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homerun
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Posting #1: Fri Oct 20th, 2006 05:04 |
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A write-up on Hexza on The Nayang on Oct12,06 and another one on The Star on Oct13,06 caught my eyes. But I must warn that this posting is not a buy call to promote this stock, but an endevour to share info and seek for comments from you all.
1) Profile
Hexza is mainly involved in the manufacture of synthetic resins and glues, natural venegar, alcoholic and non-alcoholic beverage etc and others..
2) Sales and profit record
Fy04 Fy05 Fy06 2Q07 1H07
Rev 117.487 128.454 130.097 41.784 75.508
PBT 6.225 12.077 13.540 5.367 9.269
Net profit 4.810 8.222 10.402 4.832 7.770
EPS(sen) 3.74 6.40 8.10 3.76 6.05
As at July31,2006, NTA = Rm 1.13, Total shares = 128.488 mil.
As can be seen, sales and profit have grown steadily over the past 4 yrs.
Annualized Eps for Fy07 = 6.05x2 = 12.1 sen
Current px = 56 sen. ==> PER = 4.63 times.
PX/NTA = 56/113 = 0.5
3) Cash in hand (as at July31,06) = 28.686 mil
net cash = 24 mil = 18 sen per share
4) Other investment
According to the write-up on NanYang on Oct12,06, Hexza has marketable securities worth Rm13 mil which can be disposed for cash anytime. But in Hexza's financial report I dont find such things as marketable securities. However, in 1Q07, under the non-current asset in the balance sheet, there was an item called available-for-sale financial assets, and the value was Rm16.827 mil. Then in 2Q07, under the non-current asset, new item called other investment replaced the item called available-for-sale financial assets, and the value was Rm16.739 mil. If not mistaken, the marketable securities mentioned by the write-up on nanyang shud be included in these items which they put it either as available-for-sale financial assets or other investment. Still, I am not very sure.
Taking this Rm13 mil into account, Rm13 mil = 10 sen a share.
Stripping the net cash of 18 sen a share and this 10 sen a share, the PER = (56-28)/12.1 = 2.31 times.
5) CEO Dr Foong increased its stake in Hexza from 10% in 2000 to around 30% in Sep2006.
6) Please also note that Hexza has gone up from 43 sen in Jan 2006 to 56 sen currently.
Comments on this counter will be greatly appreciated.
Thank you.
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Moolah
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Posting #2: Fri Oct 20th, 2006 06:58 |
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Hi,
Good set of reasonings.
Let's take it one step at a time (if you do not mind).
Most investor's primary isssue is whether the company has a good track record for its earnings? Some would look at the recent 5 year history and then compare it versus the current earnings (most recent 4 quarters)
Attached below is the 5 year earnings of Hexza. Data is from klsetracker (pls verify its data)
what's your opinion of its track record?
Attachment: hexza.jpg (Downloaded 188 times)
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homerun
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Posting #3: Fri Oct 20th, 2006 10:20 |
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Hi Moola,
Thank you very much for yr reply.
I think the past 5 yr track record is good.
Turnover has been on the rise since Fy03.
Taking into consideration of the turnover for 1H07 and annulize it, then it will be Rm151 mil, a 16% increase compared to that of Fy06.
Let's take a look at the profit margin: (%)
1H07 Fy06 Fy05 Fy04 Fy03
gross profit margin 12.3 10.4 9.4 5.3 7.5
net profit margin 10.3 8.0 6.4 4.1 4.3
As can be seen, gross and net profit margins have also been on the rise, especailly in 1H07 where we see a 12.3% gross margin and a 10.3% net margin.
So I think, overall, Hexza's past 5 yr record is quite ok.
Your further comments will be greatly appreciated.
Thank you very much.
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Moolah
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Posting #4: Fri Oct 20th, 2006 10:42 |
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Hi,
1. Turnaround has been GREAT since fy 2003. No doubt.
2. And if one use the current earnings as an indicator, its current earnings is showing a net earnings of 11.355 million (see attached snapshot of klsetracker data). And based on such an earnings pace, there's a strong possibility that the current fiscal earnings should be better than what Hexza did for its fy 2006. Or as they say, the growth is intact. Or perhaps one might even consider Hexza to be a nice little growth stock too.
3. But... before one continues.. for me, i would look at fy 2002 first. And study why the huge drop in earnings. Cos the data is showing that Hexza earnings in its fy 2002 was 8.282 million. And the table showed that fy 2003, Hexza earnings dropped to 4.1999 million. As an investor, perhaps it's rather important to ask what happened. Why did hexza earnings drop from 8.282 million to just 4.1999? Was there a change in its business?
I believe the investor should have a clear understanding about this issue first.
What say you? Do you know why and what happened? (I do not know what happened and I have yet to look into it.. )
Attachment: hexza2.jpg (Downloaded 182 times)
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homerun
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Posting #5: Fri Oct 20th, 2006 10:54 |
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Hi moola,
Thank you for yr comments and pointing out that it is important to know why the sudden sharp drop in earnings in Fy2003. I also dont know why but I will try to look into it too during the long holiday.
TQ.
Last edited on Fri Oct 20th, 2006 10:55 by homerun
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Moolah
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Posting #6: Fri Oct 20th, 2006 11:03 |
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Hi,
It's no problem hor. Take a look at the announcement dated 31/3/2003. That will be hexza fy 2003 Q4 earnings.
I think it's rather important to know at least what happened cause if we are interested in becoming a long-term investor, then knowing what happened, gives us an idea how durable this company is.
ps.. we can always continue on this subject anytime...
Happy Holidays.
:s7:
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homerun
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Posting #7: Fri Oct 20th, 2006 11:20 |
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Hi Moola,
Ya, as kindly suggested, I will take a look at the announcement dated 31/3/2003.
Again, thank you very much for all the valuable data and comments that you kindly provided.
Happy Holidays to you too and all others.
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Moolah
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Posting #8: Fri Oct 20th, 2006 11:24 |
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Homerun,
no problem lah. I am always here. If you want a second opinion, it's no problem. Oh yeah.. do remember.. treat my comments as a mere second opinion hor. Ok?
Cheers
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homerun
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Posting #9: Sun Oct 22nd, 2006 09:57 |
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To better understand how Hexza has fared over the yrs. let me compile and tabulate its past yr record on a quarterly basis :
1Q03 2Q03 3Q03 4Q03 Fy03
Rev 23.831 25.795 25.081 23.726 98.433
PBT 3.571 3.894 1.777 -1.868 7.374
Net 2.656 2.483 1.065 -2.006 4.198
EPS 2.07 1.93 0.83 -1.56 3.27
1Q04 2Q04 3Q04 4Q04 Fy04
Rev 28.950 29.949 32.745 25.843 117.487
PBT 1.328 1.369 2.168 1.360 6.225
Net 0.842 1.310 1.498 1.160 4.810
EPS 0.66 1.02 1.17 0.90 3.74
1Q05 2Q05 3Q05 4Q05 Fy05
Rev 29.607 34.277 30.081 29.269 128.454
PBT 2.251 3.164 2.830 3.832 12.077
Net 1.336 2.248 2.071 2.567 8.222
EPS 1.04 1.75 1.61 2.00 6.40
1Q06 2Q06 3Q06 4Q06 Fy06
Rev 33.275 34.634 32.830 29.358 130.097
PBT 3.393 5.940 2.710 1.497 13.540
Net 2.397 4.420 2.209 1.376 10.402
EPS 1.87 3.44 1.72 1.07 8.10
1Q07 2Q07
Rev 33.724 41.784
PBT 3.902 5.367
Net 2.938 4.832
EPS 2.29 3.76
As can be seen, the huge drop in earning in Fy03 as compared to Fy02 was bcos Hexza incurred losses in 4Q03. According to the management, the loss was mainly due to higher cost of sales and bad and doubtful debts allowance of Rm 2.73 mil.
Looking back, we see that Fy04 was also a lacklustre yr for Hexza. The main reason was mainly due to rising raw material cost without corresponding increase in product selling prices.
Something worth a mention :
In the latest quarter (2Q07), revenue surpassed Rm 40 mil for the 1st time in so many yrs. Accordingly, EPS hit new high of 3.76 sen and PBT also hit Rm5.367 mil. The management attributed the good result to higher sales and higher capacity utilisation. Please note that that was the 1st time the management mentioned higher capacity utilisation. I think that could be an encouraging sign that the company is heading towards a better future. Let's see how Hexza will fare in the next quarter.
Also worth a mention is that 2Q06 also saw the PBT exceed Rm 5mil level. However, the PBT in that qtr included an exceptional gain of Rm 1.22 mil from disposal of land.
By the way, Moola, may I know where on the net can I get "klsetracker" to compile the past-yr earning record of a company, such as the tabulated earning data that you kindly provided in your earlier posts?
Thank you very much.
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Moolah
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Posting #10: Tue Oct 24th, 2006 04:03 |
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Homerun,
Great work done! :s18:
As can be seen, the huge drop in earning in Fy03 as compared to Fy02 was bcos Hexza incurred losses in 4Q03. According to the management, the loss was mainly due to higher cost of sales and bad and doubtful debts allowance of Rm 2.73
Here's a second opinion, ok?
For me, the one primary reason why one digs the past is that one do not really want to see the past history repeating itself.
Now, in this case, this company had an incident where it was forced to write bad and doubtful debts to the sum of rm2.73 million. (the monetary amount is small but for Hexza, this amount is huge). Yes, that was the past but as an investor you do not really want to invest into a company only to discover that the company has to write off some substantial of their profits to account for bad debts. (investors do not really want to see future unexpected shock happenings to their investments)
As a businessman, a profit is never a profit until the cash moola is deposited into the piggy bank.
So perhaps a look into the the company's trade receivables might be a useful guide. If the trade receivable is too huge in comparison to the company sales, then there is a likely hood or a possibility (remember, not saying this is a must but just a mere possibility) that one see a provision made for bad/doubtful debts.
In Hexza case, a look in the preceding quarter's (2003 Q3) trade receivables amount would be helpful. The amount mentioned in that report was 27.258 million. Which was ok.
So for Hexza to declare that it needed to provide for bad debts, I would have to say that they were rather prudent. (perhaps a good extra exercise is to look at current trade receivable level and see if there is any worrying signs.)
So at this moment of time, the question I would ask myself, is am I happy with what I am seeing? AM i happy with the basic stuff? Am I happy with the good earnings track record and good profitability? How would I rate the company base on these simple factors? Does this look like an excellent company or an above-average company or an average company or a below-average company or an extremely poor company?
Do I still want to look deeper into Hexza?
Well for me, the next objective is to understand the nature of hexza business. What does it do? Was there any change in business objective? In Hexza case, there is a clear indication that Hexza is doing extremely well. What is driving this good run? Is the earnings caused by cyclical factors?
By the way, Moola, may I know where on the net can I get "klsetracker" to compile the past-yr earning record of a company, such as the tabulated earning data that you kindly provided in your earlier posts?
Klsetracker comes free if you are a customer of kenanga or osk. So if you can access their on-line quotes, you can get access to these data.
Last edited on Tue Oct 24th, 2006 04:37 by Moolah
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