For readers who followed the glove stock boom in 2020, ES Ceramics Technology Berhad (ESCERAM, 0100) is likely a familiar name. During that period, ESCERAM's core business involved producing ceramic hand formers for glove manufacturers, a crucial component in the glove manufacturing value chain. Subsequently, ESCERAM expanded its operations into the building materials sector.

Just a few days ago, ESCERAM announced remarkable financial performance. Before delving into the latest results, let's gain further insights into ESCERAM's background.

According to the ESCERAM official website, the company was founded in 1998 and is headquartered in Ipoh, Perak. It was listed on the ACE Market of Bursa Malaysia in 2005. By that time, ESCERAM had already established a solid foundation in the manufacturing of glove formers and expanded its production lines to Thailand. The Thailand factory primarily focuses on producing inspection, surgical, household, and industrial formers, as well as custom-made formers. The Malaysian factory, on the other hand, specializes in the production of inspection formers.

As mentioned earlier, ESCERAM later ventured into the construction materials industry. In 2022, the company announced the acquisition of Evermix Concrete Sdn Bhd for RM83.00 million, expanding its business into the manufacturing and supply of building materials, including ready-mix concrete. As referred to in the annual report, this business started contributing revenue to ESCERAM from the second quarter of the 2023 fiscal year.

Revenue Comparison (YoY +17.08%, QoQ -1.05%)

As of the second quarter ended November 30, 2023, the company’s revenue was approximately RM93.00 million, representing an increase of about 17.08% compared to the same period last year (around RM79.43 million). This growth is primarily attributed to the revival of construction activities, stimulating an increase in the pricing and sales volume of ready-mix concrete.

Out of the RM93.00 million in revenue, approximately RM85.92 million comes from the manufacturing and supply of building materials, showing a YoY increase of about 21.63%. The remaining revenue of approximately RM7.08 million is from the manufacturing business of glove formers, which decreased by approximately 19.39% compared to the previous year.

Compared to the previous quarter, the company's revenue experienced a slight decrease of about RM0.99 million or 1.05%.

(Note: ESCERAM's fiscal year ends on May 31 each year)

Net Profit Comparison (YoY +244.39%, QoQ +244.39%)

Driven by robust revenue from the manufacturing and supply of building materials, the company achieved a net profit of approximately RM7.68 million, marking a YoY increase of approximately 244.39%. In fact, the company recorded a substantial gain this quarter through the sale of industrial land formerly used for a concrete batching plant.

Similarly, compared to the previous quarter, the net profit increased by about RM5.45 million or 244.39%. This growth can be attributed to the gains from the sale of industrial land and the recovery of bad debts in the building materials segment.

It's worth mentioning that ESCERAM is currently a net cash company, holding approximately RM87.96 million in cash this quarter, with debts of around RM28.04 million. This indicates a very healthy cash flow for the company.

Outlook

Despite the ongoing challenges in the glove industry due to the supply-demand imbalance caused by aggressive expansion during the pandemic, management remains cautiously optimistic about the long-term prospects of the industry.

In contrast, the outlook for the building materials business in the upcoming fiscal year appears more promising. This is attributed to the development expenditures in the government's 2024 budget and various infrastructure projects.

However, the company has to address challenges such as foreign exchange fluctuations, rising costs of raw materials and labour, and a weakened demand for gloves. Despite these challenges, management maintains a cautious yet optimistic outlook for the company's long-term business prospects.

So, with the current Price-to-Earnings ratio of approximately 5.41 times for ESCERAM, what are your thoughts, dear readers?

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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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