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

Friday, March 21, 2014

Update: Scientex, net profit up & up & up

Scientex Berhad just released its latest quarter report yesterday evening in this quiet month of company report announcing. Details of the revenue and net profit improvement can be seen from the table below as well as in the quarter report.

In short, Scientex recorded the best quarter in terms of revenue and net profit. Everything looks just so fine for the group after the acquisition and operation consolidation. But I expected more from it in the future given the better economic of scale and larger customer bases for its manufacturing arm. Time will tells the effects as I would like to see a better profit margin as a result of that after all the new machines start commencing.  As usual, no dividend was declared for the first half of the year. Half year EPS is 28.61 cents, probably can make at least 60 cents EPS for financial year 2014. PE is around 10 but it still highly depends on its 2 core segments.

In fact when breaking down into individual segments, although the net profit from the manufacturing arm was better compared to the same quarter preceding year, but it was considered the lowest if compared with recent four quarters. No explanation in the quarter report but based on the low operating margin recorded, either is due to the sale of low margin products or the operation costs had gone up.  Hopefully is due to the former, if the effect of tariff hike which started at Jan affected the margin so much, then it’s really a problem as this quarter covered up until Jan with one month effect only. So, the overall net profit still highly depends on its property division who contributed around 66% of the group’s operating profit this quarter.  Affordable housing developer probably able to sustain under the environment of cooling measures.

In terms of cash flow, the operating cash flow was temporarily weaken by the increase in receivables. Additional special dividends declared last year also ate a bit of its net cash. But there should be not much problem for the group as the group’s cash generate ability is quite strong for the past few years. In terms of balance sheet, the group borrowings increased to RM369 mils, which is equivalent to 0.43 net gearing ratio. It’s still below 0.5 net gearing ratio benchmark set by the management, but I think the group probably will slow down the acquisition or capex a while and consolidate its manufacturing business before going into expansion again.

The final additional operation line for its stretch film division was commissioned by the end of 2013. This line comes with the latest nano technology capable of producing 22 layers of film and makes Scientex the first producer to produce multiple layered film using nano tech in Asia. 

Else way, the new blown extrusion lines are all on schedule to be installed by mid 2014 according to the quarter report. This will help to increase the capacity by 50% to 5100MT. According to the management statement earlier, the production capacity for its extrusion lines always full house ~~ So, I think this will help to improve the overall manufacturing performance as the consumer packaging market always been doing well even during the weak economic period.

So, I think the performance for the second half of the group remains bright as I think the property division will be doing pretty well too but limited upside for the price. Dividend wise, the group normally declared 30% of the net profit as dividend and I do not think there will be another special dividend. Thus, expected at least 18 cents dividends will be declared at second half. I will consider to buy when there is a price correction. (p/s: I sold it off few weeks ago … which I quite regret about it :(. A lesson learnt)

Tuesday, March 18, 2014

~ Luxchem Corporation (LUXCHEM) 理建机构 AnAlysIs ~

Luxchem Corp. was listed in year 2008 with half of the amount raised used to pay bank borrowings and working capital, while the remaining aimed to set up office in other countries for expansion and better product distribution.  

Luxchem Corp. has 2 core businesses under its portfolio which is trading of chemical material and manufacturing. Trading segment involves marketing and distribution of industrial chemicals while its manufacturing arm mainly produces unsaturated polyester resins (UPR). The trading arm has division in Singapore and Indonesia to provide chemical and related products to their customer in the respective countries. The group supplies fibreglass reinforced plastic, latex, polyvinyl chloride and rubber. Addition note is the group also supplies nitrile to glove producers such as Hartalega and Kossan to produce nitriles gloves. The group does not manufacture nitrile, it sources the chemical from Zeon Chemicals of Japan. Thus, the growth of nitrile gloves produced by those glove manufacturers will help to increase the performance of its trading arm. 

Looking back at the group’s pass year result, the group able to record a CAGR of 9.8% in revenue but somehow only managed to record a 4.3% CAGR in terms of net profit throughout the years. This can be explained by the declining trend of gross and net profit margins since 2009. As at the latest financial year of 2013, the net profit margin was only 3.76% which is not quite comfortable to invest in. The management team will have a hard time to sustain the bottom line if the operating costs or cost of the products suddenly go up with that low profit margin. In terms of dividend, the group maintains a distribution of 8.0 to 9.0 cents for the past 4 years, this translated into around 5.8% dividend yield based on recent price and also around 50% dividend payout.  

Further breakdown the group performance into its 2 core segments, trading division contributed mostly to the group’s revenue and net profit. However, the operating profit margin of the trading division has been declining consistently since listed from 7% to 4% currently. It’s probably due to intense price war with the competitors as well as the increased selling price from the suppliers. Else way, the revenue and operating profit of the manufacturing arm jumped around three to four fold respectively in the period of 6 years. The operating profit margin was not consistent but at least higher than the trading division. The manufacturing division need to deal with the volatile price of the raw materials such as petroleum based styrene monomer and glycol that used to manufacture UPR as well as standard manufacturing costs such as labour and utilities costs. 

In terms of balance sheet, the group maintains a healthy position all this while. Current ratio is being maintained at around 2.0 while the cash on hands is able to repay all the borrowings. All the borrowings are short term at which mostly are bank acceptance. Cash per share is RM0.67 at latest quarter, around 50% of its market capitalization. ROE maintained at above 15 except last year and the alarming note is the ROE also showing a declining trend. The growth rate in net profit is slower than the growth rate in total equity attribute to shareholders.  

In terms of cash flow, the group maintains a low capital expenditures. It’s believed the trading arm does not require much capex due to its business nature, thus majority of the capex probably went to the manufacturing division. Thus, the depreciation and amortisation also quite low because of that. Net operating cash flow was highly inconsistent throughout the years due to the working capital changes and owners’ earnings/sales ratio fell below the benchmark of 5% too. Perhaps the reason the management maintains a high pile of cash in order to deal with any unforeseen circumstances rather to expand a little bit more aggressively. 

Based on the annual report, the inventories are mostly finished goods. The group managed to clear the inventory within a month as can be seen from the inventory turnover ratio. Cash in hands and trade receivables are mostly denominated in ringgit while the trade payable is mostly denominated in USD. So the strengthening of USD against RM will increase a bit of the group’s cost of sales. Cash conversion cycle is consistently controlled around 60-70 days.

 The group is leaded by the group's CEO, Mr Tang Ying See who is also the founder of the company. Along with his spouse, they're holding around 52% in Luxchem Corp. He has approximate 35 years of experience in industrial chemicals industry. But the bad thing is he is such a low profile person. Hardly find any news or articles regarding the company and its prospects. Apart from that, the chairman, Dato Haji Mokhtar bin Haji Samad is also the non executive chairman of Kosssan Rubber Industry. In addition, one of the substantial shareholders of Luxchem Corp, Chow Cheng Moey is the spouse of Lim Kuang Sia who is the managing director/ CEO of Kossan Rubber Industry. Thus, I think the relationship between the top management of Luxchem and Kossan will at least yield a synergy effect between the two companies. 

In conclusion, the management team have some work to do to improve the group performance especially the profit margin. The increase capacity of the unsaturated polyester resin plant in Malacca by 50% by the end of 2013 is a good step to begin with as the growth rate and profit margin for its UPR manufacturing is undoubtedly better but the result is yet to be seen. I think the next growth engine for the group is from the manufacturing arm with an additional 3-4 mils net profit can help to lift the group net profit to record high. 

Sunday, March 9, 2014


前几天看到 Investalks 里, 有人放上冷眼现在拥有的公司股份。在好奇之下,就算一算他现有的股份价值

我一路来都是用着 HLebroking 的服务. 以上的搜索功能是 CIMB iTrade 里的其中一项功能,看起来好像不错。。而且还有好像 Google Screener 的功能呢


最高的是 Globetronics, 最底的是 Yee Lee Corp. 

再保守估计有 5% 的股息率,一年都有两百多万股息。一个月也差不多有两百千的股息用!!



p/s: 两百千的股息,要怎么花呢?? 嘻嘻

Friday, March 7, 2014

Lafarge Malaysia (LAFMSIA) vs Tasek (TASEK)

Cement manufacturers play an important supporting role to the construction, property and building materials industries especially we always have big projects being announced every years. I checked through the list and conducted a study in this industry throughout the weekend. Currently, there is only 2 pure cement manufacturers listed in Bursa, namely Lafarge Malaysia Berhad and Tasek Corp. The other listed player is Cahya Mata Sarawak Berhad who is having a diversified businesses in trading of building materials and road maintenance beside cement segment. Besides that, YTL cement and CIMA who is the subordinate of UEM Group also contributing to the cement industry. 

Since it’s very hard to search info for CIMA, YTL Cement and Cahya Mata Sarawak for comparison and breakdown, I’m concentrated on the pure listed players. Tasek corp. is under the umbrella of Hong Leong group while Lafarge is a French company and also the world largest cement manufacturer with 180 plus years history, don’t play play. 
Ever since the liberalization in year 2008, the cement manufacturers able to adjust their selling price without the ceiling price control from the government. This enable them to pass over the escalating operating costs to their customers partially or fully.

 In terms of market capital, Lafarge is larger than Tasek by around 4 times at around RM7.5bils market capitalization. The PE ratio for both companies is around 19 times. Both companies also quite generous in giving out dividends to the shareholders with Lafarge giving out 90% of the net profit as dividends last financial year while Tasek went even further by distributed more than 180% of the net profit as dividends. The high dividend payout can explain the reason why the PE ratio of Tasek is on par with Lafarge given its smaller market capitalization. The dividend yields are around 4.6% and 9.4% for Lafarge and Tasek respectively based on recent share price.

 One thing to note here is that the compound annual growth rate for cement industry is so low as in the case of Lafarge and Tasek. Both companies only able to record around 2.5% CAGR in revenue for the past 5 years. Tasek able to record around 4.5% CAGR in net profit while Lafarge only able to record a mere CAGR of 0.96% (Less than 1 percen L) in net profit for the past 5 years. Gross profit margin and net profit margin of Tasek is higher if compared to Lafarge. This shows that the cement industry is quite saturated with limited growth ahead. Every player is fighting for the same size of cake every year by offering rebates to increase the volume. Tasek is better in managing its operating cost and selling price by achieving a higher gross profit margin.

Both companies are quite good in managing their working capital and thus have a very good operating cash flow all these years. This contributed to their high owners' earnings per sales. The good cash generating ability of both companies give the owner chances to pay out generous dividends. Apart from that, both companies keep their trade receivable and payable in good condition. However, Tasek has higher inventory turnover compared to Lafarge which in turn contribute to higher cash conversion cycle. Both companies also spend certain amount for capex every years but it will not affect their dividend payout ability given by their strong balance sheet and cash generating ability. 

Both companies also in net cash position with negligible borrowings. However, Tasek's cash balance in hands is so high that when converted, it's around 21% of its market capitalization. Whoever want to acquire the group can directly enjoy the high pile of cash in hands. Due to the high amount of cash for Tasek, its current ratio is so high at 7.0 compared to Lafarge who only managed to record around 2.23 ratio. Currently, both also trading at a price to book value of around 2.xx. On the other hand, Lafarge has higher ROE compared to Tasek group but both also fall short of the 15% benchmark. Tasek has higher ROIC as a result of the high amount of cash balance. 

Tasek mainly is doing for domestic consumption while 5% of the Lafarge's revenue came from its Singapore segment. Thus in general, the cement players are fighting a price war with each other to gain volume while as the same time constantly facing the escalating costs such as utilities, labour, petrol, coal, raw materials as well as freight rates. It's growth is limited but the demand is there whenever there is construction works. Furthermore, both companies also in the business of manufacture concrete but somehow the margin for this segment is quite low. For some years, the concrete segment even recorded losses too for both companies. The effect of the tariff hike since Jan this year remained to be seen. 

So in conclusion, the cement players will experience limited growth unless they expand oversea, set up a manufacturing plant to supply for their domestic demand. ROE considered mediocre but it's good to invest for stable performance and receive dividends.