Sunday 30 April 2017

Luxchem(5143) - 脚踏实地,用心经营 Slow & steady wins the race

朋友们周末好,在这个悠闲的长假里,相信极大多数的朋友们都策划了短暂的郊游旅行,陪伴亲朋戚友充充电吧 XD?马来西亚什么都不多,唯独“公共假期” 特别不少,来临的 5月10号也是公假哦,卫塞节 Wesak Day。 说真的,太喜欢这多元种族文化的祖国了,可以品尝到不一样的各式美食 nasi lemak, 海南鸡饭, roti canai 等等,还可以体验不同的种族节日庆典,最重要的是还有假期啊,哈哈哈 :P

“路升” 的 FY17Q1 quarterly financial result 已经于 4月28号(周五) 公布,比预期中揭晓得快,根据传统的话,应该落在五月份的第一个星期里。说真的,路升 FY17Q1的业绩比我预期中杰出,超越 FY16Q1不成问题。 

因 no. of exercise of ESOS 在FY17Q1 只有区区的 167,000units, ESOS expense 一定会减少,profit before taxation 比 bluefun 预期中的 > 10m好太多,达到了惊人的 13.8m,增幅高达 94% ,对比 FY16Q1 的7.1m。 

而 earning per share(EPS) 也大幅度改善,从 FY16Q1 的 2.64cents increased to FY17Q1 的 4.94cents,+ 87%, thanks to huge increased in revenue from 160m FY16Q1 to 218m FY17Q1。

Sources: Bursa Malaysia


From the quarterly financial result for past 9 quarter, FY17Q1 achieved an interesting & superb result!!!

(1) Top revenue - 218m

bluefun strongly believe that Luxchem had recruited new customer/new sales order or agreement by offered an high competitive pricing compare to its peers.   Result from above, EBT margin has reduced from 7.19%  in FY16Q4 to 6.32% FY17Q1,an huge decreased at 0.89%.

 In my opinion, if my assumption for above is correct, it is a good chances for Luxchem to increase its share market in the industry. By providing a competitive pricing to attract peers customer/new customer, it will push up recurring revenue & profit to company in long run. 

Although the EBT margin is lower, but it is a good strategy for Luxchem to expand its revenue & demand from new/potential customer. By providing a good services & competitive pricing in early stage, it will increase a customer confidence level. Hence in long term, Luxchem will grab more & more business opportunity to increase the market share. Beside that, Luxchem also can bargain with customer to increase the pricing slowly since services is within customer satisfaction, this is a typical proverb of "one stone hits two bird"

(2) Top 2 EBT - 13.8m

In FY17Q1, thanks to huge increased in revenue, Luxchem had achieved the 2nd top EBT 13.8m in history. Compare to FY16Q4 13.4m , EBT remain constant at 13.8m in FY17Q1. The highest EBT 15.4m achieved by Luxchem in FY15Q4, thanks to greater depreciation of MYR.

In my opinion, although is it a bit difficult for Luxchem to exceed the highest history EBT 15.4m in incoming few quarters due to ESOS expense & low EBT margin, but it is always a "HOPES"  & “POSSIBLE” in our life. 

Keep our faith and passion, fight until our last blood bleeding XD.

ESOS Expense

It is always an argument for "ESOS". If we look from a + perspective, exercised of ESOS will encourage employee that entitled for ESOS to put more effort to value added in company operation & is it one of the method of recognition. Besides that, exercised of ESOS will bring in cash in flow, therefore allows the company to uses it as addition operating capital.  

For - perspective, huge number of exercised ESOS will increase the number of ordinary shares in market, therefore result of dilution of earning per share(EPS). Some of the employee will exercised ESOS during the company share price is higher & dispose it in share market to get an "extra income". 

In Luxchem case, based on FY17Q1, 10.35m ESOS still yet to exercised. If we deducted the 3.6m ESOS execised by a Director on FY17Q2, listing date 7 Apr'17, remaining of ESOS about 7m, which will bring another 10% dilution of EPS, 5m of ESOS expense & 7.1m of cash in flow in CFFF.

Luxchem spend 2.6m for ESOS expense in FY16 for 5m share of ESOS, result from that, CFFF + 3.7m. Impact to EAT is -5.91% for ESOS expense. Dilution of EPS is about 1.86%.

As at 28th Apr'17 for FY17, 3.78m share of ESOS exercised, dilution of EPS is expected about 1.4% & impact to EAT is -5.18%。

Sources: FY17Q1 Luxchem financial result

Cash Flow Analysis

One of the bad significant changes in FY17Q1 is net CFFO stands at -13.5m due to huge increase in trade & other receivables at -16.2m. In my assumption, this should be result from offered a longer payment term to "NEW CUSTOMER" at competitive pricing to attract & acquire the business opportunities from its peers. 

 The strategy of marketing is great but i hope that Luxchem will improve its credit management in incoming quarter to show a positive net CFFO. From my perspective,  a sales transaction is not completed after delivery & generating of sales invoices. It should be collect the money/outstanding invoices from customer, cash in flow to business operation, value added to company & maximizing wealth of investor.

Sources: FY17Q1 Luxchem financial result

Fundamental Analysis of Luxchem 

Share Price - RM1.56 (28 Apr'17)

(1) ROIC - 0.35  (benchmark : > 0.18)

(2) EBT multiple - 6.10 (benchmark < 7.0)
(3) Earning Yield - 0.16 (benchmark > 0.15)

(4) Cash Yield - 3.35% (benchmark > 5.0%)


Other Analysis:

(1) Growth of EBT VS CFFO - Positive growth but CFFO is decreased due to huge increase in receivables


(2) Growth of CFFO VS Cash - Positive growth but CFFO is decreased due to huge increase in receivables, Cash increased due to addition in borrowings for financial guarantee

(3) Growth of FCF vs Cash - Positive growth but FCF is decreased due to huge increase in receivables


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

Prospect :

Luxchem is one of the slow & steady stock with declares a good dividend (>7cents) to its investor. Investor need more patience & passion to growth with Luxchem to transform the company business to be a "MASTER" in future.  

10m of EBT every quarter can be easily achieved by company that maintain a long term relationship with its customer for the past experience & acquisition of Transform Master Sdn Bhd. To migrate the huge dilution of EPS & ESOS expense, Luxchem should improve its EBT margin by increase the pricing, lower the redundancy expense & looking for more potential customer to growth the business with long term investor. 

As at 28 Apr'17
Current share price = RM1.56
Rolling 4Q EPS = 18.46cents
P/E ratio = 8.45
Forecast dividend = 7cents
Dividend yield = 4.50%

bluefun has faith with Luxchem for the past 12 months & still counting
cumulative dividend = 4.5cents + 2.5cents + 4.5cents = 11.5cents

thank you for my patience & passion, have faith with 路升,路一定升 kikiki

Few questions to Luxchem's Mangement in AGM 2016 dated 5/5/2017

1. Is it company secure new customer/big sales order? from FY17Q1 Q result, revenue achieved highest at 218m compare to 186m in FY16Q4? Huge increase about 32m or 17%.

2. Financial guarantee increase from 56m in FY16Q4 to 98m in FY17Q1, an increasing of 42m or 75%?. Is it for subsidiaries to expand its production or big sales order from oversea customer?

3. What is the dividend payout policy for FY17? how many % of EAT?

4. How much contribution revenue, EAT of Transform Master in FY16?

5. Did company set a policy employee that exercised ESOS cannot sell the share in open market? If yes, how long?

6. Did company plan to acquire its vendor/peers for cost efficiency & increase the market share? since cash rich at 115m in FY17Q1?

Due to working & rush for account closing for month end, bluefun is unable to attend Luxchem's AGM held on 5 May 2017. Seek for shareholder/investor that will be attending assistance for above question. Please share the comment/answer here, thanks so much in advance.

Together we growth slow & steady with Luxchem, transform our future to be a master in our life :)

"All intelligent investing is value investing - acquiring more that you are paying for. You must value the business in order to value the stock.”   - Charlie Munger
“In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.”
    - Peter Lynch

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

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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...