INVESTMENT MERIT

A handsome gain of 21% in two months. Since our initial Trading Buy recommendation on Yoong Onn Corporation (YOCB) when it was trading at RM0.78 on 29th of October, the share price has performed reasonably well with 20.5% gain so far in contrast to the benchmark FBMKLCI’s return of merely 0.9%. In fact, the group’s share price had closed as high as RM0.99 on 13th of December before profit-taking kicked in.

Efficient market already priced in FY14 earning's growth? We believe YOCB could register a 14% (to

RM23.0m) earning's growth in FY14E YoY, underpinned by resilient consumer demand, in tandem with the expected GDP growth of 5%. Nevertheless, following the strong share price rally in the past two months, we believe the market had priced in the feel-good factor thus resulting in limited capital upside from here.

Take profit for now. We believe our YOCB’s target price of RM1.01, which is based on a targeted FY14E PER of 7.0x (a 25% discount to the FBM Small Cap forward PER due to its smaller market cap and lower liquidity concern) is fair. In view that the group’s share price potential total return is now less appealing at 7%, we would recommend investors to gradually take profit from here and revisit the stock at a lower level.

However, it is still an attractive long-term investment. Despite our Take Profit recommendation, YOCB’s long-term growth prospect remains intact. The local media has recently reported that the group is planning to increase its production capacity by 50% to 4,500 bedsheets daily by 2015 and this should bode well for YOCB over the mid-to-long-term. Meanwhile, in view of the increasing number property projects scheduled to be completed over the short-tomedium-term, it could provide strong demand of the group’s products in the near future.

TECHNICALS

Resistance: RM1.04 (R1), RM1.10 (R2)

Support: RM0.94 (S1), RM0.87 (S2)

Comments: Although the share price has succumbed to a degree of profit taking recently, the overall technical picture remains on a bullish note. The share price also seems to have found some support at the 94 sen level, which indicate the presence of bargain hunters at this support level.

BUSINESS OVERVIEW

Yoong Onn Corporation Berhad (YOCB) is an investment holding company engaged 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 product, the company operates 17 fully-owned retail outlets under the Home’s Harmony brand name and one retail outlet fully-owned and managed through a dealer under the brand name of Home’s Warehouse. 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 linen and bedding accessories.

Distribution and trading: distribution and trading of home linen and homeware.

Retailing: retailing of home linen and homeware.

SWOT ANALYSIS

Strengths: Ability to capture demand from various consumer segment through it 14 diverse 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