Friday, 21 October 2016

Luxchem(5143) - Hopeless & Lousy??

Yesterday 21/10/2016,Luxchem released its  FY16Q3 financial result(Period for July - September 2016)。 Compare to previous year, the date of announced FY16Q3 a bit earlier, so surprised。 I still thought the flight is airasia flight XDD。

FY16Q3 result seems like very lousy compare to FY16Q2 & FY15Q3, but is it really a "hopeless" stock? Please see bluefun analysis on below, maybe will bringing you another thought or opinion。

FY16Q3 vs FY15Q3  comparison:

1. Revenue increase 10m, from FY15Q3 169m increase to FY16Q3 179m, +6%

2. Gross profit increase 1.5m, from FY15Q3 18m increase to  FY16Q3 19.5m,+8.5%

3. PBT dropped  3.9m, from FY15Q3 17.3m reduced to FY16Q3 13.4m,- 23 %

4. Net profit dropped 2.8m, from FY15Q3 12.8m reduced to FY16Q3 10.0m, - 22%

5. EPS dropped 1.27cents, from FY15Q3 4.95cents reduced to 3.68cents, - 26%

2016 Quarterly vs 2015 Quarterly Financial Result Data 

(a) Profit margin

Overall, profit margin increase constantly, from FY15 average 10.65% to FY16(Rolling 4Q) average 11.55%, an increasing about 0.90%, push up the gross profit

(b) Net profit 
Net profit for FY15 is 39m, FY16(Rolling 4Q) 45m

FY15(YTDQ3)24.2m, FY16(YTDQ3)30.3m, let's assume FY16Q4 Luxchem will achieve > 10m, therefore net profit for FY16(40.3m) would be better than FY15(39.0m)

(c) EPS
EPS for FY15 is 14.94cents,FY16(Rolling 4Q) 16.82cents,at current share price RM1.67,P/E about 10

FY15(YTDQ3)9.30cents, FY16(YTDQ3) 11.09 cents,let's assume FY16Q4 Luxchem will achieve 4cents, therefore EPS for FY16(15.09cents) would be better than FY15(14.94cents)

Few main reason caused dropping in FY16Q3 net profit


(a) Dropping in other income/investment income - 5.1m

FY15Q3(YTD) , other income/investment income 8.07m reduced to FY16Q3(YTD) 2.96m。

Reason: most likely is opportunity cost  from acquisition of Transfer Master 36.3m in cash consideration 

(b) FOREX impact

During FY16Q1 , a realised FOREX LOSS 3.02m due to weaknesses of currency exchange rate USD to MYR. Annual report 2015, net currency exposure RM21.6m denominated by USD currency. 

HUGE LOSS on FOREX in FY16Q1 3.02m affected net profit. Although FY16Q2 & FY16Q3 achieve reliased GAIN on FOREX 1.43m & 1.47m, but YTD16Q3 realised loss on FOREX 126k compare to FY15Q3(YTD) GAIN on FOREX 5.6m。

Reason: Company exposed to foreign currency risk, a 10% strengthening of USD will achieve 2.17m of net profit.   

Based on historical average monthly exchange rate USD to MYR,a positive changes in current quarter VS previous quarter will beneficial Luxchem in realiased gain on FOREX, therefore increasing in net profit. FY16Q1 vs FY15Q4 negative 0.33(+0.23 to -0.10) causes realised FOREX LOSS 3.02m。

(c) ESOS expenses


An ESOS expenses about 800k incurred during FY16Q3, affected net profit 。FY15Q3 ESOS expenses is NIL. Too much exercise of ESOS not only will diluted the EPS, but also incurred huge expenses thay will affected net profit。

The management should put more effort to grab more business opportunity/cost saving that will bring positive future growth to Luxchem to minimize the dilution of EPS due to exercise of ESOS。


Fundamental Analysis of Luxchem - FY16Q3 Financial Result - Share price - 21/10/16 - RM1.67

1. ROIC - 0.41

2. EBIT multiple - 7.10 (average 6 years = 5.64)


3. CY - 8.19% (average 6 years = 7.65%)


Cash flow Analysis: 

Although net profit dropped about 3.2m in FY16Q3 to 10.0m from 13.2m in FY16Q2, but cash flow of Luxchem still very strong. 

Compare to FY15, inventories, trade receivables reduced, more cash in flow in CFFO. 
While net repayment of trade payables & debts, reduce the interest expense in future, reduce the financial risk.   

Cash equivalents for FY16Q3 at 97.8m, a decease about 3.18% compare to FY15 113.3m。 The main reason is due to payment in cash for acquisition of Transform Master 36.3m. 

Other Analysis:

(1) Growth of EBIT VS CFFO - Positive growth

(2) Growth of CFFO VS Cash - Positive growth

(3) Growth of FCF vs Cash - Positive growth


 (4) Cash/share vs FCF/share vs DPS - Dropped due to increasing of no. of share - bonus issue during 2014 & exercise of ESOS

Conclusion, bluefun still looking good on Luxchem future growth,  beneficial from glove sector growth & weaknesses of MYR. Acquisition of Transform Master also will unlock the real value of its subsidiary. Patience waiting for Transform Master grows, maybe she will transform to a dragon in future, who knows?

Although the net profit dropped in FY16Q3, but well cash flow management by the company, still able to maintain as net cash company position, and turn the profit to cash in flow to its business operation.

Free cash flow=steady declaration in dividend as appreciation to shareholder.

Real growth = turn the profit to cash inflow(> CFFO, > FCF, > Cash) 

Revenue is vanity, cash flow is sanity, but cash is king – Anonymous 

P/S: This article is just for sharing purpose, this is not a buy call or sell call, any trade please on your own risks.

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  1. Thanks for sharing!
    Do you have any idea why CFFO drop so much in FY 12 and FY 13??

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Pitfall of profit 童话故事之盈利的陷阱

朋友们好,好久不见,在哪街角的咖啡店,不知朋友们会不会带着微笑和 bluefun 挥手寒喧呢? 哈哈哈 :D 。 今天咱们就来探讨一下看似保持盈利上扬 (consistent growth in net profit)的公司,为何股价就是吹也吹不涨。 套用 bluefu...