Monday, March 14, 2016

VS Industry Berhad: SELL

VS Industry Berhad: SELL

  • Leading integrated Electronics Manaufacturing Services (EMS) provider
  • World's top 50 EMS from 2007 to 2014 (source: Annual Report 2015)
  • Director Salary, RM20 million annually (50% of operating expenses)
  • Dividend policy minimum 40%
  • Outstand shares 1,155 million shares
  • Warrants 290.8 million shares (EPS will be diluted 25% once warrants convert to mother share)

  1. Major customers, like customer Keurig and Dyson are expected to remain strong, with sale percentage 38% and 25% respectively.
  2. Customer Keurig to grow CAGR 29% from FY15-18 to 4.6 million units
  3. Customer Dyson sales for FY16 are expected to grow 50% yoy to RM639 million.
  4. Dividend policy minimum 40%
  5. Management is confidence on future growth.
  1. Major revenue depends on two (2) customers (63% of total revenue)
  2. Director's salary too high (50% of operating expenses)
  3. Minimum wage implementation on July 2016 from RM900 to RM1000 (11% increase), which shall be minimum impact on profit.
  4. 2QFY (January) and 3QFY (April) performances are typically its weakest quarters due to seasonal demand.
  5. Earning sensitivity 1.5% to 2.0% reduction for every 1% ringgit fall. 
Share price                      = RM1.20
Earning per Share          =RM0.144
Price to Earning ratio    = 8.3 (based on current outstanding shares) or 10.4 (diluted shares)
Dividend Yield                = 4.8%

My personal view
  1. Since there next two quarters are traditionally weakest quarters, hence there is no hurry to buy in. 
  2. Next quarter result is expected to be weaker, compare to current quarter.
  3. Consistence future growth is a question mark. Risk management is too low.
  4. Profit Margin increase almost 100% from last year, which is unlikely to maintain. If profit margin go back to normal rate, there will be 50% drop on profit, hence as well as share price.
  5. Management is not taking care shareholder's interest, as taking too high salary and implement ESOS too frequent.
  6. Price is at high side based on diluted shares. It might be higher due to ESOS on every year.

Target price
Buy below RM0.70 for better safety margin.

Thursday, March 10, 2016

HUPSENG 5024 SELL @ 10/03/2016

HUPSENG 5024 SELL @ 10/03/2016

HupSeng is it worth to hold now?
Recent result achieve highest profit in history and bring the share price to historical high as well. But is it substainable? 

You may need to read out the interview article below from HupSeng Management

According to management, recent better result is due to lower commodity price and weaker Ringgit Malaysia, which help to registered higher profit margin at average 18%.
However if all these two external factor back to normal and expecting by management. The profit margin shall be back to average 13%., which is 27.8% downward from current earning.
The 13% profit margin is based on the external factor, CPO price at RM2800 per ton and RM3.80/USD, which is highly possible.
  • Current share price, RM1.30
  • PE = 19, which is high
  • DY = 5.7%, which is above average but it is not committed by management and is not substainable, as dividend payout is higher than earning.
Future prospect 
  • New product launching, "Naturelle" brand biscuit. I have tasted it and it is not my cup of tea.
  • Cash reservation at 4Q15 = RM120 million
  • New production line will be implemented and will cost around RM26 million
  • Purchased new factory and land at cost RM17.5 million on March 2016.

My personal view
  1. Share price now is high, based on PE ratio
  2. Management informed that the profit will be back to normal if commodity price and currency back to normal, which i think is highly possible. 
  3. There will be a risk of poorer result for next few quarters.
  4. Constant dividend payout is a BIG question mark, as management didn't commit any dividend policy.
  5. No timeline for new production line and new factory.
  6. Management is not agreesive to develope new product.
  7. Saturated "Cream-Cracker" market with annual growth 2% to 4% only.

Target Price 
  • Buy at RM0.50, without consider dividend yield or,
  • Buy at RM0.97, if dividend is able to maintain, which can give a DY at 7% (BEWARE! It is not achievable in long term)

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.