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.

More interests in auto stocks?

There are quite a lot of news on consolidation of the auto industry which could generate some interests in auto stocks like Tan Chong, MBM Resources, APM, Delloyd, Proton, UMW, New Hoong Fatt, Ingress, TSM Global.

At a glance, MBM Resources, Delloyd, APM and TSM Global seem to be more attractive.

Will write more on these counters...

The news:

The Ministry of International Trade and Industry (MITI) will leave it to the local automative players to determine the model for the consolidation of their industry.

"The model is up to them. What is important is to ensure that steps are taken to increase productivity and efficiency as well as reduce production cost and increase competitivenes of the local automotive industry.

"That's the bottomline," said its minister, Datuk Seri Mustapa Mohamed after launching the Industry Led Automotive Graduate Apprenticeship Programme in Kuala Lumpur today. A Memorandum of Understanding between Malaysia Automotive Institute (MAI) and UiTM was also signed today.

Mustapa said the consolidation was urgent as there was excess capacity, keen competition and a need to increase export earnings.

"This is a timely suggestion. We have excess capacity and due to keen competition in the international market, we have to increase exports and not just depend on the small domestic market."

At the Proton's 25th Anniversary Gala Dinner last Friday, Prime Minister Datuk Seri Najib Tun Razak called on local automotive companies to consider merging if there was overcapacity in the industry.

Mustapa disclosed that the parties concerned have begun discussions.

He also said he had been briefed on the situation and what was important now was the implementation.

"It makes good sense. If the companies cooperate, there are many things that can be shared and this can be cost saving," he added.

On the pace of consolidation, he said companies should talk to each other and that the government strongly encouraged it.

Meanwhile, in his speech at the launching of the apprenticeship programme, he said many industrialists believed that the issue of unemployment arose due to a mismatch between market requirements and the graduates produced by the local institutes of higher learning.

Many graduates are not ready for employment as they do not possess the necessary skills to immediately perform their work.

"The apprenticeship programme initiated by MAI and UiTM for 60 mechanical engineering students is a timely intiative," he added.

Under the course, students will spend only three days in a week in the classroom acquiring theoritical knowledge, while the balance two days will be spent in acquiring industry related knowledge.

Mustapa also suggested that the programme model be used in other sectors.

Source: Business Times