RCE Capital Berhad _ Robust Money Lending Business

Company : RCE Capital Berhad

Business :

Money lending (personal financing) to government servants. A subsidiary of Amcorp Group. This is good business as payment is very secured (direct debit from salary). The profit margin is a whopping 45% !! Mana cari this kind business model?

 

 

 5 years revenue, profits and earning per share.

 

Q4 Result

 

Consistence revenue and profit for FY 2021. Hopefully they can maintain RM34 million profit every quarter throughout FY 2022.

The write-up by Maybank Investment bank (sometime ago) is very interesting. RCE Cap has a very similar business model to AEON Credit.

 

Prospect:

They are bidding for digital banking license with a consortium together with Star Media Group and Paramount Corp but I think chances are low. The low interest environment is good for RCE as it brings down their cost of funds. See below.

 

Malaysia emoluments for Government sector is growing every year and this bode well for RCE business. See chart below.

 

My view on share price:

Price has risen from mid Nov 2020 to all time of RM3.00 around June 2021. It is then dropped to current price of RM2.74. The support level is around RM2.55-RM2.60 and this is a good entry if you wish to buy some.

 

Dividen payout is pretty consistence and increasing every year from 2017. Forecast for FY 22 will be 14 cents.

 

 

Forecast earning & PE.

Current PE is 8.5 at RM2.74 (23 July 2021) and forecast EPS for FY2022 is 37 cents. So fair value should be RM 3.14 ! The coming Q1 result is very important indicator for FY2022 share price.

Q1	Q2	Q3	Q4	Total
9.0	9.0	9.5	9.5	37

 

This is one of the companies that invested by famous local investor, Cold Eye (I read most of his books).  At time of writing, I own RCE Capital shares for some time and will continue to keep till maximum appreciation.

 

Thong Guan Berhad - 888！

Company : Thong Guan Industries Berhad 

Business :

Manufacturing of various plastics such stretch films, garbage bags, PVC food wraps, courier bags and compounding. The products are for different industries like the F&B, Industrial & packaging, Transport & logistic, Consumer packaging, hygiene & medical, retail & E commerce and waste & energy. I like the diversification. They are also selling tea & coffee and organic noodles.

Production facilities are in Malaysia, Thailand (30%JV) and China (Suzhou) … coming Myanmar (don’t know when). They are largest exporter of garbage bag to Japan market (12% share). Total output is more than 150,000 MT per annum. TGuan is one of the key plastic players. Revenue is just behind Scientex who has 400,000 MT

 

Fundamental :

Company has net cash of RM147 million. Very strong financial position. The 10 years track record are as follow and you can notice the revenue is increasing over years and company has a vision to achieve next RM billion revenue. I think the RM 1 billion target this year is achievable as Q1 result already achieved RM 282 million!

 

10 years revenue - record

 

Export business:

The split between export and local for plastic is 80% to 20%.

 

Geographical Breakdown:

Export to 70 countries. No information of breakdown in each country.

 

Quick comments on 2020 sales performance.

Stretch film – RM11.1 milion increase (2.6% increase)

Courier bag – RM12.9 million increase (26.9% increase!!)

F&B – RM14.3 million increase (22.8%)

A significant increase on the courier bag business which is a boom sector and glad that company is capturing this opportunity. Well done! The courier bag is for E commerce customer in USA. PVC Food wrap business was hit by pandemic but will recover soon. Garbage bag sales is slow in Japan.

 

Q1 Result:

 

Major plastic products sales are improving except PVC food wraps.

 

 

Prospect:

Existing capacity of the plastic division:

Category	Stretch Films	Industrial Film/bags	Garbage Bags	PVC Food wrap	Courier Bags
Existing machines	10 Conventional 5th Nano	3 Co-ex blow films	200 blow films	12 lines	?
Capacity	100,000 MT	?	33,000 MT	14,000 MT	7,200 MT
Immediate Expansion	6th Nano line (Total 5 more)	4th blow film	?	(10 lines by 2022)	14,400 MT by 2021
Contribution	45%	16%	16%	5%	6%

 

 Raw material effect:

Seem not much affected by the rising resin price. They have no problem passing the resin price hike to customers according to the director. Volume is a key advantage against the rest of competitors for better bulk price discount.

 

Growth opportunity:

Below is the next key phase of growth. It seems there is vision to achieve the next RM billion. Very interesting expansion plan.

You can watch the chat with the director via link below.

https://www.youtube.com/watch?v=U3LSme3RmQQ&t=3767s

 

My view on share price:

 

Forecast earning & PE.

In terms of earning, a quick estimate as below:

Q1	Q2	Q3	Q4	Total
5.71	5.5	5.5	5.5	22.21

 

Estimate full year PE is 11.53 at RM2.56 (22/7/2022). There is some room to appreciate if valuation is at PE 12.35 which will be RM2.74. Let’s wait and see. Scale of production will be a game changer and possible another Scientex company in the making. Set back is low dividen yield but that’s OK, you need time to grow Musang King or Black Thorn!

 At time of writing, I own TGuan shares and will keep it for long term. Hopefully the Ang’s family will not disappointed me. Buy at your own risk.

Note: Updates will be in FB page (mandarin version) below:

https://www.facebook.com/股海捞真-102714428734096

Magni-Tech Industries Berhad - JUST DO IT

Company : Magni Tech Industries Berhad 

Business :

Manufacturing of garment, flexible plastic packaging and corrugated packaging. OEM for famous brand of Nike which is more than 90% of their apparel business. The business split between garment to packaging is approximately 92% to 8%.  Garment segment operates in Malaysia and Vietnam. The company has been selected as Forbes Asia’s BEST UNDER A BILLION list 2020 in Asia Pacific region. Well done management!

Note : Another OEM for NIKE is Prolexus Bhd in Malaysia. 

It is super boring to read their annual reports because they recycle most of the content even the cover page! Come on Magni, cannot afford to pay a designer meh?

Fundamental :

Company has zero debt for many years and cash pile is growing every year. The cash at bank is RM83 million and other investment is RM 257 million. Super strong cash flow from operation and the dividen & interest received during last quarter report was RM9.35 million. Therefore, the company has no problem paying dividen every quarter. 

5 years revenue

Revenue for FY 2021 is flat at RM 1.22 billion and profit for the FY is slightly increase to RM127 million which is not bad considered challenging operation environment during pandemic situation.

 

Q4 Result

Prospect:

It is still very challenging as big sport events like Tokyo Olypmic are carried out without spectators. However, US spending seems very encouraging and we may see improvement on their sales. Their business is really depending on NIKE as single biggest client. Hence, NIKE business performance is a possible indirect indicator for Magni-Tech, although NIKE has many OEM factories. See link below:

https://news.nike.com/news/nike-inc-reports-fiscal-2021-fourth-quarter-and-full-year-results

• Fourth quarter reported revenues were $12.3 billion, up 96 percent compared to prior year and increasing 21 percent compared to the fourth quarter of 2019. 

https://news.nike.com/news/nike-inc-reports-fiscal-2021-third-quarter-results

• Third quarter reported revenues were $10.4 billion, up 3 percent compared to prior year and down 1 percent on a currency-neutral basis* led by Greater China reported revenue growth of 51 percent.

Corrugated packaging contributes very small portion to the overall revenue. The factory are not allowed to operate so there will be impact on the sales in coming quarter plus labour shortage in Malaysia. However, Vietnam operation may help to offset (hopefully Vietnam plant is not under lock down?).

 

Expansion plan:

No information on capacity expansion. It is also not clear the production capacity split between Malaysia and Vietnam operation.

My view on share price:

This company is good to collect when market crash but won’t happen easily. Since its bonus issue in 2019, price does not fluctuate much except the COVID sell down in March 2020. Price is moving at the range of RM 2.12 – RM2.50. Potential upside is limited. If wish to buy for its dividen then probably good to enter at RM2.12 or lower.

Forecast earning & PE.

Conservative forecast of EPS is 23 cents so PE is 9.78 at RM2.25 (16 July 2021). Nothing surprise.

Q1	Q2	Q3	Q4	Total
5	5	6	7	23

 At time of writing, I don’t own any Magni-Tech share. Waiting for lower price to buy.

Power Root - (7237) - Tongkat Ali and Ginseng no power dy?

Company : PowerRoot Berhad

Business :

Manufacturing of various drinks such as Alicafe, Warung, Ah Huat Coffee and export to oversea market especially to MENA/Gulf Region. Their products cover all consumers in Malaysia. See images below. I like their P.Ramlee ads in Youtube 😊

 

 Fundamental :

Net cash company again with RM110 million cash and RM7.8 million bank borrowing. So no problem to weather through difficult times. See their 2020 annual report below:

 

5 years revenue

The 5 year revenue track record is as per chart below. Year 2020 was a record profit for the company but 2018 was low. The 2018 annual report said that low profit was due to write down of inventories and PPE.

 

Export business:

The main export market is MENA. In fact, it is heavily depending on MENA region. No information of the revenue breakdown for China and Singapore. See their latest quarter result below.

 

Q4 Result

 

There was a huge drop in profit in Q4 due to lower sales and higher write-down. If you see the profit chart above, you will notice profit has been dropping on every quarter for FY 2021. Can it recover? Time will tell.

However, cash flow from operation is still very healthy. RM26 million has been used for investment of plant property and equipment so the cash has dropped to RM86 million. See their cash flow statement in Q4 report.

Prospect:

Few positive news on the company as follow:

• Company will launch new product “Frenche Roast” for people with more sophisticated taste such as Caramel Latte, Tiramisu Latte and French Latte.
• They have added two filing machines to increase the annual output. See note below.

 

Risk

Following are the risks that may cause sales and profit drop:

• Sugar tax hike in key markets of UAE and KSA.

• Raw material price of sugar increase.
• Packaging material price increase (both plastic and aluminium can)
• Coffee bean price increase
• Shut down of plant due to COVID cases (export shipment will be delayed).

 According to analysis from Kenanga. The company cost of good sold (COGS) has increased as follow:

FY 21 : COGS - 48% (operation cost is 38%)

FY 20 : COGS - 46%

Major portion of the raw material cost are sugar (25%) and packaging (15%). 

Not very optimistic that profit in coming quarters will be good. KWAP has been disposing the shares for sometime and also take note that one of the founders, Dato Low Chee Yen passed away. He was instrumental in developing the company. Can Wang Tak Keong leads the company out of blue? Time will tell but he keeps selling the warrants!!

 

My view on share price:

Price drop from peak RM2.60 till RM.130, almost 50% drop! Near term will not recovered so soon. Probably will take 3-4 quarters time to get back to normal.

 

Forecast earning & PE.

In terms of earning, if they don’t going into lost then considered very good. Just simple forecast of 2.4 eps and PE will be 50 at RM1.33 which is high and there is room for price to drop further.

Q1	Q2	Q3	Q4	Total
0.4	0.5	0.5	1	2.4

 

However, company is very generous in dividen. They will pay minimum 50% of the profit and on every quarter. So definitely a good dividen company.

 

At time of writing, I do not own any Power Root shares.