PENSONI (9997) - PENSONIC HOLDINGS BERHAD: A HIDDEN GEM.
Dear fellow readers,
Once
again, these writings are just my humble highlights (not
recommendation), feel free to have some intellectual discourse on this.
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Value Pick No. 14: Pensonic Holdings Bhd (Intial TP RM0.79)
Pensonic
released their recent QR and the share price barely moved despite a
wonderful results. In addition, Pensonic even declared a record dividend
at 3 sens. Readers must be now thinking how can I say record Dividend
in the past 3 years when just 1 year ago, Pensonic declared 3.5 sens
dividend. In fact, this is not a typo. This is also not a mistake. Look
past last year results, and readers will understand why.
From
the chart below, it is quite obvious that the revenue remained about
the same whereas the profit margin fell and hence the profit fell too.
However this is the problem with most people when looking at high level
accounts. You have to look closer to see the anomaly. For Q42015, the
EPS was 9.71 sens whereas the current is 3.49 sens. If one go into the
details, one will understand the 9.71 was derived primarily from
disposal gain. Unlike the latest QR, the EPS of 3.49 sens is derive from
business operations. There is no one off. Hence, when I say the
Dividend declared is record high because it is in the course of normal
business operations and dealings that Pensonic was able to declare such a
good dividend. Look 2 years back and you will notice there was no
dividend given and profits was negligible. Additionally, the total EPS
for the year comes up to 8.75 sens which is also a record high. Despite
record high profit and dividend, the share price did not react
positively. This is what we call "market is irrational". If the market
is always rational, there is no money to be made. This is a clear
example of opprtunity in the market due to irrationality.
I like Pensonic for a variety of reasons.
1. Fundamentally sound
At
current price of RM0.67 the PE is 7.7x with ROE at 9.72. The NTA is
RM0.90 sens. If you exclude the one off gain, the net profit increase
from both years before.
2. Higher profit margin due to efficient cost control exercise
As
per the red underlined words, Pensonic management was able to weather
headwinds from the economy through efficient cost cutting initiatives.
This not only allowed them to do well for the latest quarter but likely
to ensure continuing growth in the future.
4. Reduction in cash but for a bigger purpose?
From
the QR, we notice also that the cash level has fallen considerably.
This is usually not good. However, a closer look may show otherwise.
A
few key difference in the usage of cash comes to mind. Firstly, the
earlier correponding quarter, there was the disposal of property that
helped with the cash flow. Secondly, the company also made an
acquisition of asset as mentioned " During the current
financial period ended 31 May 2016, the Group has acquired assets at a
cost of RM4.4 million (31 May 2015: RM23.0 million) including RM1.3
million of finance liabilities. (31 May 2015: RM0.4 million)".
Thirdly and most importantly, is the changes to inventories and trade
receivables. There is a significant increase in both of these which I do
not think is a bad thing. Yes, collection is slower is not too good but
an increase of inventories may potentially mean poor sales. We know
that is not the case, so the only possible explanation is that the
company is stocking up for the upcoming festive season which I will
elaborate in the next point. If my assumption is accurate, this would
mean that the upcoming quarter results may further exceeed expectations.
5. Raya sales performance has not even been reflected in this quarter's result
It
clear Pensonic business is affected by festivities as well as sales
carnivals etc. The current quarter under review is results as of March,
April, May 2016. Hari Raya celebration was July this year and Raya sales
would truly only pick up commencing June. This strong set of results
have yet to even include that of Raya month which traditionally has been
the stronger retail month in a year. The next quarter would exceed
expectations with the Raya sales posting stronger results for the group.
6. Prospect Is Bright
I
believe Pensonic is currently undervalued at 7.7x trailing PE. Forward
looking, I am certain the next quarter would show strong performance for
the group as the results would take into account of the Raya sales. The
profit margin should also be stronger due the company's cost cutting
initiative. Growth in revenue will depend strongly on their ability to
take on new markets outside of Malaysia. Assuming the revenue maintain
along with the profit margin, this would bring the total annualise EPS
to around 12 sens. Applying a multiple of 8x, the fair value would be
RM0.96 sens. Coupled with the annual dividend payout of 3 sens, the
intrinsic value should be around RM0.99. This is excluding their
potential future growth which will lift the PE valuation but I will
revisit Pensonic in the coming quarterly results to assess the low PE
valuation pegged to the company. I am extremely conservative, so I will
put a 20% discount to fair value.
At
current price of RM0.675, it is my take to collect Pensonic. By virtue
of the 3 sens dividend payable in the next 2 months (September), this
would translate to a DY of 4.4% which is even higher than FD especially
following the fall in OPR of 25 basis point by BNM. The DY will also act
as a defence for Pensonic in volatile market holding its price at this
attractive valuation.
PENSONI (9997) - PENSONIC HOLDINGS BERHAD: A HIDDEN GEM.
http://klse.i3investor.com/blogs/pensonics/102693.jsp
