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.