• Manufacture & sales of plywood and veneer.
• Exports mainly to USA (71%).
• Similar industry competitor – Ta Ann, WTK.

• Compound annual growth rate, CAGR for the past 5 years (2011-2015).
  • Revenue : 10.29%
  • Net profit : 23.30%
  • EBIT : 21.76%

• Average free cash flow, FCF for the past 5 years : RM17.02m.
  • Average capital expenditure, CAPEX for the past 5 years : RM2.53m.
  • Growth sustained by internal cash flow generation (No debts).

• Growth plans (50-55% utilisation rate).
  • In the midst of acquiring new machinery to produce plywood with different sizes and specification.

• Current dividend yield is 3.68% based on the current price of RM1.63 (20/12/16).
  • Potential final dividend 4QFY16 to bring yield up to an estimated 6.13%.
• Cash per share : RM0.85 [Other investments (RM61.30m) and cash (RM26.37m) – 3QFY16].
• Value of RM1.43 [EPS (projected): 15.92 cents] based on a PER of 9x, which is a 20% discount from peers’ PER of 11.3x.
• Sum-of-Parts (SOP) methodology yields a fair value of RM2.28.
• Discounted cash flow analysis using the average FCF of 5 years with 3% growth and 10% discount yields RM2.42.
• Margin of safety : RM0.65.

• Valuation metrics using projected earnings for 4QFY2016.
  • Cash Yield : 10.7%
  • Earning Yield : 26.5%
  • EV/EBIT : 3.77
  • Return on Capital : 30.9%

Sources:

1. Research report by Hong Leong Investment Bank dated 20 December 2016 here.
2. Research report by Hong Leong Investment Bank dated 9 September 2015 here.

Notes:

This post was prepared to be used solely for blogging purposes. It is not to provide investment advice or a solicitation of such an offer. As an investor, you should thoroughly research any security before making any investment decisions.