Insider Asia’s Stock Of The Day: Classic Scenic

by **Cals** Mon 14 Sep 2015, 14:52

Insider Asia’s Stock Of The Day: Classic Scenic

By Asia Analytica / digitaledge Daily | September 14, 2015 : 10:51 AM MYT

[size=16]Classic Scenic Bhd ([You must be registered and logged in to see this image.] Valuation: 1.40, Fundamental: 1.65)
CLASSIC Scenic (Fundamental: 1.65/3, Valuation: 1.4/3), should appeal to yield-seeking investors for its consistent and attractive dividends, which we believe, has growth potential.

The company has been distributing most of its earnings as dividends for the past six years, ranging between 7 sen and 10.5 sen per share, exceeding the minimum 50% payout policy. Dividends totalled 8 sen in 2014, giving an attractive net yield of 6.8%.

We believe Classic Scenic will continue to pay above-market average yields, given its strong balance sheet and steady free cash flow from operations. It has no borrowings and is sitting on cash of RM18.3 million or 15.2 sen per share.

Looking ahead, the catalysts for Classic Scenic are the strengthening US dollar, falling commodity prices, expected strong 3Q2015 earnings results and dividend upside potential.

For 1H2015, net profit declined 5.5% to RM5.2 million, due mainly to lower sales and higher forex losses. Positively, net margin remained solid, at 18.4%. The company declared an interim dividend of 4 sen, which will go “ex” on October 29.

Whilst most exporters have benefitted from the slump in the ringgit, Classic Scenic has yet to feel the impact as it had hedged most of its forex exposure. However, this is expected to change in 2H2015, as the company has unwound a large part of its hedge position in 2Q2015.

Classic Scenic has a comparatively low profile amongst investors. The company is one of the world’s largest manufacturers and exporters of high-end wooden picture frame mouldings. This is a niche market but very profitable with low capex requirements. It currently operates six manufacturing factories in Rawang, Selangor, close to its source of raw materials — timber.

Classic Scenic derives over 90% of its sales from export, mainly to the US. Its biggest clients include Michaels Stores Inc, the largest retailer of arts and crafts materials in the US, and Larson-Juhl Inc, a 102-year old custom picture frame maker Warren Buffett acquired in 2002 for USD223 million.

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This article first appeared in digitaledge Daily, on September 14, 2015.

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