Yoong Onn’s earnings to pick up in 2Q

Business & Markets 2013
Written by Kenanga Research
Friday, 06 December 2013 10:21
A + A - Reset
Yoong Onn Corp Bhd
(Dec 5, 91 sen)
Maintain trading buy at target price of RM1.01: Yoong Onn’s net profit of
RM5.23 million for the first quarter ended Sept 30 of financial year 2014
(1QFY14) is within expectation as it made up 23% of our FY14 full-year
forecast of RM22.98 million.
Year-on-year, earnings grew at a stable rate of 3%. The 11% increase in
revenue was more than enough to cover the slight decline in operating profit
margin.
Looking ahead, we believe earnings should be better from 2QFY14 onwards
due to the festive season — Christmas in December 2013 and Chinese New
Year in January/February 2014.
As expected, Yoong Onn announced its FY13 final single-tier dividend of 2 sen
(ex-date: Jan 2, 2014). Although it is still subject to shareholders’ approval
(company’s annual general meeting is on Dec 11), we believe that it is likely to
go through. With this, Yoong Onn will be paying total dividend of 4 sen in FY13
and this translates into good dividend yield of 4.6%.
Going forward, we believe the company should be able to deliver a better
dividend of 4.5 sen (dividend yield 5.2%) due to the expected earnings growth.
We gather from media reports that Yoong Onn plans to increase its production
capacity by 50% to 4,500 bedsheets a day by 2015. It plans to expand its
operations to the newly-acquired land next to its factory.
We are positive on the news as this should bode well for the company’s mid- to
long-term growth. The company is currently trading at only 6.9 times historical
price-earnings (HPE) and this is at a 33% discount against its peers, which trade at an average HPE of 10.3 times.
We believe the discounts are not justified due to its good earnings growth prospect and superior dividend yield. Lastly, Yoong Onn is still
trading below its latest book value of 90 sen. — Kenanga Research, Dec 5