Icon8888 Gossips About Stocks

(Icon) Chee Wah (1) - Bonanza From Export Business

Publish date: Thu, 26 Nov 2015, 12:09 PM
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I follow the smell of money.



1. Introduction


You might not be familiar with the name Chee Wah. But you probably have seen their products before. Chee Wah is principally involved in manufacturing and sale of stationery products under the brand name Campap. 


For many years, Chee Wah has not done well. This is understandable. Stationery business has low entry barrier and faces intense competition from low cost producers such as Vietnam and China. However, things changed for the better since devaluation of Ringgit this year. Chee Wah exports more than 70% of its products. These two quarters, they have been laughing to the bank.


It is time to take a closer look. 






2. Background Financials


Based on net assets of RM48 mil and net loans of RM27 mil, the group's net gearing is approximately 0.56 times. The gearing is not considered low if the group is loss making.


However, as shown in table below, the group exports closed to 70% of its products. Strong US Dollar has resulted in massive jump in earnings in latest two quarters.



With Ringgit expected to be weak for an extended period of time (the past two USD bull run lasted for 7 years each), persistent strong profitability will create a virtuous cycle whereby healthy operating cashflow slowly pares down borrowings, further boosting profitability as interest expenses decline.


We have seen how quickly Hevea degeared its balance sheets with few quarters of super profit. The same could happen to Chee Wah. As such, I am not so concerned about its balance sheets.


Based on 42 mil shares outstanding and market price of RM1.14, the company's market cap is RM48 mil.


Based on net profit of RM2.9 mil for FYE 30 June 2015 (FY2015), historical PER is 16.6 times. However, FY2015 reflected the "Old" Chee Wah, before the currency effect kicks in.


For the "New" Chee Wah, based on estimated net profit of RM10 mil for FYE 30 June 2016 (being past 6 months aggregate net profit of RM5 mil annualised), prospective PER will be a very attractive 4.8 times.



3. Concluding Remarks 


With Ringgit strengthening slightly from RM4.40 to RM4.20 over past few days, sentiment quickly turned cautious and there was a mini sell down of export stocks yesterday. However, as Ringgit weakened again today, many export stocks are flashing green again.


I don't profess to be a currency expert. However, my bet is that Ringgit will remain weak over an extended period of time. I have previosuly written about this (please refer below). 



There is no guarantee that Ringgit has not peaked at 4.40. However, even if it strengthens back to 4.00 or 3.90, exporters will still be able to make extremely good profit. In my opinion, export stocks are still good bet for at least 2016.


Chee Wah's business is a bit seasonal. It tradionally does well during December and June quarters while March and September quarters are a bit weak. As a result, I expect the coming December quarter (to be released by end February 2016) should be quite exciting. The following is the company's comments on prospects :-


Last but not least, I don't have insider information, my analysis is purely based on publicly available information. Please don't blame me if things don't work out well.


Buy at own risk. 

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Be the first to like this. Showing 19 of 19 comments



2015-11-26 13:17


It would be good had they did not spend RM 6 million for a piece of land.

2015-11-26 13:31



2015-11-26 13:48


Icon8888, what other export company that you think is good and worth to invest ?

2015-11-26 16:39

Lim Xiong Jun

Icon8888, I support u.
U really good in analyzing stocks.

2015-11-30 11:34


Potential undervalued stocks must have choker to kickstart the game. Failing which the game we'd be short lived and fissile out quickly. Owner must take an active role

2015-12-21 19:35


Mr.icon8888 any comment on the off trade?

2015-12-22 23:48


another bullseye from icon8888

2015-12-23 15:25


Tomorrow sure 1.20 above...strong call buy now


2015-12-23 15:29


Icon8888, just wanna exchange info with you.
Just looked into this counter and noticed something - have you noticed that the MD and the directors have been throwing a lot recently?


Any information on your side? Thanks.

2016-02-18 14:02


I believe they sold to another major shareholder.

2016-02-18 14:15


Cross Trade?

2016-02-18 14:16


Not sure. I read about it in newspaper. Many forum members picked that up also.

2016-02-18 14:17


I am not surprised he sold at all. Chee Wah has been stuck at 40 sen for many years. If he thinks weak RM won't last, he might want to cash out. Selling now will make him 200% richer than he was few months ago. I think it makes a lot of sense to exit

2016-02-18 14:20


Thanks Icon. I actually saw the above article too, but the cross trade date was much earlier according to the edge (22th Dec). The selling has been quite aggressive esp recently.

2016-02-18 14:31


You have a point, but I like to put myself in the director's shoe. It don't make sense for him to sell now:
-First level thinking - Director has earned enough to exit now.
-Second level thinking - Cheewah's revenue is seasonal, with Q1 and Q3 being weakest. However Q1 is already equivalent of previous year's earning, imagine the further upside in Q2++? Plus after so many years, Cheewah finally turnaround in 2014. Isn't it a little too early to cash out?

2016-02-18 14:33


Either way, I don't know man, I'll just put this in my watchlist and KIV. See what's going on.
I did noticed something on the cash flow side - sudden jump in capex.

2016-02-18 14:37

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