FoundPac Group - Making Precision Engineering Parts

 

Company : FoundPac Group  

Business :

Design and manufacture of precision engineering parts and stencil for semiconductor industry. See below note. Factory located in Penang. More than 75% of their products are for export market.

 

 Company has been selected as Asian’s 200 best under a billion compay. Well done!

Financial information:

Net cash position of RM50 million with no bank borrowing.

 

5 years revenue

 

There is growth of revenue but droped slightly in FY 2021. Overall CAGR Revenue and PAT are growing.

 

Directors’ shareholding

 

Geographical revenue breakdown

 

Precision engineering parts are still the major contributor of 73.5% follow by laser stencil 20% and industrial equipment/machinery at 6%. The georaphical spread of revenue is pretty balance between Asia and North America and Europe. Gross profit margin is pretty good at >50%.

 

Major customers are as follow but no idea who are they.

 

Peer comparison

Latest quarter result

Revenue pretty much the same for Q4 and profit remain the same as Q3.

Prospect:

• Acquiring few companies to expand their business. See note below:
• Supplying parts to auto-assemblers (steering & gear systems)

 

Dividen:

Dividen is low and same as other semi-conductor companies.

Quick look at the Chart

Lots of speculation on this company. Price can shoot up 100% then dive 100% and up 100% again.

Tech stocks are high PE, low dividen and extremely volatile (driven by retail investors?). At time of writing, I don’t have any Foudpac shares.

ELK-DESA Resources Berhad - Used Car Money lender

Company :  ELK-DESA RESOUCES BERHAD

Business

Non bank lender in used motor vehicles sector. Also involve in selling insurance and wholesale of furniture but revenue contribution is very small (9% only). The business target at very niche market segment.  

 

 Money lending is always having good profit margin. Both CAGR revenue and PAT are growing.

 

10 years revenue:

There is a growing trend of revenue and profit after tax but 2022 FY will be challenging due to MCO. The NPL will be high and I doubt they can repeat 2021 FY business.

 

Peer comparison:

Lates result:

Latest Q1 result has improved compared on YoY basis due to lower impairment allowance. However, it has dropped when compared to immediate preceding quarter as a result of MCO. See below note from Q1 report. As business only open back in late August/September hence coming Q2 result is not favourable.

Cash flow:

Cash flow from operation is lower as hire-purchase receivable is lower when compared YoY

 Prospect:

• Recovery play. Business temporarily affected by MCO but will recover soon.
• Potential growth of furniture segment although still small.

Risk

• Non-performing loan shot up to 4.9% in 2021 annual report as their customer are mainly from B40 and M40 group.

 

Dividen:

Average dividen payout ratio is 60% as per their annual report and pay twice a year.

 

Technical Analysis:

 

Price pre-COVID is RM1.70 and now is trending sideway at RM1.33. Will it rise up to pre-COVID level again?

 

In short, another conservative Ah Pek company and no goreng but we never know when Ah Pek will spring surprises. At time of writing, I don’t have Ah Pek share yet.

PESTECH - PANTECH - SAMCHEM

Comparison of three companies to evaluate which one is better for investment. Very often the decision to invest is based on gut feeling or just one factor and we forget the overall performance.  

Remember, there is always a better choice/company out there for you to invest. 

Wellcall Holdings Berhad - Rubber Hose From Pusing

Company : Wellcall Holding Berhad

Business :

Manufacture and sales of rubber hose to various industries. The factory is located in a small town of Pusing in Perak about 15km from Ipoh. It is Taiwanese managed company. 90% of the business is for export.

Image source: https://valueinvestasia.com/why-is-wellcall-holdings-berhad-a-favourite-among-value-investors/

Fundamental :

Net cash company with RM56 million in the bank as per 2020 annual report. This represent 24 cents per share.

No growth in term of CAGR on both revenue and PAT. Net profit margin is reasonable at 22%.

5 years revenue

Small cap company with revenue below RM200 million and profit margin of around 20%. Peak revenue is only RM170 million back in 2018 and 2019

 

Export business:

 

Geographical Breakdown in revenue:

It seems to have a balance spread of revenue across all continents with USA/Canada contribute the most.

 

 Latest Q3 Result

 

 

Revenue dropped in Q3 compared to Q2 but improved when compared to Q3 previous year. The drop was due to COVID lockdown. Coming Q4 will drop due to FMCO but the worst seem over. Hopefully revenue can go back to pre-COVID level in 2019.  

 

Prospect:

Company had entered into a JV with Trelleborg, a Swedish company to manufacture and sell composite hose but project seems delayed due to COVID.

 

 

Q&A during AGM this year on Trelleborg.

Company purchased a piece of land and this for rental to Trelleborg. See below.

The business model is resilient and consistence. There is potential of capital gain when global spending especially Oil and Gas sector is back to normal. Company also benefits from USD appreciation. It is definitely a recovery play for this company.

 

Risk :

• Raw material of rubber is going up but I think the effect will be small and company can pass onto customers easily.
• JV with not profitable and incur lost for initial few years.

 

Dividen

Customer is consistently paying dividen every quarter with pay out ratio of at least 50%. Forecast coming year will be 5.6 cents (RM28 million) which is 5.6% based on today share price of RM1.00.

 

My view on share price:

Price at pre-COVID level is RM1.30 back in 2019. Price is now sideway at RM1.00 with increasing volume. Something is brewing? RM1.20 is within reach if business back to normal.

 

 

Rubber hose is definitely not a sexy business like EV or semiconductor but it is stable and there is a potential capital gain of 20% when business get back to normal. At time of writing, I do have some WellCal shares to spread my portfolio.

 

LITRAK - The Hidden Cash Cow

  

Company : LITRAK

Business :

Toll concessionaire of LDP and SPRINT highway. See details below.

 

 Shareholders

Gamuda, Amanah Raya, EPF and other fund houses.

 

Fundamental :

Consider net cash as at 30^th June 2021 if minus the deferred tax liability. I still can’t figure out why the deferred tax liability is so high.  Company has superb profit margin of 50%! It is definitely sucking the blood of toll users. The tol rate per km is way much higher than PLUS highway. I have been contributing to their profit every year!!

 

Company is earning approx RM200 million a year. They will reduce the long term Sukuk loan next year. A 20 cents dividen will cost around RM106 million. In coming year, 25 cents dividen (RM132 million) is very possible when traffic is back to normal.

 

Item	31 March 2017	31st March 2018	31st March 2019
Cash at bank	547 mil	579 mil	641 mil
Long term borrowing	1,119 mil	987 mil	775 mil
Short term borrowing	110 mil	140 mil	220 mil

 

Item	31 March 2020	31st March 2021	30th June 2021
Cash at bank	626 mil	621 mil	442 mil
Long term sukuk loan	580 mil	385 mil	186 mil
Short term sukuk loan	200 mil	200 mil	200 mil

 

5 years revenue record.

Revenue is stagnant at around RM500+ million and drop to RM392 million in 2021 due to MCO. Forecast revenue to be around RM 360 million for 2022. However, there is potential of recovery of traffic starting end August 2021.

Management is prudent in spending and try to increase shareholder’s value. See one of the cost control initiatives below on their annual report.

 

Quick view on the weekly tollable traffic volume below:

Year / Road	LDP	SPRINT
2020 (end 31st March 2020)	447,000	199,500
2021 (end 31st March 2021)	353,000	126,000

 It is obvious that the weekly traffic has reduced due to MCO. The peak traffic for LDP is around 478,000 weekly in 2017 but reducing slowing to 460,000 weekly in 2019. I think it will stabilize around 440,000 to 450,000 per week.

 

Competition

BRT and LRT will be the alternatives for road users. However, these options are useless for people commuting between Puchong and Damansara. There is no LRT connecting these two places. So people will still use LDP except less frequent due to work from home.

 

Maintenance cost.

The maintenance cost is fixed and seems small in relation to the revenue. I don’t think there will be major spending in coming years which means no further borrowing for the company.

 

Lates result at glance :

Q1 Result

 

Q1 revenue increase when compared to Q1 previous year. However, it drops when comparing to immediate preceding quarter. Coming Q2 will likely to drop when compared YoY and QoQ due to FMCO that still enforced till third week on August.

 

Prospect:

There is no more toll hike for LDP but there will be compensation from Government. See note below.

 

One more toll hike for SPRINT Highway for Damansara and Kerinchi link. See note below.

 

Recovery of traffic.

Rebound tollable traffic starting from end August 2021. It will probably take some time to reach pre-COVID level. Anything around 440,000 weekly traffic for LDP will provide good revenue. A good indicator of recovery is probably the school re-open.

Dividen

Company is paying stable dividen as you can see from the chart below. A potential dividen growth to 25 cents (6.5%) is possible when long term borrowing is reduced and traffic back to normal. This company is good for stable dividen income and possible share price appreciation of 10%.

 

 

Risk

• Take-over by government. This is unlikely as government is short of money.
• Delay toll price increased. This is highly possible as government has done it before.
• Lower traffic volume. Likely to see lower traffic in Q3 (July – Sept) due to FMCO. Pre-Covid traffic level is unlikely to achieve within this year as schools are still closed and many people are still work from home as well as retail business are still not fully recovered.

 

Technical Analysis on Chart

Price on the down trend and likely to go down again when Q2 result released. Support level at RM3.60. Long term price appreciation of 10% is possible at RM4.20

 

Forecast EPS & price

Date	3rd Sept 2021		Current Price	RM3.80
EPS
Quarter	Q1	Q2	Q3	Q4	Total
Forecast	7.12	6	12	12	37.12
Actual	7.12

 At time of writing, I do not own LITRAK. Waiting for bargain price to enter.