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Wednesday, August 4, 2010

New Hoong Fatt (RM2.45): Thrive on increasing car ownership/sales, improving margins, stable organic growth and commendable dividends

NHF's shares are getting hot lately. Fundamentally sound. Net profit could possibly reach RM30 million this year, translating into EPS of 40 sen. Its 2Q 2010 quarterly net profit was RM8.40 million while 1Q 2010 net profit was at RM6.4 million. PER for 2010 and 2011 earnings is undemanding at 6.5x and 5.6x which is at the low end of 6x-12x for automotive stocks. Net gearing is at about 5% currently and is expected to be net-cash by next year. Dividend payout is rather generous at more than 5%. P/BV is at 0.7x. Net profit has been around the range of RM18-27 million over the past 6 years. Shares issued is just at 75.16 million which makes it easy to nudge up the share price. Market cap at RM185 million.

Company Overview:
NHF has been in operation for more than 30 years (Another Lou Jiu Pai company in Cantonese which received much interest lately) is a market leader in Malaysia in providing a wide range of automotive replacement body parts to a huge customer base of about 1,400, consisting of wholesalers, retailers and workshops. It has two main business segments, namely trading and manufacturing. About 1,000 body parts are manufactured in-house while it also markets and trades third-party auto parts sourced from local and overseas manufacturers. In addition, the company exports its products to more than 40 countries, including ASEAN, MidEast, EU, America, Pakistan, Taiwan and Africa. ASEAN market will be the company's focus at the moment. About 76% of its revenue is from the domestic market, 21% from exports while the remaining is from other income.

Growth Prospects:
The company could thrive on the increasing car ownership especially in ASEAN region such as Malaysia, Thailand and Indonesia. The recent reports on Malaysian auto sales have been very favorable lately. The AFTA trade liberalisation which includes elimination of all import duties by 2010 for ASEAN 6 and 2015 for ASEAN 10 is expected to benefit the company's profitability which is further supported by lower taxes owing to utilization of reinvestment's allowances. The company's business has been on a stable organic growth by having double digit growth since FY2002. The company is setting up a new factory to boost its capacity by more than 15%. The factory is expected to be operational by 3Q 2010.

Market Data:
EPS for 2010-11: 40-44 sen
PER 2010 and 2011: 6.5x and 5.6x
Shares issued: 75.2 million
Market Cap: RM185 million
Net gearing: 5%
Dividend payout: 5%
P/BV: 0.7x

Shareholders:
Kam Foong Keng 34.09%
Moy Wong Ah 13.35%
Kam Foong Sim 2.4%

For more info, click here.

* Inclusive of a one-off goodwill impairment charge of RM5.3 mil in 4Q09. Discounting that, net profit is approx RM6.5 mil

Source: Company, JPJ

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

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