INVESTMENT MERIT

- Consumer stock with strong earnings track record. Yoong Onn Corporation Bhd. (YOCB) is a small cap consumer stock with a good 5-year net profit CAGR of 14%. We reckon that its strong earnings growth track record reflects the growing demand for its products as Malaysia household income rises. Note that YOCB key products include home linens, homewares and bedding accessories.

- Deeply undervalued. The company is currently trading at 6.2x historical PE (HPE) and this is at a 40% discount against its peers which trades at an average HPE of 10.4x. In addition, YOCB is trading at only 0.90x of its book value of RM0.87. We believe the discounts are not justified due to its good earnings growth prospect and superior dividend yield.

- FY13 earnings grow 17% YoY to RM20.2m. The robust earnings growth was in line with the 16% growth in revenue to RM178.6m. Note that the higher revenue was due to higher consignment and boutique sales. Looking ahead into FY14, we expect YOCB’s revenue to continue growing in line with the expected increase in Malaysia household income.

- Still expanding. We gather that YOCB has acquired a piece of land measuring 8,985 m2 for RM5.7m on 17-Sep-2013. According to its Bursa announcement, the land is targeted for business expansion which should bode well for its mid term earnings growth.

- Expect 5.9% dividend yield. We expect YOCB to deliver 4.6 sen dividend in FY14 based on 32% payout ratio assumption. Note that the superior dividend yield is higher than almost all consumer stocks under our coverage. In the near term, we also expect 2.0 sen dividend to be announced soon which should be approved in the coming Annual General Meeting.

- Trading Buy with TP of RM1.01 based on a Fwd. PE of 7.0x on its FY14E EPS of 14.4 sen. Our 7.0x Fwd. PE is at 25% discount to FBM Small Cap Fwd. PE of 9.2x. The discount is applied due to its smaller market cap and lower liquidity. Overall, this represents total return of 35% (upside 29% and dividend yield 6%).

TECHNICALS

Resistance: RM0.81 (R1), RM0.960 (R2)

Support: RM0.730 (S1), RM0.685 (S2)

Comments: YOCB’s technical picture is positive as the share price is poised to breakout from the “Flag” pattern. Buying interest is gaining traction as key indicators are still bias to the upside on strong volume. A successful breakout above RM0.81 may signal a buy call for the stock towards RM0.960 in the short-term, based on measurement objective.

BUSINESS OVERVIEW

Yoong Onn Corporation Berhad (YOCB) is an investment holding company and engages in the design, manufacture, distribution, retail and trading of home linen, homeware and bedding accessories in Malaysia. Some of the company’s key products brand are Diana, Novelle and Jean Perry. To market its products, it operates 17 fullyowned retail outlets under the Home’s Harmony brand name. It also exports its products to Singapore, Taiwan, Australia, Brunei, Fiji, Indonesia, Japan, Mozambique, New Caledonia, Turkey, and Vietnam. The company was founded in 1966 and is headquartered in Nilai, Malaysia.

BUSINESS SEGMENT

Manufacturing: design and manufacturing of home linens and bedding accessories.

Distribution and trading: distribution and trading of home linens and homewares.

Retailing: retailing of home linen and homeware.

SWOT ANALYSIS

Strengths: Ability to capture demand from various consumer segment as it market its product in 14 different brands.

Weaknesses: Small market cap.

Opportunities: Potential capacity expansion on its recently purchased land in Seremban, Negeri Sembilan.

Threats: Inflation pressure due to recent increase in petrol price may curb consumer spending in the near term.

Source: Kenanga