Wednesday, 10 January 2018

Nylex - Looking Good. Time To Make A Bet ?

Publish date: 

1. Introduction

Nylex has two major divisions :

(i) Polymer division - manufacturing of PVC and PU leathercloth, films and sheets, geosynthetics and rotational moulded products.

(ii) Industrial chemical division - Trading and distribution of petrochemicals and industrial used chemicals.

2. Historical Price

Based on 194 mil shares, Nylex's market cap is now RM189 mil.

3. Recent Strong Quarterly Performance

The reason Nylex share price has gone up is because it did very well in its latest quarter ended 28 February 2017.

Key observations :-

(i) Being a manufacturing operation, Polymer division's profitability is quite stable. Industrial chemical's profitability is volatile. This was especially true in past few quarters as its margin declined, influenced by weak industry trend (blue highlighted figures).

(ii) In the latest quarter, industrial chemical division staged a dramatic turn around. Both revenue and operating profit increased substantially. The company explained that this was due to more robust selling price for their products. Please refer below.

(iii) In the latest quarter, the group reported net profit of RM7.1 mil, translated into EPS of 3.7 sen. 

Actual result was much stronger. There was exceptional items of RM2.5 mil (forex, impairments, etc) (yellow highlighted figures)Without those items, net profit would be RM9.8 mil, or EPS of 5.1 sen (green highlighted figures)

That is not the end of it. The group has just commissioned a new chemical tanker, which incurred start up losses of RM2.2 mil at its logistic division (yellow highlighted figures)Without that, pro forma net profit would be around RM11.25 mil (after factoring in 33% tax), or EPS of 5.8 sen.

4. Chemical Tanker

On 30 April 2015, Nylex anounced that it has placed order with a Japanese contractor to build a new chemical tanker for RM65 mil (ballooned from initial RM58 mil due to currency changes), to be 70% funded by borrowings (RM45.5 mil). The vessel was delivered in January 2017.

The chemical tanker will be used to transport and distriute Nylex's own chemical products to customers, resulting in cost saving (from 2017 onwards).

5. Don't Worry About Balance Sheets

The group's gearing has been increased by the vessel purchase, but overall still very healthy.


Appendix - Nylex MD's Interview My The Edge on 13 February 2017

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