JAG Q1 FY20 Review

JAG a typical piano-style stock price

JAG started with a commendable 1Q performance. The Group recorded increased in revenue of 46.34% in current financial quarter as compared to previous corresponding financial quarter and period ended 31 March 2019. The group explained that the higher revenue was generated from sales of copper, gold, nickel and palladium in current financial quarter. 

87% of total revenue under this quarter was export sales accounted for about RM32.50mil which has increased by 90% more compared to corresponding financial quarter last year.

The Group recorded profit after tax of RM1.53 million in current financial quarter and period as compared to loss after tax of RM6.21 million in previous corresponding financial quarter and period. This was mainly due to higher revenue recorded by the manufacturing division as well as high purity precious metals have been disposed of during the current financial quarter and period. In addition, the Group also benefited from the uptrend in some of the precious metal commodity prices, especially gold and it resulted in better margin in the current financial quarter. 

Although the group recorded higher revenue in Q1 FY20, the PAT shrinked by 39% mainly due to the higher operating expenses and lower other income. The group explained that due to the weak performance of KLSE index, the group recognized loss on fair value of investment in quoted shares in the investment holding division caused higher other operating expenses, same goes to low other income as the absence of fair value gain on investment. 

Comment:

Personally I don't like JAG management as the management is not focusing on its core business which is recycling business but utilizing the company assets to venture into laundry businesses, property and investing in stock markets. 

1. After the ceasing of ARCA project, the group had turned its performance from losses back to normal. Although the management tried to make it sounds good to shareholders that the group would like to diversify its revenue. For me, this shows the incapability of the management in analyzing business opportunities.  

2. But, I am bullish on JAG future prospect on higher gold price

https://www.thestar.com.my/business/business-news/2020/05/12/jag-to-see-mco-impact-but-expects-recovery

Based on the star news, the group expects to have some impact on its revenue during the MCO period. 

“We are looking at a loss of revenue of about 10%-20% in the 45 days of the MCO. However, we are expecting to recover from these losses as our clients, who are mostly multinational electronic firms, have called us to clear the backlog in their factories, ” chairperson Datin Stacey Tan told StarBiz.

“Operations were halted during the first two phases of the MCO (March 18–April 2), impacting our ability to carry out the recycling processes, including collecting and transporting raw materials, ” she added.

Tan said that during this period, no revenue was generated, although fixed costs such as rental, staff cost and other fixed overheads had to be paid. “This MCO has left a backlog of contracts that we need to fulfill, ” she said.

Tan added that one of its subsidiaries, Jaring Metal Industries Sdn Bhd, had obtained approval from the International Trade and Industry Ministry to operate on April 19, with 50% workforce, while operations fully resumed on April 22.

I believe that the loss of revenue during MCO period will be cushioned by the rising in gold price  and currency recently. Hence, I reckon that Q2 manufacturing division performance will remain resilient. 

3. JAG will benefit from the recent rally in stock price, positive contribution from its investment holding division (as explained earlier)

Conclusion:
I am bullish on JAG's short term period as its has benefited from both rising in selling price for the precious metals and stock market. I believe the group can achieve higher other income and also revenue in the coming Q2 FY20. A short term uptrend might see on the stock price and TP of RM 0.085 of its previous high.

Homeritz Q2 FY20 Review

Q2 result was within expectation. Although the performance was slightly deviated from my earlier prediction, due to a sudden one off cost incurred.

The group reported a higher revenue of RM43.144 mil under this quarter with an increase of 6.8% compared with the corresponding period last year. The increase in revenue was mainly contributed from the higher volume sold.

The group mentioned no impact on the reported quarter from the MCO impose as the MCO took effect after the financial quarter. The increase in revenue has also reflected that no impact on overseas market from Covid-19 during the reporting period.

The increase in the Group’s PBT for 1HFY2020 by 28% was mainly attributed to the higher revenue achieved and lower of unit price purchased of certain raw materials compared to 1HFY2019.

Despite higher turnover, the decrease in the Group’s PBT for Q2FY2020 by 2.8% was mainly attributed to the higher one off cost incurred in Q2FY2020 compared to Q2FY2019.

The group does not mention the detail of the one off cost.

Compared to preceding quarter performance, the group gave a similar explanation as mentioned above.

Comment:
1. Q2 FY20 was predicted to contribute a higher revenue mainly due to higher currency rate USD/RM.
2. One off cost incurred under this quarter has drastically reduced the gross margin from 23% in preceding quarter to 13%.
3. The coming Q3 will have severe impacts on the group's profit, as the group might only operate for less than a month due to MCO lock down. In addition, the group suppliers (Europe) and customers (USA) are having lock down in their own countries as well.
4. I expect low operating activities in Q3 and the group financial performance will turn into red. Revenue will decrease near to zero yet high operating costs which causes EPS expected to reach -1.77sen.

5. Notwithstanding the massive city lock down happened globally that might impact the group's sales, I believe the group will regain its performance in Q4 partly due to strong currency and faster economy recovery from USA.  

6. Target price for FY20 with the PE of 8 should be RM 0.35. The target price has considered a loss of profit in Q3 and the loss have weaken the first half financial result. 

Homeritz is still moving in a major downtrend. At the moment no buy signal for this counter. 

Harta Q4 FY20 Review

Result was slightly below my research expectation but the performance was unthinkable amidst the overwhelming news reported on the only winner during the covid-19 pandemic!  

Q4 recorded an increase in revenue by 13.9% compared to corresponding quarter in preceding year from RM 683.2mil to RM 777.9 mil, thanks to higher sales volume achieved under this quarter with an improvement of 18.3%. 

Profit before tax increased by RM 24.9 million or 22.1%, mainly due to higher sales revenue, lower raw material and energy cost coupled with the Group’s cost control initiative to reduce operation costs for the current quarter. 

12M FY20 VS 12M FY19

The Group achieved sales revenue of RM 2.9 billion, increased by RM 96.7 million or 3.4% from RM 2.8 billion recorded in corresponding period in preceding year. The higher sales revenue reported was mainly due to increase in sales volume of 8.8%. The average selling price reduced by 4% in tandem with lower raw material cost and competitive industry pricing.

Profit before tax increased by RM 5.4 million or 1.0% to RM 556.2 million as compared to RM 550.8 million in corresponding period in preceding year. The increase in profit before tax was mainly due to higher sales volume. 

Q4 FY20 VS Q3 FY20

Revenue for the quarter amounted to RM 777.9 million, eased by RM 18.6 million or 2.3%. The lower sales revenue was attributed to lower average selling price. The operating profit increased by RM 19.6 million or 12.7%, to RM 173.8 million as compared to previous quarter of RM154.2 million mainly due to lower raw material and energy cost. Profit before tax for the quarter decreased by RM 22.1 million or 13.9% as compared with previous quarter mainly due to net foreign exchange loss of RM 36.5 million. 

Prospect Highlight:

1. The group has commissioned up to 4 out of 12 lines in Plant 6.

2. New purchase of 95 acres land in banting to serve for the future NGC 2.0 capacity expansion.

Inventories were remained similar amount compared to preceding quarter as recorded RM 276.039 mil. Total trade payables and receivables are slightly increased. 

Comment:

1. As I reckoned that the expected EPS for Q4 FY20 was 3.6sen and the result come lower by 5%. Understand that the previous plant utilization rate had achieved more than 85% and limited upside to increase further on their sales volume. Hence, I would expect the increase in revenue and profit will only be seen in Q1 FY21 onward mainly contributed by the increases in rubber glove ASP, lower material cost and operating cost. 

2. The group was unable to pick up new lines commission speed; only 3 additional new production lines were complete commissioned under this quarter, partly due to the MCO. Production capacity would not able to increase to secure more demands at this stage, expecting another 3 more lines put into operation for next quarter.

3.  Cheaper electricity cost, discount given by TNB during MCO period. Lower material cost as reported that Nitrile prices have reduced by 8% in May. 

4. UOB Kay Hian Research mentioned that ASP have risen more than 10% while the delivery lead times have extended to 3-4 months. 

By assuming all the factors above, an increasing in ASP by 5% and 8% lower operating cost compared to preceding year, I expect EPS for FY21 can achieve 14.34sen which is 11.7% higher;(5%+8%)x0.9 with 10% discount rate. In the condition that Harta's ASP would follow market trend, as quarter prospect didn't highlight on the future selling price outlook. By taking PE of 50, the TP would be RM 7.17. 

Although I believe the coming FY21 Harta can achieve higher profit margin compared to FY20 but the current stock price is overpriced by 27% at RM9.13 the time of this writing. I would give an on hold or sell call on this stock depending on the price chart trend movement.

  

Krono Q1 FY20 Review

The latest Q1 report was below expectation! The result shortfall was primarily due to a one off additional impairment loss was reported under this quarter and caused profit turning into red. 

No dividend was declared by management in this quarter.

Let's us look further into its financial report.

In the income statement, an extraordinary item was declared by management for the impairment on property, plant and equipment (PPE) with a total amount of RM 11.636 mil. Although management didn't mention in detail on the impairment loss, by excluding the one off loss, Q1 FY20 registered a PBT of RM 525k.

Under this quarter, average quantity of share has increased to 514.779 mil of share which will further dilute the EPS. The expected EPS for Q1 FY20 should be 0.078sen after excluding the one off impairment loss on PPE. EPS decreased by 92% and 88% compared to Q1 and Q4 FY19. 

On asset perspective remained healthy, total liabilities decreased by 21.9% compared to preceding quarter mainly due to lower other payables. However, asset reduced as lower trade receivables recorded.

Although one off impairment loss recorded, the group was having positive cash flow, showing that the management is cautiously maintaining its cash flow. Therefore, no dividend payout was declared under this quarter. I believe that the management tries to keep the stability in cash flow to weather through this pandemic.  

Note: Those figures excluded the one off impairment loss recorded in Q1 FY20 result 

After recorded the highest revenue in Q3 FY19, the results have declined for two consecutive quarters. We expect the disappointing results will extend until end of the year, amidst unprecedented global impacts of covid-19. 

Gross margin declined from Q1 FY18 of 26% to 12% of Q1 FY20. We expect that the stiff competition in IT market and higher staff costs are the main reasons to the decline.

The group's revenue during this quarter was mainly derived from Singapore and Philippines, amounting to RM45.297 mil, representing 87.16% of total revenue. However, contribution from China, HK & Taiwan had shrunk mostly due to the country lock down during earlier of the year. Hence, we shall monitor the performance for the coming quarter, expecting lower contribution from Singapore as country lock down was triggered until early of June. 

Technical Analysis:

Stock price had dampened by 65.7% from the previous high of RM 0.92 to as low as RM 0.315 within a month primarily due to the covid-19 pandemic outbreak fear. Stock price then picked up the momentum and recovered 96.8% to RM 0.62. I believe the recent rally of stock price was only the short term speculation activities on technology counters. 

With the weak quarter result reported and greatly below my expectation, I presume the stock price will break down the upward trend support (blue line) and decline further to RM 0.458 support point (Fibo-0.236). If the price cannot maintain within the fibo support range of 0.236-0.382, we might see the price to fall to next support line at RM 0.315. In addition, MACD trend is about to make a negative crossing which giving a signal of bearish before the quarter result was released.  

Comment:

• Unexpected Q1 FY20 result, which will drag the whole year performance to break off the track record of continuous growing in its profit since FY 2014 until now. 
• One of impairment loss that unable to explain in current financial quarter would shy away investors.  
• Impact from Covid-19 outbreak was more severe than expected. Previous review on Krono, I reckoned a drop of profit by 50%,  in fact, the profit was fallen as much as 98% from preceding quarter of RM 18.6 mil to RM 400k. 
• I will readjust the TP to the lowest support line at RM 0.315 by considering the coming quarter will get worse. 

GeorgeKent Q4 FY20 Review

A very expensive lesson that I learnt through my investing journey! By not having a proper investment strategy when I buy in this stock. I bought in George Kent (Gkent) on 27th March 2017 when Gkent was traded at RM3.78/share. During that time, I just followed tips given by a famous stock guru, without researching on the company background and it was one of the best bullish stock in 2017. 

After the change of government happened back in 2018, stock price fell like no tomorrow, just within a day of limit down, my portfolio from profit turned into loss. However, I thought it was a panic sell down on the unstable politics in our country and I topped up on this stock, not believing it will have any impact to Gkent financial status. 

After few quarters of monitoring, Gkent's existing projects were affected and cancelled as what we all know. I looked back the guru for help and most hilarious part was the guru had sold the stock without informing his members. And this is a lesson that I learnt, the biggest mistake i made was relying on someone else to advise me what to do on my own money. At the time of writing, I still holding some amount of this counter and having serious loss that not worth to cut loss anymore. 

Now, let's look into the latest quarter report, Q4 of FY20. 

Revenue reported RM 82.4mil was 28.6% lower compared to preceding year corresponding quarter of RM 115.4mil. No dividend was declared during Q4 compared to 3.5sen of dividend per share proposed by management in Q4 FY19.

The Group's current quarter profit before tax of RM10.36 million (31 January 2019: RM37.58 million) was 72% lower. The lower profit before tax reported was mainly attributed to lower contribution from the Engineering division. Other gains/(losses) mainly arose from unrealised loss on foreign exchange of RM1.94 million (31 January 2019: RM0.68 million) on foreign currencies held.

Revenue for engineering segment of RM52.10 million for Q4 FY20 was 35% lower as compared to RM80.53 million for the corresponding quarter in 2019. Segment profit of RM12.58 million for Q4 FY20 was 69% lower as compared to RM40.30 million for the corresponding quarter in 2019. The lower segment profit was mainly contributed by the lower revenue and gross profit margin in the current quarter.

Revenue for metering of RM30.29 million for Q4 FY20 was 13% lower compared to RM34.86 million for the corresponding quarter in 2019. Segment profit of RM5.88 million for Q4 FY20 was slightly higher as compared to RM5.60 million for the corresponding quarter in 2019. 

The group is having net cash position, after deducting all loans and borrowings, Gkent is still holding RM176mil of net cash. I believe the strong cash holding may offer support to the share price through continuous share buy back and sustaining its business operation.

Shareholder equity was improved slightly about 1.7% compared to preceding year. I believe the share value is still there, RM 0.32/share of net cash value. 

Ongoing project lists and outstanding order book 

Outstanding project lists (Not up to date) from Gkent's official website. 

http://www.georgekent.net/projects-reference/

There are remaining 4 major projects under construction. LRT 3 project construction work is taken care under its JV company 50:50 with MRCB. Therefore, LRT 3 project is not recognized in revenue. Same goes to MRT 2 track works where the work package worth of RM1.01bil was awarded to CCCC and Gkent JV on a 51:49 basis. The remaining projects showing in the group's revenue segment are both hospital construction projects and some variation orders from LRT 2 project. 

Outstanding order book reported by RHB investment.

Q4 Company prospects

Comment:

The coming FY21 will have negative impact on its financial performance due to extension of MCO and slower construction progress and manufacturing due to restriction in work force. From engineering segment, the balance outstanding order book that will reflect in revenue is around RM 245mil mainly contributed from two hospital projects that schedule to complete in FY21, by referring to the info written in RHB investment research report. 

Engineering profit margin has reduced from 38% in FY19 to 26% in FY20. I believe that the profit margin may remain stable at around 20-25% in FY21. The net profit contribution from engineering segment for FY21 would be around RM 56.3mil. 

For metering segment, after the changed on secured project status, the group is now focusing back its core business to expand its metering business and reducing material cost. However, the metering profit margin was affected by fluctuation in foreign currency. In near term, I anticipate that USD will remain strong vs RM and lower demand from other countries due to covid-19 pandemic. Hence, metering segment could see lower net profit for FY21 by 5% to RM20mil. 

The overall forecast net profit for FY21 to be around RM34.9mil after considering 16% higher operating cost during MCO and taxes expenses. Forecast EPS for FY21 should be 6.49sen. 

Taking PE of 8, the Target Price is around RM0.52/share. 

RHB investment gave a sell call on Gkent. I believe in near term, Gkent will remain in bearish trend unless the management is able to secure new projects to increase its order book or having new smart metering orders. Gkent is now standing at RM0.32/share net cash position.