Sunday, August 16, 2015

'Like' - LCTH (Beneficairy Of Weak RM and Resins Prices)

manufacturer and sub assembler of precision plastics parts and components. Things are looking up for LCTH.

It is poised for continued strong earnings growth.

Unlike many companies with earnings derailed by the headwinds buffeting the economy, it is riding the spillover effects from Chinese manufacturers’ expansion into SEA, the tumbling ringgit and lower crude oil prices.

The formerly loss making company has been buoyed by turnaround efforts which have put it back in the black for the past three financial years.

For 1Q ended March 31, 2015, net profit rose threefold to rm3.79 million from rm1.11 million a year before, despite lower revenue of rm36.07 million.

It attributes higher earnings to its ongoing efforts to streamline and rightsize operations as well as focusing on higher margin projects. The increase in profit was also partly contributed by a foreign exchange gain of rm1.6 million recorded in the current quarter as a result of the strengthening of the USD against the ringgit.

The company’s principal export markets include Singapore, HK and China. Its products are used in the auto, medical, electrical and electronics as well as telecommunications industries. Clients include MNCs such as HP, IBM, Dyson and Bose Corp.

The move by Chinese manufacturers to shirt activities to SEA, including Malaysia, augurs well for the group as it is positioned to benefit from any business spillover. Essentially this development gives LCTH Corp the opportunity to supply its products to the growing contingen of Chinese companies in the region.

The company’s FY2015 result is expected to improve. This is because the plastics industry has been doing well due to lower crude oil prices. Resins the company’s raw materials – are a by a product of crude oil.

LCTH implemented its right sizing strategy in FY2013 following losses in FY2010 – Fy2012. The focus is on high margin projects, lean management and improvements to operational efficiency.

On the back of this strategy, LCTH reported net cash and cash equivalents of rm76.38 million with zero borrowings, for 1QFy2015.

The company also has a 50% dividend policy, but following losses recorded in FY2010, it has not paid dividends to shareholders.

It is expected to enjoy a higher profit margin due to lower crude oil prices. Usually for the plastics industry, raw materials such as resins constitute 70% to 80% of the product’s selling price.

In addition to lower raw material prices, the company will benefit from the weaker ringgit against the USD as it is export oriented.

LCTH Corp’s, a 70.64% subsidiary of Singapore listed Fu Yu Corp – one of Asia’s largest suppliers of high precision injection moulds and plastic injection moulded parts – could obtain support as well a essential technical know how from Fu Yua Corp.

In its 1QFY2015, export revenue constituted nearly 99.8% or tm26.03 million, of the quarter’s total revenue of rm26.07 million.

About 58% of its sales are denominated in foreign currencies in FY2014, with 51% of its costs denominated in the company’s functional currency, primarily the USD, Singapore dollar and the euro.

However any savings or surcharge in raw material costs will be passed to the end consumer. This is to ensure it remains competitive with its prices.

The change in raw material prices should have only a short term effect as the industry should have a monthly or quarterly price adjustment contract with clients.

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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.