Heng Huat: RM15mil PATAMI On Track

Heng Huat FY15Q2 Financial Results

HHG (RM mil)	FY15Q2	FY15Q1	FY14Q4	FY14Q3	FY14Q2
Revenue	26.6	26.5	23.2	23.1	24.1
Gross Profit	12.9	10.6	8.8	10.4	10.4
Gross%	48.5	40.0	37.9	45.0	43.2
PBT	6.2	3.5	3.5	2.3	3.7
PBT%	23.3	13.2	15.1	9.9	15.2
PATAMI	5.0	2.9	3.4	1.2	2.7
Biomass Rev	21.8	19.9	18.1	18.6	19.7
Mattress Rev	6.6	12.6	9.8	9.1	9.2
Biomass OP	6.4	3.6	3.6	4.3	4.2
Mattress OP	0.04	0.3	-0.1	-0.1	-0.2
Total Equity	75.1	70.0	68.3	64.8	43.1
Total Assets	117.4	114.3	109.8	110.5	95.3
Trade Receivables	30.1	26.7	22.3	19.7	21.4
Inventories	5.8	4.8	5.9	6.3	5.4
Cash	13.7	14.1	15.2	18.8	2.6
Total Liabilities	37.1	39.9	36.8	42.2	49
Trade Payables	11.8	13.1	11.2	9.2	11.4
ST Borrowings	13.9	11.4	9.6	12.1	15.5
LT Borrowings	10.5	14.3	15.3	19.0	20.5
Net Cash Flow	-1.6	-1.2	13.0	16.6	0.4
CFOperation	7.3	4.9	13.5	8.7	6.5
Depreciation	3.5	1.6	5.9	4.3	2.8
CFInvestment	-4.3	-4.3	-7.7	-7.5	-5.1
Purchase PPE	4.5	4.5	7.1	7.1	4.7
CFFinancing	-4.6	-1.7	7.3	15.5	-1.1
FCF	2.8	0.4	6.4	1.6	1.8
EPS	2.45	1.42	1.67	0.64	1.69
NAS	0.36	0.34	0.38	0.38	0.27
D/E Ratio	0.14	0.17	0.14	0.19	0.77

Heng Huat's FY15Q2's revenue is marginally higher than FY15Q1 but PBT increases by an astonishing 77%, thanks to vast improvement in profit margin.

It is a record-breaking quarter for this relatively new company proposing to be transferred to main board.

The higher profit margin is contributed by higher average selling price of its biomass materials and lower raw material cost.

However, revenue from mattress division falls quite significantly but still able to stay profitable.

At first half of FY15, revenue increases 17% to RM53mil, while PATAMI improves 39% to RM7.95mil compared to 1H14.

This means that the RM15mil PATAMI the management guided earlier is highly achievable.

Heng Huat has recently completed the acquisition of land in Gua Musang to build a new plant which is expected to be operational in Q2 of 2016.

The new plant will increase its oil palm EFB fibre production lines from 20 to 27, with annual capacity rising from 100.5k tonnes to 135k tonnes.

The capacity expansion is mainly to cater for rising China demand, as well as new markets in Australia, South Korea and Japan.

Besides, the construction of its biomass power plant is expected to be completed in Q3 of 2016.

After bonus issue, Heng Huat's ordinary shares have increased to 308.7mil. 

If its PATAMI can reach RM15mil in FY15, projected EPS will be 4.86sen.

At current share price of 37.5sen, it is trading at forward PE of 7.7x.

As about 45% of its sales are to China, current devaluation of RMB and fear of China slow down have already affected Heng Huat's share price negatively.

Its share price has fallen 19% from 45.5sen since its bonus issue ex-ed in early July.

Since biomass market is forecasted to grow further, and Heng Huat is still showing signs of growth, probably I will continue to hold its shares despite China concern.