Heng Huat: Slowly But Surely?

HHGroup FY14Q4 Financial Result

HHG (RM mil)	FY14Q4	FY14Q3	FY14Q2	FY14Q1	FY13Q4
Revenue	23.2	23.1	24.1	21.3	23.1
Gross Profit	8.8	10.4	10.4	9.7	9.5
Gross%	37.9	45.0	43.2	45.5	41.1
PBT	3.5	2.3	3.7	3.8	3.5
PBT%	15.1	9.9	15.2	17.6	15.2
PATAMI	3.4	1.2	2.7	3.0	2.4
Biomass Rev	18.1	18.6	19.7	16.7	18.2
Mattress Rev	9.8	9.1	9.2	9.1	10.1
Biomass OP	3.6	4.3	4.2	3.5	3.9
Mattress OP	-0.1	-0.1	-0.2	0.3	0.2
Total Equity	68.3	64.8	43.1	40.4	37.3
Total Assets	109.8	110.5	95.3	90.5	89.0
Trade Receivables	22.3	19.7	21.4	19.2	19.4
Inventories	5.9	6.3	5.4	4.6	4.2
Cash	15.2	18.8	2.6	2.4	1.4
Total Liabilities	36.8	42.2	49	47.4	49.1
Trade Payables	11.2	9.2	11.4	9.4	11.2
ST Borrowings	9.6	12.1	15.5	15.3	13.8
LT Borrowings	15.3	19.0	20.5	21.4	23.0
Net Cash Flow	13.0	16.6	0.4	0.2	0.3
Operation	13.5	8.7	6.5	2.6	11.3
Investment	-7.7	-7.5	-5.1	-1.8	-7.7
Financing	7.3	15.5	-1.1	-0.7	-3.2
EPS	1.67	0.64	1.69	1.91	1.52
NAS	0.38	0.38	0.27	0.25	0.23
D/E Ratio	0.14	0.19	0.77	0.85	0.95

Heng Huat's revenue in FY14Q4 is rather flat. Gross profit margin drops due to higher raw material price for biomass segment but lower admin & distribution expenses make the PBT comparable to previous quarters.

Excluding the listing expense of RM1.87mil in Q3, FY14Q3 PBT is actually RM4.2mil. So current Q4 PBT of RM3.5mil is a bit of disappointment to me.

Tax income registered in Q4 gives Heng Huat its record high quarterly PATAMI of RM3.4mil.

HHG (RM mil)	FY14	FY13
Revenue	91.7	73.7
Revenue growth %	24.6
Gross Profit	39.2	32.0
Gross%	42.7	43.4
PBT	13.2	11.4
PBT%	14.4	15.5
PATAMI	10.4	9.7
PATAMI growth %	7.2
EPS	5.79	6.11
NTA	0.38	0.23

Anyway, full year FY14 result is still commendable with revenue grows 24.6% and PATAMI grows 7.2%.

The better results are contributed by better demand and selling price for its biomass products esp oil palm EFB fiber from China.

Lesser growth in profit is due to decrease in product margin, higher transportation cost and the one-off listing expense mentioned earlier.

Tax paid in FY14 is just 3%, due to many of its products granted pioneer status with tax exemption.

Net debt/equity ratio improves substantially after IPO and further drops to 0.14x in the end of FY14.

Heng Huat latest geotextile product palm fiber mats are fully sold since launched. It currently only has one production line with production capacity of 100 pieces per month. It plans to set up another line in Q1 of FY15.

The palm fiber mats can be used in construction and plantation sector to prevent soil erosion. Heng Huat highlighted that plantation players can enjoy a production cost saving of more than 2 times by using the palm fiber mats.

       Palm Fiber Mat

Last year Heng Huat bought land in Gua Musang to build a new factory that will increase its oil palm fiber production capacity. Its construction will only start in Q3 of 2015.

I think Heng Huat still has room to grow, albeit slow. 

If not because of the one-off listing expense, Heng Huat should be able to achieve PATAMI of RM12mil in FY14. 

With total shares of 205.8mil, EPS will be 5.8sen. So I'll keep my target price at 58sen base on PE of 10x.

Heng Huat might be one of the few companies in ACE market who shows good profitability and awaiting to be transferred to main board.

GTRONIC: Sensing Growth In FY15?

Globetronics FY14Q4 Financial Result

GTRONIC	FY14Q4	FY14Q3	FY14Q2	FY14Q1	FY13Q4
Revenue	89.9	91.1	90.6	83.4	78.5
Gross Profit	17.8	27.1	27.1	25.0	20.0
Gross%	19.8	29.7	29.9	30.0	25.5
PBT	16.6	21.8	20.8	17.0	15.0
PBT%	18.5	23.9	23.0	20.4	19.1
PAT	15.3	17.7	17.3	14.1	13.1
Total Equity	284.6	298.3	291.4	272.4	275.2
Total Assets	358.0	362.9	361.2	325.9	338.8
Trade Receivables	73.7	65.9	70.3	60.6	62.4
Inventories	19.0	15.2	13.4	11.1	14.2
Cash	155.7	167.8	169.5	141.0	147.3
Total Liabilities	73.4	64.6	69.8	53.5	63.6
Trade Payables	33.5	16.3	17.2	9.9	18.4
Other Payables	33.7	31.4	32.1	29.8	34.3
ST Borrowings	1.7	8.1	11.5	9.9	5.2
LT Borrowings	0.0	0.0	0.0	0.0	0.0
Net Cash Flow	8.2	20.7	22.6	-6.3	41.5
Operation	81.6	52.4	34.5	13.2	87.5
Investment	-21.4	-17.0	-10.9	-7.1	-11.2
Financing	-52.0	14.7	-1.0	-12.3	-34.7
Dividend paid	61.8	30.9	19.6	19.6	47.1
EPS	5.45	6.31	6.17	5.04	4.73
NAS	1.01	1.06	1.04	0.97	0.99
D/E Ratio	net cash	net cash	net cash	net cash	net cash

Though Gtronic's latest revenue and net profit are better YoY, they are poorer if compared QoQ.

Its latest gross margin is uncharacteristically low at 19.8% in this quarter compared to 25-30% in previous quarters.

The reasons of the lower net profit in current quarter is due to inventories adjustments in the supply chain and shutdown of manufacturing hubs/customers' facilities in Dec14.

I think the inventories adjustment should be a temporary issue but not too sure whether shutdown of customers' facilities means losing orders for long term or short term.

Anyway, slower Q4 is not that bad as it provides more room for growth in subsequent FY.

Bank borrowing has been reduced to just RM1.7mil but it may rise in FY15 due to high capex for business expansion. Cash is still aplenty at RM155.7mil.

GTRONIC (RM mil)	FY14	FY13	FY12	FY11	FY10	FY09
Revenue	355.0	321.4	290.0	265.0	279.2	217.5
Revenue growth %	10.5	10.8	9.4	-5.0	28.3	-21.0
Gross Profit	96.6	88.0	69.0	54.6	66.8	48.6
Gross%	27.2	27.4	23.8	20.6	23.9	22.3
PBT	76.2	62.5	48.3	30.2	37.4	19.2
PBT%	21.5	19.4	16.7	11.4	13.4	8.8
PAT	64.4	52.6	41.3	26.7	29.7	15.9
PAT growth %	22.4	27.4	54.7	-10.1	86.8	-27.1
EPS	22.94	19.02	15.31	9.99	11.20	6.07
NTA	1.01	0.99	0.96	0.92	0.92	0.86
ROE	22.6	19.1	15.8	10.8	12.4	7.0

Overall, FY14 is a record year for Gtronic in term of total revenue and net profit. 

Its FY14 revenue and net profit of RM355.0mil and RM64.4mil are 10.5% and 22.4% higher respectively compared to FY13.   

Looking back into its history, Gtronic's previous revenue record is set 10 years ago in 2004 at RM347.9mil. However, its net profit in 2004 was just half of current level.

With latest net profit of RM64.4mil which is lower than my guesstimated figure of RM70mil, EPS stands at 22.94sen.

If fair PE is 18x, then target price will be RM4.13. Its share price closed as RM4.99 today.

This target price is not so meaningful for me as Gtronic's share price almost always traded above my own target price.

There are many stocks traded at PE of higher than 20x out there, why not Gtronic who has good growth potential?

I'll keep my previous target price of RM4.48.

From The Star report in Nov14, Gtronic's management mentioned that sensors business will lead the company's growth in 2015.

It is expected to start commercial production for its new product 3D sensors in mid-2015. This latest technology is projected to have a CAGR of 23.4% from 2014 (USD789mil) to 2020 (USD3.4bil) globally.

Besides, it also targets commercial production of bio-sensors used in portable health devices in the second half of 2015.

Gtronic has earlier started the production of motion & optic sensors for wearable devices since July14. It plans to ramp up its production in Q1 of 2015.

Its proximity sensor's monthly production has increased about 30% from 15-16 million units in 2014 to 20 million units at the moment.

Other than its sensor business, other business segment such as timing devices and LED are also expected to register growth.

Total capex planned for FY15 is as much as RM50mil.

Div (sen)	FY15	FY14	FY13	FY12	FY11
1st	2(6)	2(5)	5	2	1.5
2nd		5(6)	5(4)	5(2)	5
3rd			2(2)	2(1)	2
Total	8+	18+	18	12	8.5

Special div in bracket 

Gtronic has just declared 2sen + 6sen special first interim dividend for its FY15. This is 1sen higher than the corresponding period in FY14.

It will declare the final dividend of FY14 usually in April.

In FY13, Gtronic paid a total of 18sen dividend which represents about 95% of its FY13 net profit.

If it were to pay the same 95% for its FY14, then it will be approximately 21.5sen. So far it has already paid 18sen dividend for FY14 and I guess it will pay another 4sen to make it total 22sen for FY14.

The dividend yield will be 4.4% at share price of RM5.00.

Even though its PE is already quite high, I will keep my Gtronic shares as I don't hold a lot. Its growth might not be over yet and it pays good dividends too.

Anyway, I'm still waiting for a strategic acquisition by Gtronic

.

Aspen Vision City: 1st Phase Kick-Started

I received an invitation to the launch of the 1st phase of Aspen Vision City in early Feb15.  However, I didn't go as I know that I can't afford it and I didn't have time as well.

The first phase "Verve" consists of about 451 units of 3-4 storey shop offices priced from RM1.2mil. I would say that this price is quite attractive.

It is a gated & guarded commercial precinct and owner needs to pay monthly maintenance fees. So does it mean that owners are not allowed to do extension or change the colour of the buildings? I think Verve will have its own regulation for this.

The location of Verve is good as it is sandwiched between the future IKEA and KDU University, and next to proposed International School and Financial Hub.

It is also the only landed property you can get in Aspen Vision City as future development are all high rise buildings.

If you go to Batu Kawan now, you will find that it is still a super "ulu" place with bushes and empty roads with cow dung. Can you imagine that it will turn into a modern city as illustrated in artist's impression below in the future?

Every township starts from scratch. IKEA has brought life to Mutiara Damansara, Damansara Utama and even Kota Damansara. I believe that it will do the same to Batu Kawan and its surrounding area.

Besides, Malton also owns a big piece of land opposite Aspen Vision City. Can we see another shopping mall like KL Pavillion here?

Anyway, the development of Batu Kawan is still in its "fetal" stage. There is a possibility that things can still go wrong. What if IKEA suddenly cancel its plan due to sudden economy crisis?

Ivory which initially owns 49% in Aspen Vision Land which holds 80% of this 245-acre Aspen Vision City, has just sold off all its stake in Jan15 for RM55mil. Ivory will gain about RM35mil from this divestment. The gain is not bad indeed as no single piling has been done for this project yet.

Ivory said that it will concentrate on Penang island and Johor's projects that can generate returns over a shorter gestation period.

Not patient enough?

Earlier, Ivory has also disposed its land in Penang island for RM150mil and entered into a JV to develop 7.1 acres land in Johor Bahru with a potential GDV of RM2bil.

It's still early to say that Ivory has made a wrong decision in divesting its stake in Batu Kawan. Perhaps it is in a dire need to reduce its gearing.

Overall, I think Batu Kawan is an exciting development, but it may take a long time to see its result.

From the first pic here, there seems to be a proposed access/interchange with PLUS highway from the middle part of Batu Kawan.

For me, it's a nonsense to build a third access to Batu Kawan from PLUS highway to let PLUS collect toll fees. The new road should fly over the highway and connect to federal/state road.

If this is the case, then the new access road will link directly to EcoWorld's Eco Meadows!

Tambun: As Expected

Tambun Indah FY14Q4 Financial Result

TAMBUN	FY14Q4	FY14Q3	FY14Q2	FY14Q1	FY13Q4
Revenue	110.1	116.8	128.0	112.0	118.4
Gross Profit	38.8	43.8	38.1	39.9	40.4
Gross%	35.2	37.5	29.8	35.6	34.1
PBT	35.1	34.8	33.1	35.3	36.3
PBT%	31.9	29.8	25.9	31.5	30.7
PATAMI	25.9	25.5	25.4	25.3	22.1
Total Equity	397.0	377.9	351.0	336.0	310.1
Total Assets	661.8	636.8	676.1	596.9	496.9
Trade Receivables	118.0	117.0	106.8	99.1	86.6
Prop dev cost	72.5	83.9	57.2	96.4	125.1
Inventories	2.4	0.3	0.3	0.3	0.3
Cash	131.5	151.1	194.4	142.8	125.9
Total Liabilities	262.4	256.6	323.0	258.7	183.3
Trade Payables	103.9	93.1	102.0	93.1	81.1
ST Borrowings	35.2	13.8	38.3	39.5	24.8
LT Borrowings	117.7	133.2	164.7	116.6	73.3
Net Cash Flow	17.7	37.3	80.6	29.0	24.3
Operation	-5.5	3.0	-23.1	-23.0	57.9
Investment	-12.8	8.5	2.4	4.1	-21.4
Financing	36.0	25.8	101.3	47.9	-12.2
EPS	6.24	6.22	6.34	6.41	6.14
NAS	0.94	0.92	0.86	0.85	0.79
D/E Ratio	0.05	Net cash	0.02	0.04	Net cash

Tambun's FY14Q4 result is flat with revenue drops 5.7% while PATAMI rises 1.6% to a record high of RM25.9mil compared to preceding quarter of FY14Q3.

This "record" quarterly profit is helped by fair value adjustment on investment properties amounting to RM2.6mil in current quarter.

Anyway, Tambun has achieved something special which is PATAMI of RM25+mil for all 4 quarters in a financial year.

Tambun registers new sales of RM81mil in Q4 compared to RM74.1mil in Q3. Total sales is RM429mil in FY14 compared to RM500mil in FY13.

This means that FY14 second half sales drop significantly from first half.

Unbilled sales drop from RM457.3mil to RM427.4mil at the end of FY14.

RM mil	FY14	FY13	FY12	FY11	FY10	FY09
Revenue	466.8	376.4	296.7	191.8	128.1	100.9
Revenue growth %	24.0	26.9	54.7	43.7	27.0
PBT	138.2	117.7	79.0	46.8	36.2	30.0
PBT%	29.6	31.3	26.6	24.4	28.3
PATAMI	102.1	65.0	40.8	23.4	25.2	23.9
PATAMI growth %	57.1	59.3	75.1	-7.1	5.4
EPS	25.20	19.77	14.93	10.74
NTA	0.94	0.79	0.72	0.70
ROE	25.7	21.0	18.3	15.0

Overall FY14's revenue and PATAMI reach RM466.8mil and RM102.1mil respectively, which are 24% and 57% higher compared to FY13.

ROE reached an excellent level of above 25.

EPS stands at 24.2sen (base on today's outstanding shares of 421.5mil) and base on fair PE ratio of 8x, my target price will be RM1.94.

A minimum dividend payout of 40% will see its FY14 dividend at minimum 9.6sen. So after first interim dividend of 3sen, it should pay at least another 6.6sen later likely in September.

Dividend yield is at 5% at share price of RM1.90.

       Latest progress of GEMS International School

       Latest progress of Pearl City Mall

As mentioned in earlier articles, Tambun will only concentrate on its Pearl City for its new launches, unless it acquires lands elsewhere.

It will launch the first high rise project in Pearl City (Avenue Garden) sooner than expected in the first half of 2015.

Avenue Garden is a serviced apartment that offers units with built-up area from 700 sq ft and priced from RM248k. It is located next to GEMS International School and future Tambun Indah corporate tower.

The price of RM350 psf is not cheap but I have a friend who is ready to buy. I am keen to know what kind of response this project can get.

According to analyst, Tambun plans to launch projects worth RM500mil in FY15. So I would expect even or lower sales in FY15 compared to FY14.

In my opinion, Pearl City is still an attractive township especially after the completion of GEMS International School, Pearl City Mall and Jit Sin High School SPS branch.

It is even better if the proposed medical center could be materialized.

       Pearl City Master Plan (latest)

It seems like Tambun may not sustain the tremendous growth it shows for the past 4-5 years, especially in current soft property market.

I believe that its management are surely busy scouting for more strategic land and this will be a "re-rating catalyst" for its stock.

Hopefully investors can hear the good news soon.