Yoong Onn Overlooked?

YOCB's IPO was oversubscribed 12.6x. It was listed in Dec 2009 with an IPO price of RM0.88, which represented a PE ratio of 7.6x base on FY2009's (ended June) net profit of RM13.9mil.

It seems like this stock has become an unknown now.

Yoong Onn Corp Bhd (YOCB) started its business as a trader of home linen in 1966. It then commenced its manufacturing activity in 1976. Its business involves manufacturing and trading of bed linen, bath linen and bedroom / bathroom / kitchen / living room accessories such as pillow, soap dispenser, mat, curtain, carpet etc. Currently it has 14 own brands such as Novelle, Jean Perry, Sarah Miller, Ann Taylor etc and owns 18 boutiques shops (Home's Harmony). It held 22% of local home linen market as of year 2009.

Currently YOCB's share price is at 70sen, giving it a PE ratio of just 6.5x, lower than its IPO's PE of 7.6x in 2009. Its share price does not move much since IPO. As YOCB gave bonus issue 1 for 3 in Oct 2011, its IPO price of 88sen should be adjusted to 66sen. So at 70sen now, YOCB's share price just registers a 6% gain from its IPO price.

How does its business perform for the past 3 years from 2010 til 2012? Does it grow 6%?

FY	Rev (RM mil)	Net Profit
2009	130.0	13.9
2010	127.5	15.1
2011	141.0	18.3
2012	153.9	17.3

YOCB's net profit grows consistently throughout the years but drops slightly in FY2012 due to higher operating expenses despite higher gross profit. FY2013 will surely become a record year for YOCB as its 9 months cumulative revenue & net profit already reach RM138mil & RM16.3mil respectively.

Its net profit has increased 24.5% since IPO, why not the share price follow? Is it because of poor dividend yield?

Though YOCB does not have a dividend policy, but it does pay good dividend. For FY2010, it paid 7sen per share which is equivalent to 54% payout ratio from its net profit. However, it did not pay dividend for the following FY2011, but gave bonus issues later that year. Perhaps it needs money for its warehouse expansion. For FY2012, it paid 32.4% of net profit (3.5sen) as dividend. It is expected to pay a total of at least 4sen dividend for FY2013 (2sen interim has been paid), which represents a payout ratio of at least 30%. This gives a palatable dividend yield of 5.7% at share price of 70sen.

Perhaps YOCB's business is not attractive enough. It sells home linen, sounds like not so sophisticated and has limited room to grow as it faces stiff competition. It is true that YOCB's brand is not a market leading brand at the moment base on my personal observation, but recently I can feel its existence more in the market.

Akemi & Windsir may be the more "established" name in Malaysia, especially Akemi which is owned by Ipoh-based Eastern Decorator. Eastern Decorator business is exactly the same as YOCB. It claims to do business with over 30 countries worldwide including the United States and Europe, and it claims to own the largest home textile factory in the country which can produce 12,000 sets of bed linen per day. Thus, it is not easy to claim market share from Eastern Decorator.

Though YOCB exports its products to 15 countries, its home soil still contributes about 75% of total revenue. AEON is its main customer for 28 years now and contributes 23.9% of its sales in year 2009. AEON is now in a rapid expanding mode and this will surely a good news to YOCB.

Foreseeing an increasing demand in the future, YOCB has constructed a new 5-storey warehouse with 65,000 sqft of floor space in 2012 at its Nilai plant. Its production capacity is likely to remain the same since IPO, which is 1.2mil bed sheets & 950k pillows, which was utilized at 81% and 68% respectively in FY2009.

Because of this warehouse investment, YOCB's borrowing has increased from RM10.7mil in FY2011 to RM20.8mil in FY2012, but it drops to RM15.1mil after FY13Q3. Its cash remains almost the same at RM28-30mil level, which is more than its total liabilities combined of RM27mil. Thus, no doubt YOCB has a strong balance sheet.

What is the prospect of YOCB's business? Does it still has room to grow consistently?

I think this will very much depend on its management team. Home linens and accessories are common and necessary items in every household, if YOCB successfully raise its brand image by opening more boutique shops or outlets, or diversify its products range, it may result in better income for the company. YOCB mentions in its FY2012 annual report that it is starting to venture into furniture related products such as sofa bed. How successful is this venture is still to be seen. Furthermore, sales should pick up in tandem with the recent property boom.

Overseas expansion is also a huge potential for growth. From 11 countries in 2009, YOCB has expanded its products presence to 15 countries now in the Asia Pacific region. It still has not penetrate markets in China, India, Europe and America. It is reported during the IPO time that the management hope to achieve 50% contribution from overseas market in time to come.

In June 2013, YOCB has signed licensing agreement to utilize the cartoon characters of "Pororo The Little Penguin" in its bedding and related products. This may help to boost the sales a bit.

YOCB will announce its FY13Q4 results at the end of this August. Though Q4 is its poorest quarter historically, it is expected to record about RM20.5mil net profit for the whole FY2013. With this projected profit, its EPS will be 12.8sen (160mil shares) and PE will be further reduced from 6.5x to 5.5x at 70sen share price. If we use the PE of 8.5x which Kenanga gives to another consumer stock Asia Brands, then the target price of YOCB should be RM1.09.

With a PE of 5.5x and net assets per share of 86.5sen (at FY13Q3), YOCB at 70sen is considered undervalued.

YOCB is a value stock to hold for long term. However, its share price may not see huge movement due to limited outstanding shares and lack of interest from investors due to various reasons. There are far too many "exciting" stocks now which are as good as or even much better than YOCB which can provide greater and faster growth and returns.

So, do you think it is worth to park your money in YOCB? It looks a bit similar to Magni-tech though.

       Pororo & friends