Heng Huat: Marred By Listing Expenses

Heng Huat FY14Q3 Financial Result

HHG	*FY14Q3	FY14Q2	FY14Q1	FY13Q4	FY13Q3
Revenue	23.1	24.1	21.3		18.1
Gross Profit	10.4	10.4	9.7		7.3
PBT	2.3	3.7	3.8	3.2	2.2
PBT%	9.9	15.2	17.6		12.3
PAT	1.2	2.7	3.0		2.3
Biomass Rev	18.6	19.7	16.7		14.6
Mattress Rev	9.1	9.2	9.1		7.1
Biomass OP	4.3	4.2	3.5		2.2
Mattress OP	-0.1	-0.2	0.3		0.1
Total Equity	64.8	43.1	40.4	37.3
Total Assets	110.5	95.3	90.5	89.0
Trade Receivables	19.7	21.4	19.2	19.4
Inventories	6.3	5.4	4.6	4.2
Cash	18.8	2.6	2.4	1.4
Total Liabilities	42.2	49.0	47.4	49.1
Trade Payables	9.2	11.4	9.4	11.2
ST Borrowings	12.1	15.5	15.3	13.8
LT Borrowings	19.0	20.5	21.4	23.0
Net Cash Flow	16.6	0.4	0.2		-0.4
Operation	8.7	6.5	2.6		8.2
Investment	-7.5	-5.1	-1.8		-11.9
Financing	15.5	-1.1	-0.7		3.3
EPS	0.64	1.69	1.91		1.34
NAS	0.38	0.27	0.25	0.23
D/E Ratio	0.19	0.77	0.85	0.95

* After IPO

Heng Huat's FY14Q3's revenue drops 4% compared to preceding quarter of FY14Q2.

PBT drops 38% from RM3.7mil to RM2.3mil in the same period mainly due to a non-recurring listing expense of RM1.87mil incurred in Q3.

Without this one-off expense, its Q3's PBT can reach RM4.2mil which is 13.5% higher QoQ.

Overall 9-months revenue grows 35.1% from RM50.7mil to RM68.5mil. However, PATAMI drops slightly from RM7.3mil to RM7.0mil in the same period due to the listing expense and higher distribution to non-controlling owners in current financial year.

Contribution of both biomass & mattress segment remain stable compared to previous quarter.

Balance sheet becomes much lighter after the RM20.5mil cash from IPO is included. 

Net debt/equity ratio falls more than expected to 0.19x from 0.77x. Current ratio is at a comfortable 1.5x.

Cash flow from operation remain good while the management continue to spend on production capacity expansion.

Overall it is still a good quarter for Heng Huat.

With 9M14 PATAMI at RM7.0mil, it is unlikely to reach my prediction of RM12mil for FY14.

Nevertheless, usually I will not include special one-off gain or loss into the calculation of target price.

Even though the listing expense of RM1.87mil is not a huge amount, it is actually very significant for a small company who earn a little like Heng Huat.

So my own target price will remain at 58sen base on FY14 EPS of 5.8sen.

The growth of Heng Huat will depend on demand from China and its ability to find new markets. 

I will continue to hold its shares and monitor its subsequent quarters' results.