Is Brite-Tech a Stock with Super Growth Potential?

Brite-Tech Berhad, an investment holding company, provides various services and products in the field of water treatment, pollution control, and fuel treatment in Malaysia. It offers engineered and formulated chemical products for water clarification, wastewater treatment, minimizing wastewater sludge generation, steam generation system, and cooling water system; and consultation, environmental impact studies, engineering design, construction, installation, and commissioning of water purification, recycling, and wastewater treatment systems.

The company also engages in the rental of portable ion-exchange resin columns; and supply of institutional housekeeping chemicals, industrial maintenance chemicals, and hotel amenities. In addition, it provides analytical laboratory services, such as effluent analysis, air and water quality analysis, soil analysis, food analysis, and organics analysis; and environmental monitoring services, including air and water quality monitoring, noise level monitoring, air emission monitoring, and wastewater characteristic studies. Further, the company imports and exports chemical and other raw materials; provides consultancy services; and manufactures polymers and its related products.

Based on Financial Year (FY) 2015 full year results, Brite-Tech achieved RM 27 million turnover, which is considered to be a small size enterprise. Other aspects of the company’s latest financial results are illustrated in the table below.

Since FY2010, Brite-Tech revenue has been in a smooth increase from RM 16 million to RM 27 million in FY2015. This represents a 68% increase in 5 years or an average year to year growth of 11%. In terms of net profit, Brite-Tech achieved a much steeper growth of 3.4 times increase in 5 years or an average year to year growth of 34.77%. Having a net profit growth rate which is much higher than the revenue growth rate is a great sign of effective cost management and indication that the company’s services has its niche as well as not being in a price war situation with competitors in the same market. Net profit margin wise, Brite-Tech scores a high 17.36%, considered to be great in the services related industry.

In terms of company’s debt, Brite-Tech has very low total debt to equity ratio of 0.026. Its very low liability business leads to achieving a good current ratio of 5.183 and cash ratio of 2.237, which are strong characteristics of a company with great financial debt management. In fact, the company’s long term liability is even lower than its current liability.

As for ROE (Return on Equity), Brite-Tech has the score of 8.843, which is considered slightly on the low side as companies usually has double digit ROE. This may be due to the company’s very low debt business model which amplifies the shareholder equity value (denominator in ROE calculation) making the net earnings (nominator) relatively small when it is being compared. Low ROE can also mean that the company needs a relatively higher initial investment to generate income.

Dividend wise, Brite-Tech resumes dividend paying in FY2014. In FY2015, the company issues a total of 3.27% dividend yield, which is considered to be relatively good. However, this high payout is due to the higher dividend payout ratio of 0.677 which increased two folds from FY2014’s 0.31.

In conclusion, Brite-Tech has a great financial results especially on its very low debt business operating model. For such a small turnover enterprise and being a small cap stock, investors usually hopes for a great capital return as such companies which has great financial fundamentals usually comes with great growth potential. As for Brite-Tech, the growth potential may not be that great due to its average year to year revenue increase of only 11% and adopting a high dividend payout ratio of 0.67 resulting in less money available for capital expansion. Current PE ratio of 13.68 is considered average for small cap stocks.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – Brite-Tech

Based on the 6-month weekly chart, volume started to pick up from early May 2016 after a period of sideways movement since Dec 2015. With the increasing volume we’ve seen in the past few weeks, there was an attempt to breakout from this trading range but met with heavy selling around RM0.28 level.

Supply must be removed before the market can move higher and hence should the price breaks above RM0.29 - RM0.30 with appearance of Sign of Strength (green arrows), it is an indication of smart money operator trying to mark the prices higher.

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This article only serves as reference information and does not constitute a buy or sell call. Make your own assessment before deciding to buy or sell any stock.