Classic Scenic Bhd - Picture perfect
NOT RATED
Classic Scenic (CSB) is a typical Warren Buffett-type company. It operates in a profitable niche industry with minimal capex and strong free cashflow. Berkshire Hathaway’s Larson Juhl is CSB’s third- largest customer. CSB offers investors dividend yields of almost 10%. Warren Buffett bought the US picture framing giant, Larson Juhl in 2002, citing superior economics as his reason. Investors have the same chance today in CSB. CSB has paid total dividends of 47 sen over the past five years, representing 40% of its current market cap. Combined with its net cash of 13 sen/share, this solid dividend-yielder could be worth RM1.53-2.06, based on SOP, offering investors 31-76% upside.
Warren Buffett bought the US picture framing giant, Larson Juhl in 2002, citing superior economics as his reason. Investors have the same chance today in CSB. CSB has paid total dividends of 47 sen over the past five years, representing 40% of its current market cap. Combined with its net cash of 13 sen/share, this solid dividend-yielder could be worth RM1.53-2.06, based on SOP, offering investors 31-76% upside.
Small is beautiful
The wooden picture frame industry is a very niche but highly profitable industry. Global market demand is driven primarily by North America given the prevalence of the use of wooden picture frames in America, not seen in many parts of the world. CSB’s margins (23-24%) are more than double that of other downstream wood-related consumer products, such as furniture (9-11%). With access to the abundance of cheap timber and labour in Malaysia, CSB’s cost base is more competitive than its developed-country counterparts and even China.
A Berkshire customer
CSB exports 80% of its products to North America. Its main customers are major US arts and crafts materials chain stores, such as Michaels Stores, Hobby Lobby and Larson Juhl. These three customers collectively account for 50-60% of CSB’s annual revenue. In fact, Warren Buffett bought 100% of Larson Juhl in 2001 for US$225m. With business relationships built over the past 20 years, CSB is usually the largest foreign supplier of high-end wooden frames to its customers.
Strong free cashflow
With minimal capex requirements, CSB generates free cashflow of 8-12 sen/share p.a. and its dividend payout ratio has been above 90% since FY09; we expect this to continue. Combined with a net cash/ share of 13 sen, this easy-tounderstand business is a cash machine, with an option value of earnings kickers from a strong US$ and a recovering US consumer.
Potential 9-10% yield
Historically, CSB yielded 6-9%. We expect full-year FY14 yield of 9-10%. We do not rule out commencement of quarterly dividend payments, which should further boost its dividend appeal.
Source: CIMB Daybreak - 24 October 2014
NOT RATED
Classic Scenic (CSB) is a typical Warren Buffett-type company. It operates in a profitable niche industry with minimal capex and strong free cashflow. Berkshire Hathaway’s Larson Juhl is CSB’s third- largest customer. CSB offers investors dividend yields of almost 10%. Warren Buffett bought the US picture framing giant, Larson Juhl in 2002, citing superior economics as his reason. Investors have the same chance today in CSB. CSB has paid total dividends of 47 sen over the past five years, representing 40% of its current market cap. Combined with its net cash of 13 sen/share, this solid dividend-yielder could be worth RM1.53-2.06, based on SOP, offering investors 31-76% upside.
Warren Buffett bought the US picture framing giant, Larson Juhl in 2002, citing superior economics as his reason. Investors have the same chance today in CSB. CSB has paid total dividends of 47 sen over the past five years, representing 40% of its current market cap. Combined with its net cash of 13 sen/share, this solid dividend-yielder could be worth RM1.53-2.06, based on SOP, offering investors 31-76% upside.
Small is beautiful
The wooden picture frame industry is a very niche but highly profitable industry. Global market demand is driven primarily by North America given the prevalence of the use of wooden picture frames in America, not seen in many parts of the world. CSB’s margins (23-24%) are more than double that of other downstream wood-related consumer products, such as furniture (9-11%). With access to the abundance of cheap timber and labour in Malaysia, CSB’s cost base is more competitive than its developed-country counterparts and even China.
A Berkshire customer
CSB exports 80% of its products to North America. Its main customers are major US arts and crafts materials chain stores, such as Michaels Stores, Hobby Lobby and Larson Juhl. These three customers collectively account for 50-60% of CSB’s annual revenue. In fact, Warren Buffett bought 100% of Larson Juhl in 2001 for US$225m. With business relationships built over the past 20 years, CSB is usually the largest foreign supplier of high-end wooden frames to its customers.
Strong free cashflow
With minimal capex requirements, CSB generates free cashflow of 8-12 sen/share p.a. and its dividend payout ratio has been above 90% since FY09; we expect this to continue. Combined with a net cash/ share of 13 sen, this easy-tounderstand business is a cash machine, with an option value of earnings kickers from a strong US$ and a recovering US consumer.
Potential 9-10% yield
Historically, CSB yielded 6-9%. We expect full-year FY14 yield of 9-10%. We do not rule out commencement of quarterly dividend payments, which should further boost its dividend appeal.
Source: CIMB Daybreak - 24 October 2014
