical segment improved organically as well as contribution from the new acquisition of 60% owned Magic Galaxy whose core business is manufacturing of high end eye drop products in PRC albeit with lower profit margin. 

The group's point of sales for its supplement products increased from 50k in FY2010 to 77k in FY2014 while for its pharmaceutical products, the group's sales has delivered to 600 hospitals from mere 100 hospitals earlier. 

The group started to open its Real Nutri Health Stores in 2010 and able to reach around 200 units in 2014 while its club members almost double in 2-3 years. 

There is some growth prospect in this company, will write more in next post. 


Reference: 
-The group's website
-Annual report 
-Press release

Bursa: Temporarily 5-year reports

Just found that Bursa Malaysia made an announcement regarding it only provides 5-year of historical records. Bursa is actually creating something new, namely Bursa Link and it's in the progress to migrate all the data and soon will resume to provide historical records up to 15 years within the next 3 months. 

In comparison, SGX actually only provides 5-year of records. 

5 years of data actually is insufficient for an investor to understand a company, especially those companies that involved corporate restructuring before. Investors need to approach the respective company website to download their annual reports. But some companies only provides 5-year annual reports too. 

That will be a good news for the investors. Hopefully it's free of charge too. 

Apr 2015 Portfolio

April was a selling month for me.

I sold off SCGM and ABRIC with around 50% and 25% gain respectively. Apart from that, I also made a decision to make a cut loss on my holdings in PJDev warrant (~-10%). All the proceed generated was transferred to my foreign trading account, looking to buy more HK counters in future. 

Apart from PJDev and CES that had just past their respective dividend ex date this month, other counters mostly moved up. 

Sunway is closing in to list its SunCon unit. I probably will dispose it since the quantity is quite small. 

IFCAMSC and China Silver moved up a lot this month. IFCAMSC appeared in news media quite often recently, mainly due to its >1000% return for the past 1 year and also its growth story moving forward. Have to keep monitoring to make decision whether to realize the profit or not. 

Moving forward, have to study more HK companies as I still have some spare cash along with the proceeds generated last month to invest on it. 

So, move on :)