Sern Kou Resources Berhad (SERNKOU, 7180), the company that engaged in the timber processing and furniture industry, recently announced laudable financial results, achieving a historic high in revenue for the first quarter of the 2024 fiscal year. Before delving into SERNKOU's latest performance, let's briefly understand the company's background.

According to SERNKOU's annual report, the company was founded in 1993, with its headquarters in Muar, Johor. Initially established as a pure furniture manufacturer involved in ODM and OEM, SERNKOU underwent significant expansion into the midstream and upstream sectors of the furniture industry, specifically wood processing and trade, when the current Managing Director, Mr. Chua, took over leadership in 2015.

As a reference, SERNKOU's midstream and upstream operations encompass timber sawing (precision cutting of timber into dimensions specified by customers), plywood manufacturing (specializing in the production of waterproof plywood using tropical hardwood and rubberwood, with a preference for recycled wood materials in the manufacturing process), as well as the processing and trading of rubberwood and timber. For the record, the company's midstream and upstream activities are conducted in its factories located in Kuala Krai and Gua Musang, Kelantan.

As of the 2023 annual report, the upstream operations contributed approximately 89.00% of the total revenue, while the furniture manufacturing and trade business accounted for the remaining 11.00%. Therefore, strictly speaking, SERNKOU can be considered as an integrated timber and wood processing company.

Revenue Comparison (YoY +22.41%, QoQ +40.55%)

As of September 30, 2023, the company generated approximately RM137.14 million in revenue, marking an increase of around 22.41% compared to the same period last year (RM112.03 million). This growth is primarily attributed to increased demand for tropical wood, contributing to the rise in revenue from SERNKOU's wood processing and trade business.

Out of the RM137.14 million in revenue, approximately RM127.80 million came from wood processing and trade, reflecting a YoY increase of approximately 34.19%. The remaining revenue of around RM9.34 million was derived from furniture manufacturing and trade, witnessing a YoY decline of about 44.40%.

Compared to the previous quarter, the company's revenue also increased by approximately RM39.57 million or 40.55%.

(Note: The fiscal year ends on June 30 each year.)

Net Profit Comparison (YoY -95.19%, QoQ -97.91%)

Despite the growth in total revenue this quarter, the company achieved this through a reduction in product profit margins to increase sales volume. Consequently, the net profit for this quarter amounted to approximately RM98,000.00. This represents a YoY decrease of approximately 95.19%, and a QoQ decline of about 97.91%.

On the other hand, although SERNKOU is not a net cash company, its cash and cash equivalents increased by approximately 85.17% YoY to around RM44.06 million this quarter.

Outlook

As the company enters the new fiscal year, the management anticipates a more challenging business environment, characterized by a deteriorating global economic outlook, ongoing geopolitical tensions, and decisive interest rate increases by major central banks to counter inflationary pressures.

Nevertheless, the company continues its pursuit of new opportunities and development initiatives to strengthen its business, mitigate risks, and navigate future uncertainties. Hence, the management remains optimistic about the company's performance in the coming periods.

So, dear readers, what are your thoughts on SERNKOU?

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Disclaimer: The above is purely for educational purposes and reflects personal opinions. It does not constitute any buying or selling recommendations.

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