An unheralded gem. Khind Holdings Bhd (KH), a modest manufacturer and distributor of world-class electrical household appliances has stamped its mark in the market. Following the acquisition of Mistral Industries S/B (an OEM manufacturer for leading Japanese home appliance brands) in CY11 and coupled with the increasing popularity of its in-house brand – “Khind”, its topline grew at a 3-year CAGR of 14%. KH differentiates itself from competitors by manufacturing high quality and reliable products (with a rejection rate of <1%) at affordable prices as well as providing efficient after-sale-service.

Bright future. The group is currently in the advanced stage of negotiating with a leading home appliances MNC to transfer the latter’s manufacturing production from China to Malaysia where KH believes its quality assurance as well as on-time product's delivery are the major competitive advantages compared to the existing Chinese counterpart. Should KH manage to seal this OEM order, it is expecting to manufacture 100k units (or 1%) per annual for the MNC during the initial stage, boosting its manufacturing division turnover by 15%. Management believes the MNC will progressively shift its manufacturing lines to Malaysia should KH manage to meet its stringent requirements. Note that its manufacturing division currently accounts for 32% of the group’s total turnover in 9M13.

Eyeing green technologies. While there is no solid progress on its M&As roadmap at this juncture, management plans to look at renewable energy, green energy, and energy saving technology segments to further enhance its products realiability and credibility.This is to align with the group’s mission to become a tier-1 home appliances manufacturer within the next 3-5 years.

Strengthening its oversea footprint. KH is targeting to maintain its organic turnover growth rate of 10%-15% in FY14, underpinned by its strong local presence as well as higher overseas market contribution, where the group currently has a footprint in more than 50 countries. For 9M13, 40% of the group’s turnover was derived from overseas markets, mainly the Middle East, where its emergency lights and fans are the group’s top selling products. Going forward, KH plans to further expand its footprint to the former Soviet Bloc and North Africa region.

Strong 9M13 results. KH reported 9M13 net profit of RM13.07m (+95% YoY), mainly boosted by strong sales from the East Malaysian market as well as the Middle East market. The surge in revenue is complimented by the trading and service division, where profit increased by 19.4% YoY. Besides, the manufacturing division also contributed where its profit improved by 67.2% YoY due to effective cost controls. PBT margin for 9M13, meanwhile, advanced to 6.8% (vs 4.8% a year ago) due to the RM4.0m disposable gain. The disposable gain has led the group to declare a DPS of 10.0 sen in 3Q13.

Not rated with a fair value of RM2.68, based on a targeted FY14 PER of 7.4x, a 30% discount (due to illiquid shares concern) on FBMKLCI Small Cap forward PER of 10.6x.

Source: Kenanga