Skip to main content

A Walk in the Park with Cypark Resources Berhad (5184)

Lately, I have been searching for a company which has good profit margins, a business model which is non-conventional (i.e., not manufacturing, banking, plantation, and trading in nature), and resilient to external market shocks. I hope I have found the right company! This week I will be looking at Cypark Resources Berhad (5184). Cypark is a company that is involved with the provision of environmental solutions. It has 4 main business segments which are: 1. Environmental engineering: Provision of nature conservation and environmental improvement services. 2. Landscaping and infrastructure: Provision of landscape services, project management services, and infrastructure development. 3. Maintenance: Provision of specialist maintenance works on leachate treatment plants, landscape services for parks, and maintenance of public amenities. 4. Green technology & renewable energy: Solar panel, biogas, biomass, waste-to-energy, and other renewable energy project

Home with Homeritz

Homeritz is a company that designs, manufactures and sells its own upholstery furniture. Based on its latest 2016 annual report, it does business in every continent (Americas, Europe, Africa, Middle East, and Asia Pacific) except the North and South Pole. 

Chart 1: Revenue Breakdown Based on Geographical Location

(Source: 2016 Annual Report)

The annual report, however, does not specifically state the major countries that it sells its furniture to. I’d love to get my hands on these information. But alas, I’m not a privileged investor.

Financial Analysis

Chart 2: Income Statement Breakdown

All per share figures are computed using Chart 2 undiluted number of shares. As of the end of June 2017, Homertiz has 514,000 outstanding warrants.
(Source: Annual Reports and Quarterly Reports)

Chart 2 is an extract of the income statement of Homeritz. In 2015, Embrace Industries Sdn Bhd, a subsidiary of Homeritz was fully acquired. Hence, all profits from the subsidiary now fully accrue to the shareholders of Homertiz.

In terms of profit margins, Homeritz really is quite efficient. PBT margin and PAT margin averaged 21.2% and 17.6% respectively in the 4 years under review. Revenue, PBT and PAT recorded a growth of 40%, 76%, and 56% respectively from 2013 to 2016.

But due to the large number of shares (approximately 200 – 300 million), profits were diluted. Also, as of Q3 2017 of Homeritz interim financial statements, there were 514,000 warrants outstanding. In the writer’s opinion, the outstanding warrants really are quite negligible to Homertiz’s profit.

Chart 3: Financial Health of Homertitz

Homeritz throughout the 4 years was never in a net debt position. The share price of Homeritz averaged RM0.95 for the whole month of August till early September 2017. It should be noted that 20% of Homertiz’s share price consist of cash.

This leaves us with this question, what is the remaining RM0.56 worth?

In order to determine what Homertiz’s operations are worth, lets delve into its cash flow.

Chart 4: Cash Flow Analysis of Homertiz

The best way to tell a healthy business is to look at its cash flow. I’ve listed the 4 most relevant years 2016 – 2013. In this 4 years, Free Cash Flow has been above RM16 million per annum.

Now, if we were to account for the purchase of freehold land of about RM8 million as one-off in nature, and were to add back to free cash flow, Free Cash Flow/ Revenue for 2016 was approximately 17%. So Free Cash Flow/ Revenue averaged 17% for the past 4 years under review. Hence, for every dollar sold, 17 cents was received as cash, which would equate to roughly 9 cents per share. Not too shabby for a furniture company.

Say if we were to project and try to value this company at a conservative constant growth rate for 5 years until 2021, what is the potential value of this stock? 39 cents for saleable asset value plus 43 cents [9 cents per year till 2021 with a constant growth rate of 6% per annum discounted at 7.5% (an investment should best 4% of annual inflation and 3.35% of FD rate per annum, otherwise it’s not worth the money)], this brings us to 82 cents. Decent but not outstanding.

Chart 5: Attempting a 5-year forecast

Prospects for this company
We know that this company exports 99% of its furniture overseas, of which 54% to Asia Pacific and 41% to the Americas. 100% of its trade receivables and payables are denominated in USD as of the end of 2016. Based on my understanding, a significant portion of sales are in USD and probably 40% (read this somewhere in an article or annual report) of costs are denominated in USD as well. Cost drivers are most probably imported leather (USD denominated), manpower (RM denominated and consist of approximately 12% of revenue), and wood. Homertiz spends around RM1.5 million on research and development annually. At least it’s still committed to improvement.

Map of which Homeritz Products are Sold To

Highlighted in Yellow are the areas in US where it was severely affected by hurricane Harvey and Irma. So, if management is smart, they should try to market to these poor folks. Consequently, we should see revenue increasing. Logically, we should see some demand in Homeritz’s furniture in the near future.

In terms of the potential appreciation of the MYR against the USD, I’m not too sure about that. But if nothing changes, based on our valuation above, this is still a decent investment. Whether the appreciation or the depreciation of the MYR against the USD persists, Homertiz’s profit margins are still sound and has some buffer for a rough ride.

Furniture business isn’t a fancy industry nor is it an industry that will be going out of business soon. My view is that everybody needs furniture, despite the low rate of furniture replacement, there are still many more people out there who needs a new furniture set – those who are getting richer and those that need to replace their damaged/old furniture. As an Original Equipment and Design manufacturer, this company enjoys decent profit margins. Also, it has been steadily growing for the past 5 years. However, this is no guarantee that future performance is guaranteed, but based on its latest Q3 2017 quarterly report, management is looking forward to a profitable 2017.

For a technical analysis review of this stock, readers are encouraged to refer to read my article >>> HERE.

If you like my posts and this blog please SUBSCRIBE in the link above or follow me on Google+ !!!    THANKS

Note: This is not a recommendation to buy or sell this stock by the writer. The writer owns shares in this company. The writer intends to share his view point on this stock’s potential investment value, any decision to invest or sell shares in this company is entirely at the reader's own risk.


Post a Comment

Popular posts from this blog

Trading Ideas: Zhulian Corporation Berhad (5131)

Today I will be reviewing Zhulian Corporation. This company is a multi-level-marketing (MLM) company dealing with a host of beverages, health products, jewellery, home products and appliances, personal care products, beauty apparels and skin care products. This review is not a detailed review, rather an analysis of its quarterly results and its technical price action. Zhulian’s past 4 quarters cumulative earnings per share (EPS) was 11.50 cents and it is trading at a price-earnings ratio of approximately 14.4 times as of February 1, 2018. Chart 1: Price chart of Zhulian Based on its price chart, price rallied from a low of RM1.20 on January 3, 2017, to its highest point of RM2.15 on January 24, 2018, an appreciation of 180%. However, prices dipped on January 25, 2018, after the announcement of its latest Q4 2017 financial results. I guess expectations were running high on whether Zhulian could sustain the growth in its share price. At this point, prices have retraced about 50%, from

Apollo Food Holdings Bhd (6432)

Is investing in Apollo Food Holdings Berhad (6432) a secure and risk-free investment? If you are not sure what Apollo Food Holdings does, you would at least have come across its products in your childhood. Do these snacks below ring a bell? Who would have thought that this company is listed on the Malaysian Stock Exchange? Based on the BCG growth share matrix, Apollo Food is categorized as a “cash cow.” Milking cash from its day-to-day operations. There has not been much excitement in its share price; it has been in a trading range of RM4.50 – RM6.00 for over 2 years. This stock will ultimately disappoint investors who are seeking growth companies with quick capital appreciation. However, those who are seeking a safe haven for their capital, or intend to protect their capital may consider this stock in their portfolio. To invest in Apollo, an investor ought to look at a longer time horizon. Hence, I will be looking at a time frame of 5 years. Chart 1: Key Financial and Investment Stat

Technical Review of Econpile Holdings Bhd (5253, 16/6/2018)

The markets have not been exciting lately, but I have an interesting stock to share. For investors who are looking for a stock to trade, I recommend Econpile Holdings Bhd (5253).  Its share price seems to be oversold and is  ready for a bullish rebound .    Based on its technical price chart, its share price started to dip at the beginning of 2018. The 30-day exponential moving average (EMA) has been its overhead resistance since early February 2018 until now. In this article, I will explore the likelihood of it breaking above its 30-day EMA overhead resistance. The 30-day exponential moving average overhead resistance could mean that this stock is in a downtrend as well.  Pakatan Harapan, Malaysia's newly elected political party's victory in the General Elections in May 2018 had an adverse effect on its share price. Upon the opening bell of the Malaysian market on May 14, 2018, its share price gaped down 8 cents, and closed at RM .788, a decline of 22.7 cents

Heveaboard Bhd (5095) Update (11 May 2018)

This week I will be reviewing Heveaboard. This is a follow-up review to my previous Heveaboard posts.  As you are aware, many stocks on Bursa Malaysia were beaten down to its lows recently. Now, after a historic win in the 14th Malaysian General Elections by Pakatan Harapan (Alliance of Hope), will the stock market bounce back?  The General Election held on May 9,2018, was by and large peaceful and went on without a hitch.  Malaysians are hoping for a clean, fair, and just government. This positive perception will be echoed in the stock market and will bring back market confidence. We now turn our focus to the annual report of Hevea  that was recently published on April 30, 2018. I thought it would be a good time to perform a follow-up review of this stock.  Technically, it is showing signs that its share price has bottomed out and has formed a base. The share price has retraced from a high of RM1.72 in October 2017 to RM0.88 in May 8, 2018, a retracement of about 50% !!  See Char

Trading Ideas: Success Transformer Corporation (7207)

Success Transformer is a company that I have been monitoring for some time. I previously made some money investing in it, and thought it would be a good idea to revisit this company now. It is involved with the industrial lighting and electric transformer manufacturing business. It has a listed subsidiary, Seremban Engineering Berhad (5163), which is involved with the process engineering industry. Its share price has been consolidating for some time, and I think there may be opportunities to invest in this company. Chart 1: Success Transformer Corp share price From 2014 until 2016, Success' process equipment division was hit by cost overruns on certain projects which resulted in it reporting losses. Looking at its price chart, its share price has not progressed much from 2014 - 2016. Post financial year 2016, business operations seemed much better. It appears that its process engineering division has since gotten out of the red and is now reporting profits. Even the profit marg