Yoong Onn design, manufacture, and distribute home linen. They sell products through owned retail stores, to third party sellers, and to institutional customers (hotels etc). Their retail outlets are a “one-stop” home decorating location. The business simultaneously manufacture, retail, and create brands. Yoong Onn has developed their successful operations over decades of growth.

Management: Board members have served an average of 22 years. Remuneration is appropriate for the company’s size.

They have extensive experience in their current roles, and notable other experience includes ministerial roles in Malaysian Government, and leadership within the Malaysian Police. One member trained in financial crime methodology with INTERPOL. Another served as counsel for the Government of Hong Kong. Their Head of Production earned their engineering degree from UNSW.

The founding brothers took over the business and personally streamlined and expanded manufacturing and designed new products. They are heavily aligned through indirect shareholding with over 80m shares each.  

Strategy: Yoong Onn aim to maintain the core capacity of the business through the effects of COVID. Austerity and efficiency measures have been introduced, and pro-active marketing campaigns hope to pre-empt a recovery.

Their long-term strategy is to maintain financial strength, continuously improve core-capacity and stay relevant with new product lines.

Future growth strategies mention e-commerce and international sales, though communication about this is limited. Increased automation and procurement of semi-finished goods from overseas is also mentioned as a continuity strategy.  

Capital allocation: Capital is consistently allocated toward property, plant, and equipment, with an increase of 43% between 2014 and 2019. The biggest portion of this is buildings (62%) used for work and retail space, followed by freehold land (26%) that provides potential areas for expansion and an appreciating asset on the balance sheet. Equipment, motor vehicles, and plant machinery comprise the remaining 12% of assets in this area.  

They pay dividends, with no fixed rule but usually equal to 30-35% of net annual profit (yield 4.7% FY20).

They completed their most significant buyback to date when the price was lowest post-COVID, to good effect.

Financial strength: Yoong Onn are strong. They carry a small amount of debt, equal to about half of their annual net profit. Their balance sheet contains cash and equivalents of 67.8mMYR, and total liabilities of 22.8mMYR.

Earnings: High quality earnings come directly from the sale of goods.

They own several popular brands with different styles and price points. Products are diverse within home décor, and include goods from third-party suppliers. Yoong Onn have physical and online retail, and institutional distribution as their main sales channels.

Revenue is historically consistent and trended steadily from 190mMYR in FY ’17 to 255mMYR in FY’20. It dropped 25% during COVID, though appears likely to recover.    

90% of revenue is domestic, with other contributions from Singapore and Vietnam. Their brands are highly rated in the local market, where they own methods of distribution allowing them to remain price competitive with low-cost overseas manufacturers.

Distribution and trading with institutional buyers is the largest revenue contributor (~60%), followed by retail (>30%) and external manufacturing revenue (<10%). No single customer makes up over 10% of revenue. One owned department store provides about 30% of revenue. Margins are similar across segments. Their net margin dropped to 7% during COVID but has recovered to its historical level of around 10%.

Risks and threats: Yoong Onn’s conservatism may prevent them from innovating and adapting. They reacted well to COVID, minimizing losses, and making an effective buyback, but changes in consumer behavior, especially around online shopping, are a threat to the company.

Online sales of linen are increasing. Startups use innovative marketing techniques to create an effective consumer experience at a lower cost, threatening retail sales and capturing part of the market.

Yoong Onn are bonded to their manufacturers, unlike re-sellers. As such, catastrophic accidents, worker exploitation, or poor environmental management would directly damage Yoong Onn’s brands.

Fair dealings are essential for sustainability. Family and government connections within the business increase the risk of unfair business activities. However, the board appear reputable with special experience in law enforcement, and unfair practices are unlikely.  

Valuation: The company are cheap on a multiple basis (P/E 7.6 Oct ‘21), especially considering the weaker year due to COVID. Their net cash position is about half of their market cap.

If Yoong Onn continue to return value to shareholders and grow with the broader economy, company shares are good value. Malaysia appears poised to attract more widespread equity investment. Any additional level of success would further add to their valuation.

Conclusion: Yoong Onn are a stable, well managed company. They provide reliable exposure to potential upside in the Malaysian economy. Products are essential and sales increase with population size, wealth, and tourism.

In my opinion, Yoong Onn are likely to continue their sustainable growth. They are a prime candidate for a multiple re-rating should Malaysian share market conditions change for the better.