KIMHIN has 5 Quarters for FY2016
Substantial shareholders as at 31 March 2015:
- Kim Hin (Malaysia) Sdn Bhd (61.46%) – Indirect interest by multiple directors
- Galister International Ltd (2.78%)
- UOBM Nominees (Asing) Sdn Bhd for China Cruise Company Ltd (1.84%)
| Valuation | OVERVALUED |
|---|---|
| Current price | RM 2.37 |
| Shares outstanding (approx.) | 140,239,113 |
| Market cap | RM 332.4 million |
| Fair value | RM 1.76 |
| Margin of safety | -34.7% |
HIGHLIGHTS
- FY2016 cost savings amounting to 1 quarters worth of earnings
- Strengthening USD advantage for exports (33% of total sales)
- Net cash company with healthy balance sheet
ANALYSIS
Financial Ratios @ Reuters: KIMH.KL
Please note that I have computed all
ratios reported below from original sources unless stated otherwise. For
other various ratios, please refer to Reuters.
Excellent contributions from Johnson Tiles
Year to date, KIMHIN has reported an
impressive 20% growth in revenue and 58% growth in net profit. The
management has reviewed in their quarterly reports that this stellar
results are obtained from contributions of Johnson Tiles. This implies
that Johnson Tiles commands a better profit margin than KIMHIN’s brands
(KIMGRES, DUROGRES, etc.). In fact, we have yet to see the full
potential of Johnson Tiles branding since the acquisition of Johnson
Tiles has only been completed recently. To recall, KIMHIN had previously
acquired Johnson Tiles back in 30 May 2014. This provided KIMHIN with a
royalty-free license to use the trademark “Johnson Tiles” for 50 years in several countries in the Asia Pacific region. Now, KIMHIN has an added advantage to tap on these potential new markets.
Lower costs from favourable macroeconomic conditions
KIMHIN is a beneficiary of low crude oil and strengthening USD.
To recall, crude oil and natural gas prices have tumbled 59% and 53%
respectively while MYR/USD has weakened 31% between 1 January 2014 to 25
December 2015.
Flow chart for manufacturing ceramic tiles
Referring to the flow chart above, the
process of manufacturing ceramic tiles consumes a significant amount of
liquefied petroleum gas (LPG) for heating and drying. Based on The Star Online,
cost savings from low LPG prices is expected to be RM 10 million per
annum. This amounts to almost a full quarter profit in FY2015! The
executive director also mentioned that KIMHIN is doing well overseas due
to strong USD, which constitutes 33% of total revenue TTM.
Net cash company with a strong balance sheet
KIMHIN is a net cash company with an
excess cash of RM 43.9 million (RM 0.31 per share) based on the latest
quarterly report FY2015Q3. The Group will remain a net cash company
pending an injection of RM 20 million borrowings to fund the Johan Tiles acquisition.
With such a large cash surplus and a 2 year average dividend payout of
18% (FY2014: 16%, FY2015: 19%), dividend payout should be RM 0.11 per
share, DY 4.6%. We can expect dividend growth, however, due to major
capex from upcoming expansion activities, hence management might be
conservative and likely to remain payout at RM 0.06 per share. This
translates to DY of 2.5%. Additionally, KIMHIN recorded a healthy
debt-to-equity ratio of 0.0183 and trades at a 27% discount from its NTA
of RM 3.26 per share.
Management not committed to maximizing shareholders’ return
The remuneration for
executive directors average RM 1.158 million per month per person,
significantly larger than other companies of the same market cap. On the
other hand, the family owned business pose a takeover threat to
shareholders’ due to their large shareholdings in the company and a
history of insider trading activities back in 2001.
VALUATION
Fair value of RM 1.76 based on a 10-Y DCF
valuation assuming; (i) 6.5% supernormal growth (ii) 8% required return
(iii) terminal growth at 1%.
Thank you.
Shaun Loong
Disclosure: At time of publication, I own stocks in KIMHIN. This article has been edited on 11 March 2016.
KIMHIN (5371) - KIMHIN has 5 Quarters for FY2016
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