Saturday, 4 July 2015

Scientex: On-going Expansion In Manufacturing & Property

Scientex FY15Q3 Financial Result

SCIENTEX FY15Q3 FY15Q2 FY15Q1 FY14Q4 FY14Q3
Revenue 455.3 462.9 431.1 415.4 426.8
PBT 56.5 47.3 40.2 56.0 48.1
PBT% 12.4 10.2 9.3 13.5 11.3
PATAMI 42.9 36.1 30.3 48.8 37.2






Manu Rev 318.8 327.0 320.3 297.3 317.2
Manu OP 20.0 17.4 14.7 18.8 16.4
Prop Rev 136.5 135.9 110.8 118.1 109.6
Prop OP 41.5 40.3 32.0 36.9 32.5






Total Equity 851.6 808.6 769.8 712.7 686.2
Total Assets 1488.9 1533.3 1475.8 1400.4 1333.2
Trade Receivables 325.2 340.2 303.2 243.5 274.8
Inventories 85.9 81.3 83.7 109.0 82.1
Cash 63.5 121.7 102.9 83.8 56.4
Prop Dev Cost 110.5 117.0 104.0 104.6 71.8






Total Liabilities 593.7 681.4 664.7 665.0 624.9
Trade Payables 255.6 232.1 246.6 272.1 238.9
ST Borrowings 202.5 311.4 297.9 262.9 179.1
LT Borrowings 80.2 50.2 66.6 77.5 156.2






Net Cash Flow -20.3 38.0 19.1 -68.4 -95.8
Operation 93.2 16.4 1.5 153.5 89.5
Investment -29.6 -4.0 13.2 -149.2 -106.7
Financing -83.9 25.5 4.5 -72.7 -78.6






Dividend paid 47.1 17.7 17.7 57.5 57.5






EPS 19.02 15.98 13.69 22.09 16.43
NAS 3.77 3.58 3.47 3.22 3.10
D/E Ratio 0.26 0.30 0.34 0.36 0.41


In FY15Q3, Scientex's revenue drops 1.6% compared to preceding quarter of FY15Q2 but PBT increases by 19.5%.

This is mainly due to reduction in forex loss from RM9.7mil to RM3.1mil in the same period, besides better profit margin in its consumer packaging segment.

As a measure to reduce exposure to risk of weakening Ringgit against USD, borrowing (mainly USD-denominated) has been pared down by 20% in the last quarter.

An interim dividend of 9sen was declared. It is 1sen higher than previous year.




For its manufacturing arm, new CPP and BOPP plants are on track to start operation by end-2015 and mid-2016 respectively.

Once completed, BOPP film capacity will increase 10-fold from current 6k MT pa to 60k MT pa.

There is also a further expansion of its PE film capacity from current 48k MT pa to 60k MT pa, targeted to be completed by mid-2016.

PE film has just completed the first round of expansion in end-2014 from 24k to 48k MT pa.

It will install a new 10-colour printing machine in July-2015 to increase sales of more value-added products.


      BOPP film - very commonly used in consumer packaging


Scientex's property arm is equally exciting. It will acquire 326 acres of land in Mukim Pulai, Johor Bahru for RM219mil. This translates into RM15.41psf which I think is quite attractive.

The land is located close to its existing Taman Mutiara Mas and adjacent to Huayang's Taman Pulai Indah township.

This new acquisition will increase its ongoing/undeveloped landbank from 870 acres to 1200 acres.

Even though borrowings will certainly jump after the acquisition, I'm still happy that Scientex can replenish its landbank especially with such a sizable one.

The land size of 326 acres is smaller than Huayang's Pulai Indah at 477 acres.

Scientex has 7 new launches in 9MFY15 (til Apr15) worth RM359mil which comprises 65% of affordable housing. 

This means that it just launched one new project worth RM83mil in Q3 of FY15.

Thus, latest unbilled sales drop from RM640mil a quarter ago to RM599mil.

Scientex will build 1,420 units of affordable houses under Johor Affordable Housing Scheme, in which first phase 718 unit has been launched in May15. The selling price is just RM80k-150k.


       Location of newly acquired land in Pulai


With sluggish property market, I don't expect Scientex to grow impressively in FY15.

Hopefully the performance of its property segment can at least maintained at current level so that when expansion of its manufacturing segment is completed, Scientex can enjoy remarkable growth from 2016-17.

I feel that Scientex has a great management team. Though its share price movement is not that exciting compared to others, my plan is still to hold for really long term.

Thursday, 2 July 2015

Teoseng: A Real Price Concern

There is little doubt that Teoseng is a successfully-run poultry company.

Its revenue and especially net profit, grew by leaps and bounds in the last 2 years.

Its FY14 ROE breaches 30.

It gives great dividends and bonus issue.

It has a 5-year plan to increase its chicken egg production capacity by 60% from 3.2 mil/day to 5.1 mil/day.

It plans to increase its export to Singapore from 30% to 40%.

Its first of five biogas plant to save cost is on track to be completed this year.

It aims to be the largest egg producer in Malaysia in the future.

Despite all these positive notes, Teoseng's share price has been trending down since reaching a height at RM2.20 in end of Mac15 after bonus issue. 

Currently it is trading at slightly above RM1.50 level, and failed to follow the spectacular rebound in KLCI in the past 3 days.

If we annualize FY15Q1's PATAMI of RM17.5mil, its shares are traded at projected PE of only 6.4x, and this company is still in expansion mode.

Why?

Is poultry theme play over?


       Teoseng share price in 2015


How did Teoseng achieve such an impressive financial result lately? Its net profit jumps 180% in just 2 years.

Though Teoseng has several businesses such as poultry farming (layer), trading of animal health products, manufacturing of paper egg trays & poultry feeds, its poultry farming contributes 90% of its bottom line in FY14.

So, the vast improvement in its earning should be related to its poultry farming segment.

I'm not sure how much has Teoseng expanded its layer farms between 2012-2014. Increased egg production capacity will certainly contribute directly to its revenue and profit.

I feel that there should be some expansion but perhaps not that much.

So, the improvement in financial performance in the last 2 years should be largely due to lower material cost and higher egg selling price.

Feeds (corn/soybean) make up about 70% of layer farming's cost. From 2012 to 2014, corn price fell by more than 50%. Surely low feeds price has raised Teoseng bottomline significantly.



Though corn & soybean price rebound in June15, they are expected to stay low due to increased harvest in North & South America.





Has recent sharp rebound in corn & soybean price affected investors' sentiment in Teoseng? I don't know.

Another potential culprit might be chicken egg price.

Teoseng currently produces about 3.2 million eggs per day. If egg price increases by 1sen, its revenue will potentially increase by RM32,000 a day, or RM2.88mil in a quarter.

If other cost & parameters remain the same, this extra RM2.88mil a quarter will go towards its PBT.

In other words, if egg price increases by 1sen, Teoseng can potentially earn RM2.88mil more in its pre-tax profit.

But if egg price drops 1sen, then Teoseng may potentially earn RM2.88mil less.

If egg price drop by 10sen, does it mean that Teoseng's profit will potentially drop RM28.8mil in a quarter which will throw it into loss???

Of course things are not that straight forward. Egg price fluctuates every few days and there are many other reasons that can affect its profit.

To check our country's egg price, I found a website that records Malaysia's historical chicken egg price, by Department of Veterinary Services.

If you study the price trend, there seems to be a rather significant drop in egg price since Mac15.


       Malaysia Chicken Egg Price in 2015


The line chart below shows monthly Grade A chicken egg price since year 2013. Since there are a few data in each month, I will pick the price closest to middle of the month to represent that month.


       Grade A Egg Price Chart 2013-2015


Grade A chicken egg price hit new high at 39sen in Nov14 and then 41sen in Dec14 and Jan15 before returning to 38-39sen in Feb/Mac15.

This coincides with significant jump in revenue and profit for Teoseng in FY14Q4 and FY15Q1.



However, in second quarter of 2015, grade A chicken egg price falls to 32-35 level. In average it is about 5sen lower than first quarter of 2015.

How do you think it will affect Teoseng's FY15Q2 earning?




Egg price is like CPO price, which will have direct impact on a company's top & bottom lines compared to other commodities used as raw materials.

It's a norm that egg price will fluctuate. Nevertheless, due to inflation, it is expected that egg price will trend upwards with time.

Many years ago, grade A eggs may be sold at 10-20sen, now it's 30-40sen, in the near future it might be 40-50sen.

I believe that current selling pressure on Teoseng's shares is mainly because of declining egg price, and to a certain extent, fear of bottoming out of feed price.

As Q2 is already over, I suspect that Teoseng's FY15Q2 result will not be as good as its latest 2 quarters.

If egg price continue to stay at Q2 2015 level for the rest of the year, then all layer farming operators should see poorer FY15 compared to FY14.

Is this part of the reason Teoseng put its Sungai Linggui expansion plan on hold?

As I have mentioned earlier, I think Teoseng is still a well-managed company who has no control over commodity price. 

With its ambitious expansion plan, shareholders should get the reward in long term.

Who knows grade A egg price will suddenly go above 40sen in second half of 2015?

Wednesday, 1 July 2015

My Portfolio Jun15

Summary for June 2015

Jun-15
Numbers of stocks 11
Cash:Share ratio 1:25
Share Bought None
Share Sold None


Overall 2015
Portfolio Return Jun15 -2.6%
KLCI Return Jun15 -2.30%
Portfolio Return YTD15 37.7%
KLCI Return YTD15 -3.10%


Stock Portfolio @ End of Jun15

Satellite Portfolio

Stocks Avg May15 Jun15 Div 15 Jun15(%) Overall(%)
GESHEN 0.575 0.67 0.73
9.0 27.0
GTRONIC 2.43 5.95 5.95 0.13 0.8 144.9
HEVEA 3.10 3.10 3.48
12.3 12.3
HHGROUP 0.475 0.610 0.670 0.005 9.8 41.1
HUAYANG 2.32 2.06 1.92 0.05 -6.8 -17.2
INARI 0.82 3.50 3.25 0.044 -6.5 296.3
INARI-WB n/a 1.44 1.37
-4.9 n/a
JOHOTIN 1.54 1.60 1.51
-5.6 -1.9
LATITUD 2.09 6.15 5.85
-4.9 179.9
MATRIX 2.09 3.21 3.10 0.1075 -2.1 48.3
SCIENTEX 5.47 6.90 6.89 0.13 -0.1 26.0
TAMBUN 0.77 1.70 1.66 0.03 -2.4 115.6


Comment:
  • No transaction in Jun15
  • Dividend ex-ed for Gtronic, Inari & Matrix in Jun15
  • Portfolio lost 2.6% in Jun15, underperforms KLCI in the same period (-2.3%)
  • Property stocks continue to slide, with Huayang suffers most
  • Failed to add more Hevea when its share price dropped below RM3.10 in mid-June, as I only aware of it later...
  • Poor cash reserve

Plan:
  • To trade more cautiously.