Background

HeveaBoard and its subsidiaries manufacture, trade and distribute a wide range of particleboard and particleboard-based products. HeveaBoard takes the lead in the manufacturing of particleboard – a reconstituted wood panel derived from rubberwood residues, while its subsidiaries are involved in downstream particleboard based ready-to-assemble furniture manufacturing, trading and distribution of particleboard and wood panel related products.

HeveaBoard was incorporated in 1993 as a private limited company under the name of HeveaBoard Sdn Bhd. The Company was converted into a public limited company in 2004 and assumed its present name, and was subsequently listed on the main board of Bursa Malaysia Securities Berhad in January 2005.

Based on Financial Year (FY) 2015 full year results, HeveaBoard achieved RM 503 million turnover, which is considered to be a mid-size enterprise. Other aspects of the company’s latest financial results are illustrated in the table below.

Since FY2011, HeveaBoard’s revenue has been in a growing trend till FY2015 from RM 372 million to RM 503 million per annum. This represents a 35% increase in 5-year period or an average year to year increase of 7.83%.

Net profit wise, HeveaBoard achieved a steeper increasing trend for the same 5-years period from RM 3.3 million to RM 73.8 million, which translates to a 24 times increase in 5 years or average year to year increase of 117%. Having a much higher growth trend in net profit as compared to revenue is one off the most desirable characteristic of a growing company as it shows continuous effective cost management and growing net margin of the company’s product.

Net profit margin wise, HeveaBoard scores a good 14.62% as well as having an excellent Return on Equity at 21.16%.

On company’s debt, HeveaBoard has very low total debt to equity ratio of 0.17, signifies that the company has extremely little borrowings as compared to its shareholder equity value. The company’s current ratio of 2.51 and cash ratio of 1.29 shows a good management on current asset and current liabilities value as well as retaining a good amount of cash and cash equivalent on hand to cater for unexpected events.

In terms of dividend, HeveaBoard pays an average 2.29% dividend yield, which translates to 1.75 cents per share in FY2015. Although the dividend yield is not high, one notable aspect is that the company’s dividend payout ratio is only at 0.097, which is around 10% of its total net earnings. This indicates that the company retains most of its earnings for debt payment and capital expenditures. Hence, this is resulting in very low debt business model and promising future growths through capital expenditure.

In conclusion, HeveaBoard is a mid-size SME with sound and consistent year to year financial performance. Looking at the Trailing Twelve Months (TTM) financial figures (based on quarterly results till May 2016), HeveaBoard will be continuing its strong financial performance for FY2016 with increasing revenue and net profit. As 93% of HeveaBoard’s revenue are export based, with Japan and China contributing to 54% of its total revenue, any weakening Ringgit will further boost the sales of its products. With its current low PE ratio of 6.92, it is a company that is worth considering as good investment for fundamental investor and the return should be promising.

Next quarterly results announcement should be on the month of Aug 2016 for Q2 results.

Volume Spread Analysis (iVSA) & comments based on iVSAChart software – HeveaBoard

Based on 6-month weekly chart of HeveaBoard, this stock has been range bound around RM1.15 to RM1.30 levels since early April 2016. There were two Sign of Strength (green arrows) at the support level of RM1.15, indicating that it is well supported around this level with strong hand buyers emerging to accumulate.

This stock looks to be in accumulation stage at this moment and strong breakup above RM1.30 - RM1.35 level with accompanying volume will propel HeveaBoard to markup stage for next rally.

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