20 May 2008
1Q08 Results
NEW HOONG FATT HOLDINGS BERHAD
Price:
(NHF)
7060
Key Stock Statistics
RM138.3m
Board:
Main
Sector:
Consumer Products
Recommendation:
BUY
Share Price Chart
EPS (est.)
2007
30.6
2008F
35.4
P/E (est.)
6.0
5.2
2,000
2.10
2.00
Dividend/Share (sen)
14.9
NTA/Share (RM)
2.42
Book Value/Share (RM)
2.84
1.80
Issued Capital (mil shares)
75.2
1.70
RM2.18(H) – RM1.58 (L)
1.60
%
1.50
Per Share Data
2005
2006
2007
2008F
Book Value (RM)
2.22
2.56
2.76
3.01
Cash Flow (sen)
47.1
52.1
50.8
53.9
Earnings (sen)
27.7
35.8
30.6
32.6
Dividend (sen)
15.1
15.2
14.9
14.9
Payout Ratio (%)
18-Apr-08
1Q08 Results Highlight
(RM mil)
1Q08
4Q07
chg
Revenue
42.7
41.9
2%
1Q08
42.7
1Q07
36.6
chg
17%
27%
Op Profit
11.2
12.3
-9%
11.2
8.8
Depreciation
(4.3)
(4.3)
0%
(4.3)
(3.6)
22%
Int expense
(0.5)
(0.6)
-10%
(0.5)
(0.5)
13%
Pretax profit
6.3
7.3
-14%
6.3
4.8
31%
Net profit
5.7
5.9
-3%
5.7
5.3
8%
7.9
-3%
7.6
7.1
8%
39.8
39.1
35.9
31.1
PER (x)
6.6
5.1
6.0
5.2
P/Cash Flow (x)
3.9
3.5
3.6
3.4
EPS (sen)
7.6
P/Book Value (x)
0.83
0.72
0.67
0.61
Op margin
26%
29%
26%
24%
Pretax margin
15%
17%
15%
13%
Net margin
13%
14%
13%
14%
8.2
8.3
8.1
8.1
ROE (%)
12.5
14.0
11.1
10.8
Net Gearing (%)
22.1
14.6
11.4
10.5
Dividend Yield (%)
16-May-08
21-Mar-08
22-Feb-08
25-Jan-08
28-Dec-07
30-Nov-07
05-Oct-07
6.4
02-Nov-07
6.7
Kam Foong Keng & Chin Jit Sin
0
07-Sep-07
43.4
Prudential Unit Trust
500
13-Jul-07
Kam Lang Fatt & Wong Ah Moy
1,000
10-Aug-07
Major Shareholders:
1,500
1.90
00-Jan-00
52-weeks Share Price Range
Vol ('000)
Price (RM)
15-Jun-07
Stock Code:
Market Capitalisation:
RM1.84
1Q08 EPS was within expectations
P&L Analysis (RM m)
Year-end: Dec
2005
2006
2007
2008F
Revenue
154.2
156.9
156.8
180.0
41.3
45.3
42.0
44.6
(14.6)
(12.3)
(15.2)
(16.0)
Interest Expenses
(1.5)
(2.3)
(1.9)
(2.0)
Pre-tax Profit
25.1
30.7
24.9
26.6
Effective Tax Rate (%)
17.3
12.3
7.6
8.0
Net Profit
20.8
26.9
23.0
24.5
Operating Margin (%)
26.8
28.8
26.8
24.8
Pre-tax Margin (%)
16.3
19.6
15.9
14.8
Net-Margin (%)
13.5
17.1
14.7
13.6
Operating Profit
Depreciation
PP 1505(12242)/08/2008(010136)
New Hoong Fatt’s (NHF)’s 1Q08 EPS of 7.6 sen was
within expectations, coming in at 23.4% of our FY08
forecast of 32.6 sen. Operating profit rose 27% Y/Y to
RM11.2m on a 17% increase in revenue to RM42.7m.
The improved performance was due to an increase in
local and export sales, resulting in an enhancement in
operating margins from 24% to 26%. However, net
profit rose by a lesser 8% Y/Y to RM5.7m as it
incurred a tax charge of 8.9% versus a tax credit of
10.1% in 1Q07. Meanwhile, 1Q08 pretax profit fell
14% Q/Q to RM6.3m despite a 2% increase in
revenue, mainly due to an increase in administration
and operation costs such as annual insurance
premium and upkeep of plant and machinery.
www.kimengresearch.com.sg
New Hoong Fatt Holdings Berhad
20 May 2008
Maintaining FY08 forecasts
Table 2: Balance Sheet
NHF increased its installed capacity by ~50% by April2008, including expanding its metal components
factory, installing new plant and machinery (new press
line, a laser cutting machine and CNC milling
machine), new moulds and tools & dies and setting up
a trading branch in Kota Kinabalu. The opening of the
new branch in Kota Kinabalu, which commenced
operations in August 2007, will enable NHF to
diversify its network and tap into a whole new market
in Sabah and Sarawak. It spent some RM23m on
capital expenditure (capex) in FY07 and has allocated
another RM27m of capex in FY08 to expand capacity
at its metal and plastic parts manufacturing plants in
Klang whilst the balance will be spent on tools and
dies for new product development. The plants are
currently running at a combined average utilisation
rate of 60%. The expansion would also support the
group’s rising export sales, targeted to grow by at
least 10% this year. Export sales amounted to RM40m
or about 25% of total revenue in FY07. Its main export
markets are the ASEAN region, the Middle-east and
Central and South America. India and China are the
two new markets that NHF plans to exploit.
Y/E Dec 31 (RMm)
2005
2006
2007
Total Assets
257.8
260.9
278.9
296.2
Fixed Assets
151.3
156.0
161.1
183.3
75.2
73.6
86.5
90.9
31.3
Profit growth to lag revenue growth due to
margin pressures
Capacity expansion will drive revenue growth of ~15%
in FY08. However, net profit is expected to grow at a
more modest 6.5% to RM24.5m as operating margins
are expected to remain subdued at about 25% due to
higher steel and plastic resin prices. Higher steel
prices are expected to persist into 1H08 due to the
recovery in international demand, especially from
China and India. We have projected steel prices to
average US$960/mt in FY08 from about RM660/mt in
FY07. Meanwhile, plastic resin prices (which usually
move in tandem with crude oil prices) are also on an
uptrend.
Table 1: Average steel price
(US$/mt)
Steel Price
3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08
670
700
630
650
655
700
1085
Tax-exempt dividend due to availability of
tax credits
We expect NHF to maintain its dividend of 11 sen taxexempt in FY08, similar to FY07. Its dividends are
expected to be tax-exempt for the next few years as it
has some RM40m of tax credits available. This
translates to a gross dividend of 14.9 sen, with a gross
yield of 8.1%. The balance sheet remains healthy with
net debt of RM21.7m as at 31 March 2008, translating
to a net gearing of 10.2%.
2
Current Assets
2008F
Long Term Assets
31.3
31.3
31.3
Current Liabilities
68.9
50.7
46.6
53.3
Long Term Liabilities
22.1
17.8
24.6
26.2
Share Capital
Shareholders Funds
75.2
75.2
75.2
75.2
166.8
192.3
207.7
226.0
Recommendation
BUY. We continue to favour NHF for its attractive
dividend yield of 8.1% and its undemanding 5.2x PER
valuation.
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20 May 2008
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Recommendation definitions
Our recommendation is based on the
following expected price
performance within 12 months:
+15% and above: BUY
-15% to +15%: HOLD
-15% or worse: SELL
New Hoong Fatt Holdings Berhad
12 December 2007
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