HIGHLIGHTS
- Excellent growth results in most financial aspects
- Benefits from strong USD/MYR rates limited by debts
- Revised fair value from RM 2.85 to RM 2.91
ANALYSIS
- Superb growth in revenue, earnings and cash flows. Revenues achieved 26.8% growth yoy citing weak MYR/USD rates as the main reasons. Operating EBIT growth was also excellent, registering 301% growth yoy and 370% YTD respectively. SHH also recorded an net operating cash inflow of 9.3 cents per share and free cash flow of 5.9 cents per share for the quarter.
- USD/MYR forex beneficiary held back by USD borrowings. Strengthening of USD compared to the preceding quarter have increased the debts recorded in SHH books. This means that SHH debts have ballooned larger than what SHH paid to reduce its debt levels for the most recent quarter. SHH still has a healthy debt to equity ratio of 0.09 times; however, this situation should be monitored closely. SHH did hedge against forex fluctuations, 1.55 times larger than than the debt level; although the management notes that the hedge was against export sales which were denominated in USD.
VALUATION
Revised fair value of RM 2.91 based on a
10-Y DCF valuation justified by; (i) 2% supernormal growth (ii) 8%
required return (iii) 1% terminal growth. At current price of RM 2.08,
implied margin of safety is 28.5%. UNDERVALUED.
Thank you.
Shaun Loong
Disclosure: At time of publication, I own stocks in SHH. This article has been edited on 11 March 2016.
SHH (7412) - SHH Quarterly Results FY2016Q2
https://megamicrocaps.wordpress.com/2016/02/26/shh-quarterly-review-fy2016q2/
