A Member of the TA Group MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048 C O M P A N Y U P D A T E Tuesday, 10 December, 2013 FBMKLCI: 1,841.87 Sector: Consumer Yoong Onn Corporation Berhad TP: RM1.24 (+36.3%) Soundly and Comfortably Last traded: RM0.91 THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Not Rated TA Research Team Coverage +603-2167-9612 benghooi@ta.com.my www.taonline.com.my We believe that Yoong Onn Corporation Berhad is a sound stock to invest in supported by: i) Experienced and hands-on management ii) Established track records iii) Strong ties with suppliers, customers and consignees iv) Consistent growth v) Strong balance sheet vi) Decent dividend yield vii) Its defensive nature of business With target PE multiple of 8x, we arrive at a target price of RM1.24/share. This offers potential upside of 36.3%. NOT RATED. About Yoong Onn Corporation Berhad (YOCB) Yoong Onn is a leading integrated designer, manufacturer, distributor and retailer of home linen, bedding accessories and homeware. Its history can be traced close to 5 decades ago back in 1966 when Yoong Onn was founded. It has evolved from a home linen trading business to a full-fledged home linen and bedding accessories provider, and was listed on the Main Board of Bursa Malaysia on 23 December 2009. The group manufactures home linen, bedding accessories and complemented by homeware (see Appendix Exhibit 5). Currently it operates 16 fully-owned retail outlets under the name of Home s Harmony and 120 consignment counters in various parts of Malaysia. Besides, YOCB also supplies its products to hospitality-based institutions, including resorts and hotels, military accommodations, cruise ships, hospitals, the Royal Customs. Exhibit 1: Home s Harmony retail outlet Share Information Bloomberg Code YOCB MK Stock Code 5159 Listing Main Market Share Cap (mn) 160.0 Market Cap (RMmn) 145.6 Par Value 0.50 52-wk Hi/Lo (RM) 0.965/0.48 12-mth Avg Daily Vol ('000 shrs) 186.1 Estimated Free Float (%) 47.2 Beta 0.16 Major Shareholders (%) Casatex Cosmo Sdn Bhd - 52.50 Forecast Revision FY14 FY15 Forecast Revision (%) - - Net profit (RMm) 23.4 26.5 Consensus 23.0 na TA's / Consensus (%) 101.7 na Previous Rating Not rated Financial Indicators FY14 FY15 Net Debt / Equity (%) Net cash Net cash CFPS (sen) 10.3 12.2 Price / CFPS (x) 8.9 7.5 ROA (%) 13.2 14.1 NTA/Share (RM) 0.97 1.09 Price/NTA (x) 0.9 0.8 Share Performance (%) Price Change YOCB FBM KLCI 1 mth 3.4 2.1 3 mth 38.9 4.4 6 mth 35.8 3.0 12 mth 71.7 12.8 (12-Mth) Share Price relative to the FBM KLCI Its products are exported to more than 15 countries which include Singapore, Taiwan, Australia, Brunei, Fiji, Indonesia, Japan, Mozambique, New Caledonia, Turkey, Vietnam, UAE, Thailand, Philippine and Papua New Guinea. Source: Bloomberg Page 1 of 7
Decent Net Margin with Established Track Records Since listing, the group is able to maintain decent margin with gross margin hovering at about 40%, while sustaining its healthy PBT and net margin in mid teens and low teens respectively (See Exhibit 2). We expect the group would be able to maintain the margin given it is one of the leading players in the industry, economy of scales, established relationship with suppliers, clients and consignees, well-connected distribution channels, moderate barrier of entry in the trading and distribution segment. Exhibit 2: Historical margin, TA Research Its products are available at various departmental stores, specialty stores and hypermarkets which include Jusco, Parkson, Robinsons, Sogo, Isetan, Metrojaya, Tesco and Harvey Norman. Meanwhile, among its clients in the hospitality-based segment include leading global hospitality companies like Hilton, Ritz-Carlton, JW Marriott, Westin, Renaissance, Parkroyal, Eastin and Mandarin Oriental. Backed by almost 5 decades of hands on experience in the industry, YOCB has built up its reputation for its quality and brands. It is a market leader among about 20 local players in the industry, commanding more than 30% of the local market share. Over the years, YOCB has won numerous awards and recognition, especially from its consignees for quality excellence and outstanding sales performance, as shown in Appendix Exhibit 7. Growth Since its listing in Bursa Malaysia in 2009 (FY10), its revenue, PBT and net profit growing at CAGR of 11.9%, 8.2% and 9.2% respectively (See Exhibit 3). Page 2 of 7
Exhibit 3: Historical revenue and net profit, TA Research Currently, the average plant utilization rate is about 80% of its annual production capacities of 1.2mn pieces for bedsheets and 0.95mn pieces for pillow and bolster covers. In view of this, YOCB has recent acquired a piece of 2.22 acres of land opposite its existing factory in Nilai for capacity and product range expansions. Upon the completion of expansion plan scheduled in 2015, it will boost its capacity by 50%. Strong Balance Sheet On its balance sheet, offsetting the total borrowing of RM0.3mn, YOCB is in net cash position amounting to RM24.6mn or 15.4sen/share, slightly more than one-sixth of the current share price at RM0.91/share. The strong cash position is backed by relatively low maintenance capex of RM2mn to RM3mn a year. Decent dividend yield The group has been paying dividend with payout ratio above 30% except in FY11 as the group incurred investment capex besides regular maintenance capex. Nevertheless, shareholders were rewarded with 1 for 3 bonus issue in October 2011. Exhibit 4: Historical dividend per share and dividend payout ratio, TA Research Page 3 of 7
The group does not have any official dividend policy at the moment but intends to pay out 30% of the net profit as dividend. As current share price of RM0.91/share, it translates into a decent dividend yield of 4.9% Outlook We are positive on the outlook of the group, supported by i) its capacity and product range expansion, ii) rapid expansion of shopping malls and departmental stores in which it sets up consignment counters, iii) its superior understanding of the preference and culture of its target markets; and iv) defensive nature of its business. Valuation There is no listed company in Bursa Malaysia that is directly comparable to YOCB. However, comparison is made against some locally listed companies that are in textile and apparel industries (see peer comparison table below). We assign a PE of 8x to YOCB, 2x lower than the industry average of 10.3x, being a small cap stock with market capilisation of below RM200mn. We value YOCB at RM1.24/share with a potential upside of 36.3% after pegging a PE of 8x CY14 earnings. With its strong implementation capabilities, growth potential, sound balance sheet and cash flow, it could potentially be a promising consumer stock to watch out for. Not Rated. Earnings Summary FYE 31 Dec (RMmn) FY12 FY13 FY14F FY15F FY16F Revenue 153.9 178.6 205.4 230.0 264.6 EBITDA 27.0 31.6 36.1 40.8 46.9 EBITDA margin (%) 17.5 17.7 17.6 17.7 17.7 Pretax profit 23.5 27.7 31.7 35.8 41.2 Net profit 17.3 20.5 23.4 26.5 30.5 EPS (sen) 10.8 12.8 14.6 16.5 19.1 EPS Growth (%) (5.6) 18.2 14.5 13.0 15.3 PER (x) 8.4 7.1 6.2 5.5 4.8 GDPS (sen) 3.5 4.0 4.5 5.0 6.0 Div Yield (%) 3.8 4.4 4.9 5.5 6.6 ROE (%) 14.7 15.5 15.9 16.1 16.5 Peer Comparison Company Trailing PE (x) P/B (x) DY (%) ASIABRN 8.8 3.8 1.27 BONIA 24.4 2.3 1.46 CAELY 6.3 0.6 na CHEETAH 7.3 0.5 4.61 FURNWEB 14.1 1.1 3.55 MAGNI 7.2 1.3 3.25 MESB 5.7 0.7 na OCNCASH 8.8 na 2.29 PADINI 14.1 3.2 4.92 PRLEXUS 6.0 1.4 1.57 AVERAGE 10.3 1.6 2.9 YOCB 7.0 1.2 4.4 Page 4 of 7
APPENDIX Exhibit 5: Product Range Home Linen Bedding Accessories Homeware Page 5 of 7
Exhibit 6: Own Home Linen Brands Brand Name Exhibit 7: Among Awards/ Recognitions Won by YOCB Year Awards Awarded By 2012/2013 Super Diamond Award for Outstanding Achiever of Annual Sales for financial year ended 31 March 2013. 2012/2013 Gold Award for Outstanding Annual Sales for financial year ended 31 March 2013 2012/2013 Commendable Sales Growth Tangs Department Stores Sdn Bhd 2012/2013 Top Ten Performing Company Tangs Department Stores Sdn Bhd 2012/2013 Preferred Business Partner Tesco Department Stores Sdn Bhd 2011/2012 Gold Award for Outstanding Annual Sales for financial year ended 31 March 2012. 2011/2012 Super Diamond Award for Outstanding Achiever of Annual Sales for financial year ended 31 March 2012. 2011/2012 Top Ten Performing Company Tangs Department Stores Sdn Bhd 2011/2012 Commendable Sales Growth Tangs Department Stores Sdn Bhd 2010/2011 Super Diamond Award for Outstanding Achiever of Annual Sales for financial year ended 31 March 2011. 2010/2011 Gold Award for Outstanding Annual Sales for financial year ended 31 Page 6 of 7
March 2011 2010/2011 Distinguished Partners 2010/2011 Special Recognition Award Tangs Department Stores Sdn Bhd 2009/2010 Diamond Award for Outstanding Achiever of Annual Sales for financial year ended 31 March 2010. 2009/2010 Gold Award for Outstanding Annual Sales for financial year ended 31 March 2010 2008/2009 Diamond Award for Outstanding Achiever of Annual Sales for financial year ended 31 March 2009. 2008 Supportive Supplier Award Harvey Norman, Malaysia 2007/2008 Diamond Award for Outstanding Annual Sales Year 2007/2008 for Jean Perry, Novelle and Louis Casa bed linen. 2006/2007 Diamond Award for Outstanding Annual Sales Year 2006/2007 for multiple brands of bedding products. 2006 Aeon s Business Partner Alliances for major suppliers. Aeon Co (M) Berhad 2005/2006 Diamond Award for Outstanding Annual Sales Year 2005/2006 for Jean Perry, Novelle and Louis Casa bed linen. 2005 Platinum Award for Outstanding Achiever of Annual Sales for financial year ended 31 March 2005 2003 Top Selling Performance for Mid Year Sales June 2003 Santa Barbara Polo & Racquet Club by Elite Enterprise Sdn Bhd Exhibit 7: Locations of its retail outlets Central Region: 1. One Utama Shopping Center Bandar Utama, Petaling Jaya, Selangor 2. IOI Mall, Puchong, Selangor 3. The Mines Shopping Fair, Seri Kembangan, Selangor 4. Sunway Pyramid Shopping Center, Bandar Sunway, Petaling Jaya, Selangor 5. Plaza Shah Alam, Shah Alam, Selangor 6. Hartamas Shopping Center, Sri Hartamas, Kuala Lumpur 7. Leisure Mall, Cheras, Kuala Lumpur 8. Viva Home, Kuala Lumpur 9. KL Festival City Mall, Setapak, Kuala Lumpur 10. Publika UG, Solaris Dutamas, Kuala Lumpur 11. Paradigm Mall, Kelana Jaya, Petaling Jaya, Selangor 12. Setia City Mall, Bandar Setia Alam, Selangor 13. Publika G4, Solaris Dutamas, Kuala Lumpur Northern Region: 14. Queensbay Mall, Bayan Indah, Penang 15. Gurney Plaza, Penang Southern Region: 16. Pelangi Plaza, Johor Bahru, Johor Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. for TA SECURITIES HOLDINGS BERHAD(14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad) Kaladher Govindan Head of Research Page 7 of 7