Century Bond

Heightened Competition Drove Down Profit Margin

Author: Icon8888   |   Publish date: Wed, 25 Feb 2015, 03:20 PM 

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(The company's logo is very interesting. The C and B grouped together forms the Chinese word for "Good")


Executive Summary

(a) You will be awed if you look at the Company's corporate website. It states that it is involved in paper and plastic based packaging, contract manufacturing of consumer products, multi level marketing and warehousing / distribution. However, upon closer inspection, the bulk of the group's revenue is actually derived from paper packaging. The company is principally based in Johor.

(b) Having said so, the company is well run, as evidenced by many years of consistent profitability. Balance sheet is pristine, with limited borrowings and cash per share of RM0.73, representing closed to 60% of existing share price.  

(c) Share price has been on downward trend since mid 2013. Latest few quarters results were weak due to heightened competition experienced by its core earnings contributor (paper packaging division).

(d) In my opinion, the decline in profitability is structural in nature. Unless its competitors go out of business, thinner profit margin should become the norm going forward.

(e) All these negative factors had more or less been factored in. Share price has caught up with fundamentals. The 40% decline in share price mirros declines in profitability. At current level, PER is approximately 11 times while dividend yield is approximately 4%. 

Century Bond Bhd (CBD) Snapshot

Open 1.24		Previous Close 1.24
Day High 1.24		Day Low 1.24
52 Week High 04/9/14 - 1.64		52 Week Low 12/15/14 - 1.17
Market Cap 148.8M		Average Volume 10 Days 66.4K
EPS TTM 0.11		Shares Outstanding 120.0M
EX-Date 12/11/14		P/E TM 11.1x
Dividend 0.03		Dividend Yield 4.03%

Please refer to Appendix 1 below for further details of the group's operations.

The group has strong balance sheets with limited borrowings and RM87.6 mil cash, representing cash of RM0.73 per share.



Consistently profitable throughout the years, even during 2008 and 2009.

Annual Result:

F.Y.	Revenue ('000)	Profit Attb. to SH ('000)	EPS (Cent)	PE	DPS (Cent)	DY	NAPS	ROE (%)
TTM	165,222	13,408	11.17	11.11	5.00	4.03	1.4200	7.87
2014-03-31	171,183	17,140	14.28	10.72	4.00	2.61	1.3700	10.42
2013-03-31	186,841	19,153	15.96	5.83	5.00	5.38	1.2600	12.67
2012-03-31	181,609	14,801	12.33	6.49	4.00	5.00	1.1400	10.82
2011-03-31	170,494	14,928	12.44	5.47	-	-	1.0600	11.74
2010-03-31	168,215	17,741	14.78	4.34	-	-	0.9500	15.56
2009-03-31	203,211	12,078	10.06	3.38	-	-	0.8500	11.84
2008-03-31	177,946	10,455	8.71	5.75	-	-	0.7700	11.31

Share price has been on downward trend from RM2.00 in July 2013 until RM1.24 now.

Earnings in the latest three quarters had disappointed. Did the weak earnings cause the de-rating ? What was the reasons for decline in profitability ?

Quarter Result:

F.Y.	Quarter	Revenue ('000)	Profit before Tax ('000)	Profit Attb. to SH ('000)	EPS (Cent)	DPS (Cent)	NAPS
2015-03-31	2014-09-30	38,151	4,745	3,353	2.79	3.00	1.4200
2015-03-31	2014-06-30	42,239	4,255	2,942	2.45	-	1.3900
2014-03-31	2014-03-31	41,585	4,256	2,898	2.42	2.00	1.3700
2014-03-31	2013-12-31	43,247	6,112	4,215	3.51	-	1.3600
2014-03-31	2013-09-30	41,410	7,334	5,057	4.21	2.00	1.3500
2014-03-31	2013-06-30	48,370	7,066	4,970	4.14	-	1.3000
2013-03-31	2013-03-31	44,900	7,251	5,821	4.85	3.00	-
2013-03-31	2012-12-31	48,347	7,064	4,771	3.98	2.00	1.2200
2013-03-31	2012-09-30	46,407	6,163	4,149	3.46	-	1.1900
2013-03-31	2012-06-30	47,187	6,172	4,411	3.68	-	1.1800
2012-03-31	2012-03-31	44,226	5,730	3,966	3.31	2.50	-

Lower profitability principally due to heightened competition at paper packaging division. This has been the case since March 2014 quarter. The decline in profitability should be structural in nature. Unless there are changes in competitive landscape, future earnings might stay at current level.


Appendix 1 - Group Operations