Kawan Food - Roti Canai business!

Company : Kawan Food Berhad

 Business :

Manufacturing of frozen foods and export to overseas. The factories are located in Pulau Indah Klang and Nantong China. Export to 37 countries via distributorship, direct sales, e-Commerce, retailers and wholesalers. Their most common products are Spring Roll and Parahta. Some of their brands are as follow:   

Fundamental :

Financial healthy company with cash of RM 66 million. Bank borrowing (short + long term) is only RM 15.2 million. Another net cash company. Refer to their 2020 annual report.

 

5 years revenue :

The 5 years revenue is as below. There is a clear sign of growing revenue every year. I believe 2021 will be another great year for the company.

Profit after tax has been declining. Usually this the sign of stiff competition in the market. The lowest was in 2019. A quick check on the 2019 report, the low profit was due to additional depreciation of RM9.6 mil and wages. I am not too concerned on depreciation as it is just paper lost without affecting the cash flow.

 

Export business:

The export revenue contributes 56.3% to the revenue while domestic market is 43.7%. The export revenue has seen significant growth in all their key markets with USA contribute more RM50 million sales! The spread is very healthy and not relying on single market.

 

Surprising to know that Paratha is the most sellable product for export market! Lots of people like to eat Roti Canai :)

Domestic sales also seeing the rise in revenue. The growth in E-commerce is explosive although value is still small.

 

Spring roll is the core product domestically followed by Paratha product. See breakdown below.

Company products have gain Halal certification is key to sell capture Muslim market.

 

Q1 Result

 

Good Q1 result on both YoY & QoQ basis. The profit margin has also improved. Coming Q2 will be good as well as the food business is pretty stable. There is a rising demand from USA and domestic market. See their Q1 note below.

 Take note that they have placed approx. RM25 million in other investment. Interesting to know what type of investment. Perhaps should write to them for clarification?

 

Prospect:

Management is pretty good in navigating the effects of MCO and manage to capture the shift of consumer behavioural pattern. Thumbs up to the management!

I estimate better performance than last year, in the region of 10% increase. The risk will be raw material price hike such as plastic packaging and delay shipments for export market.

 

My view on share price:

Share price peak at RM2.80 in Sept last year then slowly moving down to RM2.00. Support level is RM1.74 and immediate resistance is RM2.20. Market sentiment is pretty low at this moment so I don’t expect the price to go up. Probably will go side way for sometime until Q2 result is announced. If price drops to support level then good to collect some.

 

Forecast earning & PE.

Industry PE is around 20-22. Forecast of 2021 of earning as follow:   

Q1	Q2	Q3	Q4	Total
2.28	3	1.8	1.8	8.88

At price of RM2.01 (22 Jun 2021), this will be PE of 23. A bit high and no big surprises. Dividen wise is a bit “Kiam Siap” company. However, it is good to note that big boss is buying back its own share. Hinting confident in the company?

 At time of writing, I don’t have any Kawan share but will wait for opportunity to buy if price drop.

Technical Analysis - Double Top Pattern

Double Top Pattern is a signal bearish reversal. There are two very clear tops with same with height and width. The lowest point in between two peaks is the neckline (support line).  See chart below.

Looking at KL stock market. I managed to find a potential stock that show double top pattern. It's neckline has not been broken yet. Once broken, it will confirm a bearish reversal.

SCOMNET (001)

Company : Supercomnet Technologies Berhad

 Business :

Manufacturing of cable and wire for medical devices, automotive and electrical appliances. They are OEM for leading companies like Edward Lifescience and Denmark Ambu. The real gem in the company is Supercomal Medical Products, SMP that manufactures cable for medical devices. Their products have gained European CE marking and US FDA certification. These certifications are extremely important for selling to Europe and North America market. It is another company with Taiwanese board of directors.

Fundamental :

Company has net cash of RM18 million (no bank borrowing). Still small but given time, I think it will grow if they manage it well. 5 years revenue and profit before tax as follow. You can see both revenue and profit are growing after acquisition of Supercomal Medical Products, SMP in 2018.

 

Main contribution coming from medical device division. E&E division may recover gradually on strong demand for semiconductor.

 

Geographical breakdown of the revenue is as follow. Domestic market (Malaysia) is contributing more than 50% of their total revenue.

 

SCOMNET - Q1 Result

 

 Profit has dropped in Q1 largely because of copper as raw material price. See note below.

 

 Prospect:

Small company with potential of growth especially on their medical segment. They will kick start production for new product which will contribute to the revenue stream. They are looking at double digit growth in FY2021 (See note below)

 

 

Company is on expansion mode to cope with demand.

 

I think the market demand for their product is good but the risk is raw material price of copper. If we take a look on the copper price chart below, I think their profit margin will drop again in Q2.

 

My view on share price:

It is a definitely a high-risk high-reward for this company. Price already surged from around RM0.80 to peak price of RM2.38 (mid Nov 2020) then come down to RM1.55 and surge again to RM2.05 (around end Apr). Please don’t buy if you don’t have a strong heart for roller coaster excitement!

 

In terms of earning, I think will be flat mainly due to high copper raw material price. Quick estimation of the full EPS below. At current price of RM1.64, PE will be 54 . I think it is high and overvalued. 

Q1	Q2	Q3	Q4	Total
0.71	0.70	0.80	0.80	3.01

There is good coverage from fund managers so every now and then you will see reports from fund managers. It may be good for short term trader with high risk appetite due to its volatility (goreng?).

At time of writing, I don’t own any Scomnet shares. Buy at your own risk.

Poh Huat Resources Berhad

Company : Poh Huat Berhad

http://www.pohhuat.com/

 Business :

Manufacturing of furniture with base in Muar Johor and Vietnam. 90% of their exports are going to USA and Canada market. One of key furniture players in South East Asia. They also OEM for major importers in North America targeting medium to upper medium market (products from Vietnam plants). They make home and home-office furniture.

 

Fundamental :

Another net cash company with RM182 million based on 2020 report (see below) and company is giving out dividen for 3 quarters in a year. Pretty good dividen yield. You can see the net cash is growing every year. Thumbs up to management and board of directors.

 

5 years revenue and profit before tax as follow. The revenue was rising from 2016 to 2019 but dropped in 2020. If not because of MCO, I think 2020 revenue should be higher. Profit before tax was in the range of RM58 million to RM67 million. 

 

 

Poh Huat - Q1 Result

 

As mentioned in their report, the drop in Malaysia revenue is due to production disruption cause by COVID-19.

 

Prospect:

Well, the common phrase you always hear is “Work From Home”. If there are no proper workstation at home, how to work from home? There are few positives things for Poh Huat.

• US-China trade war will still continue although Joe Biden is the new president. (China is the largest furniture exporter in the world)
• Work from home trend in USA.
• USA stimulus package will make more disposable income for US citizens.
• US/RM exchange rate is still very favorable to company.
• High dividen yield and pay in 3 quarters (approx. 40% profit will be paid)
• Growing cash pile in the company (One day cash will become too much)
• Down side risk seem low at the moment ( Support price is RM1.37 based on their chart) 

 The outlook taken from their Q1 report.

My view on share price:

It is a recovery and dividen play for Poh Huat. I won’t expect PE to be higher than 10 because average PE for furniture makers is always below 10. The peak price was RM2.00 around 18 Nov 2020 before announcing record revenue and profit. I doubt it will reach RM2.00 again. Dividen yield looks very attractive (total 9 cents last year).  

 

 

 

Q2 is traditionally low quarter and Q4 is traditionally good quarter. So my forecast EPS for whole year will 19 cents and PE will be 7.7 at price of RM1.47

Q1	Q2	Q3	Q4	Total
3.63	3	5	8	19

 

The biggest risk is production shutdown due to MCO3. I’m still not sure if they are allowed to operate during MCO 3. However, the Vietnam plants will help to mitigate the risk. I would suggest to wait for Q2 result for bargain price if wish to invest in this company.

Technical Analysis - MACD Divergence

Trying to understand MACD divergence. It simply means the higher high in the price trend chart does not correspond to the MACD chart where it shows lower high. One arrow shows up and one arrow shows down.

I am trying to search for an example in Bursa stock and manage to find one although not a perfect one. See chart below. It is also interesting to note that the MACD crossover and center line crossover give pretty good buy and sell signals in this case!  

 

Technical Analysis - EMA & MACD

Technical analysis is important besides fundamental analysis. Combine both analysis will help to reduce risk and maximize profit. 

I have to pay for my mistake in Hevea for not understanding technical analysis. Let looks the buy and sell signals using technical analysis.

EMA (5,10)

I use 5 days and 10 days because the price fluctuation is high. 5 day EMA is represent by red line and 10 day EMA is represent by green line. 5 day EMA always moves faster than 10 day EMA. When the cross over happen, it is an indication of pattern change. In this case it is sell signal (see chart below).

 

MACD (12, 26, close 9)

MACD is 12 days EMA minus 26 days EMA and represented by blue line. Signal line is 9 days EMA. There are two signals here.

First is buy signal when MACD cross the centerline (zero). Second is sell signal when the MACD cross the signal line (9 days).

 

I failed to recognize these signals and have to pay for my mistakes. Hopefully will never repeat the mistake again.

BPPlas - 2 June 2021

Company : BPPlas Berhad

Business :

Manufacturing PE stretch film in Batu Pahat Johor. The profit margin for plastic is usually single digit (except SLP, SCGM). This business is largely depending on raw material (resin) cost. Stretch film usually use LLDPE (liner low density Polyethylene) as raw material.

Side note:

The local supplier for PE (including HDPE, LDPE & LLDPE) is Lotte Titan Chemical based in Pasir Gudang (another public listed company in Malaysia). More information of usage of PE can be found via link below:

https://www.lottechem.my/products/productGuide_view.asp

Fundamental :

Net cash company and consistently giving out dividen every quarter. It is perfect choice for those who seek high dividen yield and consistent dividen payment. The company has increased their cash to RM84 million (2020) compared to RM45 million in 2019. Well done management and board of directors!

 

5 years revenue is pretty flat or consistence. See below.

 

Export is 70% of their business which can benefit from high USD/RM exchange rate.

Recently BPPlas has released their Q1 result and performance is very encouraging. In fact one of the highest revenues and net profits. Profit margin also increase to 9.7%! See chart below.

BPPlas - Q1 Result

 

I include other plastic companies latest QR results for comparison purpose except Scientex (they have property business).

 

SLP - Q1 Result

 

Thong Guan Q1 Result

 

SCGM Q3 Result

 

Daibochi - Q2 result

 

Prospect:

Resin price is the key factor for profitability. If they can pass the cost to end users/customers then profit should be good. The e-commerce logistic is a booming sector. Hopefully they can capture this opportunity. Growth wise is not very aggressive but they will invest in new machine. This will only contribute to the earning in 2022 as installation and commissioning will long time (typically 1.5 years).

 

Company will invest in new machine. Good sign.

 

Raw material / Resin price:

The resin price shot up in Mar and then slowly soften in May (see resin chart below). Coming Q2 result will be lower profit as I don’t expect the company can pass on the resin cost so quickly. Long term prospect is considered OK as still lower than average of 9200 in 2018 (see resin chart below).

 

 

My view on share price:

This company is a bit like old man (ah Pek) company. Website show very little information on their product usage. The price can stagnant for a long period of time. If you look at the price chart, share price can hibernate (price flat) for whole year 2019 and again 4 months in 2021 except the recovery from Covid sell down in Mar 2020.

 

 

Simple 2021 EPS forecast will be 5x3 + 4 = 19 cent. At price of RM1.60, the PE will be 8.42 which is low when compared to others but it is always hovering around 8-9 most of the time. I don’t think it will increase to PE 15 as lack of institution coverage or “goreng”. Factor in a small growth, it is possible to appreciate until RM1.80 based on PE 9.5. However, the peak price was around RM1.73 and seems hard to break RM1.80.   

I do not expect the share price to fly in coming months (old already!) but company is stable in giving dividen. Suitable for low risk appetite investors. See note below.

At time of writing, I own few BPPlas shares…support old man a bit lah, better than bank FD rate! 😊