Hot Stock Yoong Onn hits all time high on bullish analyst outlook

by **Cals** Thu 14 Jul 2016, 04:48

Hot Stock

[size=28]Yoong Onn hits all time high on bullish analyst outlook

By Gho Chee Yuan / theedgemarkets.com | July 13, 2016 : 12:24 PM MYT

KUALA LUMPUR (July 13): Home linens manufacturer Yoong Onn Corp Bhd rose to its all time high today, after Kenanga Research gave a bullish outlook on the company's prospects and said the stock was trading at a low valuation.

At 11.30 a.m., the stock was trading at RM1.31, gaining five sen or 3.97% after 470,500 shares exchanged hands.

It had earlier climbed to a high of RM1.33 in the early trades. The current price values it at RM201.49 million.

In a note to clients on Monday, Kenanga Research said as an under-researched company, Yoong Onn has been trading at low valuation with last trading price representing 9 times of price to earnings ratio (PER) of financial year 2017 (FY17, which is appealing vis-à-vis the relative peers in the retail industry, which are trading at 11 times to 13 times forward PER.

"We opine that the modest valuation is unjustified, considering its proven track record, dominant market share and strategic partnership with major departmental stores," said Kenanga Research's analyst Soong Wei Siang, noting that Aeon Co (M) Bhd is one of Yoong Onn’s biggest partner in retailing business.

Thus, he believed investors who are seeking for exposure in the retail industry should capitalize on the valuation gap.

Yoong Onn currently owns and operates 20 Home’s Harmony, which is the in-house retail outlet under its belt.

According to him, Yoong Onn has consistently maintained its profitability and grew its revenue by 6-year compounded annual growth rate (CAGR) of 6.1% to achieve RM185.3 million in financial year 2015 (FY15), since listing in 2009.

"Throughout the years, the company has showcased strength and expertise in the challenging bed linen industry, by expanding its market share from 22% in 2008 to more than one-third currently," he noted.

"We see deep value in the company, as its dominant market share as a result of dedicated commitment by the management team over the years, will be difficult to replicate," he said.

He said the establishment of more in-house retail outlets and sustainable demand, should propel earnings growth of 13% and 9% in the next two years.

Moving forward, he explained that the group is lining up three new stores openings in FY17, with marketing strategies such as loyalty program and promotions with banks and credit-card companies to reach out to more consumers.

"We believe the expansion trend of its own retail outlets bodes well for Yoong Onn, as it will not only expand its earnings margin, but also enhance the brand name recognition, in tandem with the growing presence," he added.

Soong also envisaged the company to carry on the growth story, since demand is fuelled by growing urbanisation and higher demand for higher-end home linens.

"The group is also eyeing to expand the commercial sector, including hospitals and hotels.

"In view of the steady demand and growing numbers of in-house retail outlets, we are projecting the group to achieve FY16 and FY17 net profits of RM21 million and RM22.9 million, which represent growth of 13.4% and 8.9% respectively," he added.

Kenanga has a trading buy call on Yoong Onn, with a fair value of RM1.50, based on 10.5 times PER FY17.
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