Saturday, 12 December 2015

Lee Swee Kiat

Syndicate Play or Driven By Improvement In Fundamentals ?

Author: Icon8888   |   Publish date: Mon, 23 Mar 2015, 01:54 PM 



WARNING : THIS STOCK HAS GONE UP BY MORE THAN 50% AMID HUGE TRADING VOLUME OVER PAST TWO WEEKS. EXACT REASONS FOR SPIKE IN SHARE PRICE IS UNKNOWN. PLEASE TRADE WITH CAUTION

This article is meant for occasional speculators (of which I am considered one) who enjoy the thrill of sticking our necks out to earn a few quick bucks from the market. Warren Buffet wannabes please don't bother to read.

Executive Summary

(a) On 25 February 2015, LSK announced a sterling set of results, with revenue and net profit increased by 22% and 80% respectively (Q-o-Q).

(b) On 12 March 2015, the Company's share price surged by more than 50% amid huge trading volume.
As a result, it was slapped with an Unusual Market Activities query by Bursa Malaysia on the same day.
As usual, the company gave a standard response that it was not aware of any material development that can explain the sudden activities.

(c) In order to ascertain whether the recent unusual share price movement was due purely to manipulation by syndicates or there is at least some fundaments behind it (or a combination of both), I undertook a quick study of the group and its historical profitability.

(d) Based on preliminary analysis, the group experienced significant expansion in EBITDA margin in latest quarter. According to company's comments as set out in quarterly report, lower latexx price and higher US dollars were the main reasons for the drastic improvement in profitability.

(e) The stock has gone up by a lot over past two weeks amid huge trading volume. The early birds are currently sitting on huge paper profit. As such, I strongly advise you adopt a cautious stance should you decide to trade in this stock. Due to its low profile and past obscurity, much remains unknown about this group, especially about their ability to sustain latest quarter robust earnings going forward. BUY AT OWN RISK.

Lee Swee Kiat Group Bhd (LSKG) Snapshot

Open
0.31
 
Previous Close
0.31
Day High
0.31
 
Day Low
0.30
52 Week High
03/12/15 - 0.38
 
52 Week Low
05/5/14 - 0.14
Market Cap
50.3M
 
Average Volume 10 Days
19.2M
EPS TTM
0.02
 
Shares Outstanding
167.8M
EX-Date
--
 
P/E TM
12.2x
Dividend
--
 
Dividend Yield
--
 











LSK share price over past 6 months. Spike in share price with huge trading volume triggered a UMA enquiry from Bursa :-



Lee Swee Kiat Group Berhad is engaged in the manufacture and marketing of mattresses and bedding accessories.
The company offers its products under the Tempur, Napure, Englander, and Mattressworld brands.
Lee Swee Kiat Group Berhad was founded in 1975 and is based in Klang, Malaysia.

The company's annual report does not provide break down of revenue from local and overseas customers. But in all past quarterly reports, the company repeatedly mentioned that the Ringgit vs US Dollars exchange rate has an impact on their export business.

The group has healthy balance sheets. With net assets of RM32 mil, cash of RM12.8 mil and loans of RM14 mil, net gearing is approximately 0.04 times only.
  




The group has been profitable all this while. But profitability was low until latest two quarters which saw earnings jumped from the usual RM0.5 mil (on average) to RM1.06 mil and RM1.92 mil in September and December 2014 quarter respectively.

Based on market cap of RM50 mil and FYE 31 December 2014 net profit of RM4.1 mil, historical PER is apprximately 12 times.

However, if latest quarter strong earnings can be repeated, PER could drop to single digit going forward (this could be the main reason why the stock has generated so much interest lately).

Quarter Result:
F.Y.QuarterRevenue ('000)Profit before Tax ('000)Profit Attb. to SH ('000)EPS (Cent)DPS (Cent)NAPS
2014-12-312014-12-3122,1882,4461,9171.14-0.1900
2014-12-312014-09-3018,1861,2141,0640.63-0.1800
2014-12-312014-06-3017,7905325320.32-0.1700
2014-12-312014-03-3116,8756016010.36-0.1700
2013-12-312013-12-3115,6035882170.25--
2013-12-312013-09-3015,1645264260.25-0.1600
2013-12-312013-06-3013,8801931930.12-0.1600
2013-12-312013-03-3116,6055395390.32-0.1600





A quick analysis showed that EBITDA margin expanded substantially in latest two quarters, probably driven by lower raw material cost and higher export earnings pursunt to stronger US dollars.
In addition, revenue also grew susbtantially in latest quarter (up 22% Q-o-Q). Exact reasons unknown.


(RM mil)Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14
         
Revenue16.6013.8815.1615.5316.8817.7918.1922.19
         
EBITDA1.501.151.481.751.601.482.163.54
         
depreciation(0.72)(0.71)(0.72)(0.95)(0.77)(0.77)(0.77)(0.64)
int expense(0.24)(0.25)(0.24)(0.21)(0.23)(0.18)(0.18)(0.15)
exceptional items0.000.000.000.000.000.000.00(0.30)
         
PBT0.540.190.530.590.600.531.212.45
         
tax0.000.00(0.10)(0.35)0.000.00(0.15)(0.53)
         
Net profit0.540.190.430.240.600.531.061.92
         
Revenue growth (%)n/a(16.3)9.22.48.65.42.221.9
         
Net profit growth (%)n/a(64.1)120.7(43.6)150.0(11.6)100.080.8
         
EBITDA margin (%)9.08.39.811.29.58.311.915.9

According to Wikipedia, modern materesses are made of the following major raw material :-

(a) Rubber foam;

(b) steel coils; and / or

(c) Oil derived synthetic material such as polyurethane foams and non woven products (Oceancash shareholders will know what this is)

According to quarterly reports, the group makes extensive use of rubber foams in its mattresses (a natural product). It is not clear how the low oil prices will benefit the group (apart from the secondary effect of weakening of Ringgit).

Latexx price has come down substantially (by closed to 25%) over past few months. This is very likely the main reason behind recent EBITDA margin expansion.  


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