YOCB- Is it normal or something fishy to you?

Yoong Onn Corporation Berhad(Yocb) has released its quarter result ended 31st December 2013. The revenue is quite flattish but  profit before tax was up around 29% compare to last year corresponding quarter. If we compare to immediate preceding quarter, revenue was up 9% and profit before tax was up 37.9%, quite a strong result achieved due to the festive season. Despite the good result, the inventories and receivables in the balance sheet are increasing. If you read my previous post on YOCB, this is the problem that i am worry about. 

As you can see



Quarter result ended 30th September 2013

Quarter result ended 31st December 2013

Since FY2009 until now, the inventories and receivable are growing non-stop.




I have done some calculations to analyse the company's working capital efficiency from FY 2010 to FY 2013.


On inventories

In FY2013, it takes the company roughly 196 days, or 6.5 months in order to clear off all the inventories(roughly 157 days in FY2010) . As you can see, the inventory turnover ratio has became lower and lower year on year. If you take a look on YOCB 2013 annual report, you will find out that most of the inventory held are finished products. I deemed this a bad signal as products will deteriorate. When the inventories piled up too much, it takes up more spaces in the warehouses and incur unnecessary storage cost too.




On receivables

As you can see, it takes the company roughly 65 days to collect back the debts. Please be extra careful when the rate of increase in receivable is greater than the sales growth. When a company has its receivable outgrows its revenue, it might signify that a company is trying to boost up its revenue by selling more goods on credit. It is one of the famous financial shenanigans where a company trying to cheat the investors so that investors believe the company business has turnaround. In YOCB case, i believe the company is doing good and with its strong balance sheet and brand name , there is no reason that it will involve in this financial shenanigan.



On Payable

I am not worry on payable side. Shorten of payable period is a good sign where the company ability to pay off the debts increase, however, lengthen of payable days could signify that the company has  better control of their money by delaying their payment while at the same time bring no adverse effect on their credit reputation.




Cash Conversion Cycle (CCC)

As you can see, it is a clear uptrend on its cash conversion days. It takes around 229 days for YOCB to convert the inventories to sales and collect back the receivables, from around 171 days in FY 2010. The rate of increasing is surprisingly high for me.



Conclusion

It is understandable that the company is trying to grow the business but still I am very much concern of the non-stop growing of receivables and inventories. I have tried to compare the working capital between YOCB and Padini and  found out that Padini is way more efficient that YOCB's. I believe that is because Padini generated most of its revenue through its own outlet while YOCB is more dependent on consignment sales. YOCB should try to increase their working capital efficiency as inventories and receivables cannot be growing forever. At the time i am writing, the share price went up 7 cents to close at 1.22, or market cap of around 200M (11/03/2014) which is the all time high.

Latitude Tree Holdings Berhad - Strong recovery of furniture industry?

Before we talk about Latitude Tree Holdings Berhad (LTHB), let's us understand about the furniture industry. In Bursa, we have few listed furniture companies, Lihen, LTHB, Pohuat, Homeritz and etc. As for LTHB, it exported 90% of furnitures to US and hence, the recovery of US housing market play an important role to determine on LTHB performance. There are few things that i think one should know about

1)The new home sales in US surged 9.6% in January, which is the strongest rate since July 2008. The unexpected good result had beaten the estimation of consensus. The supply of homes in relative to demand has dropped from 5.2 months(December) to 4.7 months(January) as the supply of new houses in the market remain unchanged, due to the lack of materials and unskilled workers. The potential hike on mortgage rate in US might dampen the housing market further as the borrowing cost increased.

sources from: ECONODAY

2)Despite the strong recovery of new home sales in January, the pending home sales in US showed only a marginal gain of 0.1%. The data on January has shown some stability on US housing market after the plunge of recent months. In US housing market, existing home sales constitute a higher proportion than new home sales. By looking at the data, it is understand that the housing market in US is still in a recovery stage which the sustainability has yet to know.

sources from: ECONODAY

3)The economy of a country is important to determine the income level of citizens, which will affect the housing market indirectly. In fourth quarter of 2013, US GDP grew in  2.4% annual rate, which is lower than estimation. Consumer spending plays an important part in US economy but the year end retails sales is not as good as assume. Bad weather in US is one of the causes.




4) In year 2013, US furniture import had increased 1,974 Million Dollars, as compare to year 2012. For your information, US is world major furniture import country, and China is his largest trading partner, follow by Vietnam and then Malaysia. Recently, the labor cost on China is going up, and hence it provides Vietnam and Malaysia's furniture manufacturer an opportunities to grow their market share. Despite that, Vietnam and Malaysia furniture industry are known as lacked of skilled workers, and the production cost of both countries are raising due to the implementation of minimum wages.



5) The competition in furniture industry is very intensive, especially from the China side. China is the largest furniture producer and largest furniture exporter in term of value in the world.

sources from http://www.slideshare.net/ClarionGermany/03-csil-alessandratracogna

sources from:http://www.slideshare.net/ClarionGermany/03-csil-alessandratracogna

As you can see from above chart, Vietnam and Malaysia are still a small market in the industry in term of production and exportation.




Conclusion

In my humble opinion, the furniture industry is showing sign of improving follow by the recovery of US housing market, albeit there are still a lot of uncertainties. I think that for those furniture companies which are able to survive throughout the 2008 crisis, they will enjoy a huge pie of cake, if let say US housing market come back strongly. Another issue to take note is, the orders for local furniture companies are increasing, which is a good leading indicator of US housing market recovery? Nevertheless, it is still early to judge.



Next, i will be touching on furniture companies listed in Bursa, and why my pick on LTHB.

Padini- Finally it came back to the limelight again?

Padini Holding Bhd has just released its quarter result ended 31st December 2013 which is highly anticipated by many as i believe investors can't wait to monitor its performance.

Analysis for the quarter alone compare to last year corresponding quarter, revenue has up 12.7% and net profit has up 48.4%. According to the report, the increase of revenue are due to the strong sales of brand outlets. At the same times, the same store sales growth (SSSG) for the quarter reached more than 30%. It is tremendously strong growth, given the competition arise from foreign brand especially in Klang Valley area. A slight increase of gross margin coupled with the increase of revenue drive the net profit growth. Having considered that current quarter is seasonally strong quarter due to festive season, the performance is still out of my expectation.




Valuation

Padini closed at 1.78 today (27 Feb 2014), with its net cash of 24 cents and last 4 quarters (L4Q) earning per share (EPS) of 14.69 cents, it is trading at cheap valuation.

To get the actual price we are paying by buying Padini shares, we take 1.78 to minus the net cash per share of 24 cents and we get 1.54 dollar per share. Divide it with L4Q EPS, we got a PE of around 10.5. For a company with strong brand name and solid growth, it definitely worth more for me.

Let's have a look on its PE range throughout this few years.

As shown, PE of around 14.5 is the highest (without taking the net cash in consideration), personally i think market will give Padini a higher valuation than what it is trading now.



Future Prospect

From the report, 3 Brand Outlet stores and an additional Padini Concept Store have added in current FY 2014. The coming months until the end of this financial year, the management is planning to add another 3 Brand outlet stores and 2 Padini Concept Store. After the rationalization of subsidies by our government, the living cost has increased and consumers are more willing to delay their purchase on discretionary items. The focus on growing Brand Outlets with the purpose to bring in value in design and price to consumers help to grow the business. I would think that the management are trying to keep themselves remain competitive to fight with the foreign brands, while at the same time creating value to shareholders with their consistent dividend payout. Under the section "Commentary on Prospect", the management said that "These new openings together with changes made in the past year to merchandise development and pricing strategies would go a long way to improving the Group’s competitive abilities." 




Conclusion

So far i think Padini is doing well to compete with the foreign brands, it seems that they can do well in the future too. One good part for retail business is, when you have been growing your business so well in a place, you stand a foothold where when the competitors came in, it might takes a long time for them to catch you up. Another things is, Padini has been partner with AEON to grow their business, you would not be surprise to see Padini Concept Store when you went to AEON. However, i have seen no sight of  Uniqlo, Debanhams or H&M appearance in AEON, probably because of their different strategies or retail model? With that, i think it is not easy to catch up with Padini's pace in Malaysia retail market. While the business is growing well with good prospect, and the valuation is cheap for me, i would think that Padini is quite attractive now. 

V.S Industries- World Top Electronic Manufacturing Service Provider - PART 2

V.S Industries is enjoying a growing electronic manufacturing services (EMS) market due to the increasingly outsourcing of those multinational company to their partner in southeast Asia. This trend is an great opportunity for V.S to increase their market share. In an interview with TheEdge, V.S managing director, Datuk Gan Sem Yam stated that " For a company that provides supply-chain services and fully integrated contract manufacturing services to companies such as Panasonic, Sony, Canon, Mitsubishi, Kenwood and Dyson, V.S has yet to reach its full potential."

Business Risk

1) One of the factors that drives on V.S profit growth is the growing demand of consumer electronic products, and the switching trend to outsource the manufacturing services to southeast Asia companies. With that, the consumer spending power might determine the performance of V.S. The possibility of European countries revival will keep the demand growing. However, if the economic is not doing good or remain uncertainty, consumers will delay their consumption which directly affect the orders for EMS providers.

2) As an EMS provider, V.S had to allocate some portion of money as capital expenditure (CAPEX) to cope with the growing of technology in order to remain innovative and competitive enough in EMS industry. Besides that, V.S has to spend to increase their capacity.In annual report 2013, V.S states that extensive research and development will be carried out with their key customers to meet the evolving trend of the industry. V.S aims to establish higher-value added manufacturing processes in their operation while keeping the cost at an optimized level. Due to the high CAPEX consumption, we can see that free cash flow generated by V.S is not consistent.

If V.S does not spend on CAPEX, they will not able to cope with the rapidly growth of technology and hence, left behind of their competitors. Its business nature is quite capital extensive i would say.


Management

As when we discuss about the management of a company, i would like to take a look on its dividend payout. With the growing of earning per share, the management are being generous. The total amount of dividend payout are increasing year on year except for year 2013. V.S has a solid dividend payout history, and never did any cash call after its listing. Besides dividend, the company had been doing share buyback very often.

Share buy back is a very positive sign for me. It signifies that the share are cheap and having good potential in future. It is an alternative way to compensate shareholders besides dividend. On top of that, the management are confident on the company prospect.

As you can see from the table above, the directors of the company are holding substantial amount of shares. It is a good sign for me too as the management will try to do their best as to maximize the wealth of shareholders. Inabata & Co. Ltd held 10.34% of indirect stake on V.S Industries. Inabata emerges as the shareholder of V.S since 2006 and had been accumulating the shares. Inabata is the supplier of resin for V.S and i believe this relationship will create better synergies.

Valuation

Since 2010 to 2013, Price/earning ratio had been standing at the range of 5.2 to 10.2. If we are calculating the PE ratio with last 4 quarters EPS, the PE ratio we get is around 5.4, which is at the bottom of range. Having considered at its business risk, and looking on its future prospect, i will still think that the current valuation is rather cheap.Besides that, V.S is trading below its book value.


Conclusion

In short, I would think that V.S industry is involving in an unexciting industry as the CAPEX requirement is high, but somehow the management is capable enough to grow the company. The business will continue to remain tough, added by the implementation of minimum wages and others expenses hike. V.S is currently trading at market capitalization of around 274 Million. It  is a company that provides manufacturing services to big multinational companies like, Dyson, Sony, Panasonic, etc, doing business in a tough industry but the managements able to grow the business, been actively buying back its own shares, and trading at cheap valuation. If the macroeconomic factors turn in favor of V.S and the switching trend of EMS to southeast Asia persists, i have a gut feeling that the market cap might be doubled at least.

V.S Industries- World Top Electronic Manufacturing Service Provider - PART 1

V.S Industry Berhad (V.S) was founded in 1982 and listed on Bursa in 1998. It is now a leading integrated electronic manufacturing services (EMS) provider and successful ranked itself into the world's top 50 EMS providers from 2007 to 2012. V.S has its manufacturing facilities located at Malaysia, Vietnam, Indonesia and China, to cater for the demand of their clients which are mostly big multinational company. V.S manufacturing services included plastic injection mould design and fabrication, a wide range of injection tonnage and finishing processes, large scale production of printed circuit boards, automated assembly and final processes of packaging and logistics. Compare to before, V.S has expanded its operation to include products and services in the higher value-added chain. 

Let's have a quick glance on V.S financial performance.

The compounded annual growth rate (CAGR) for revenue and net profit are 13% and 70% respectively.

A quick glance on the financial ratio, ROE is improving, profit margin is low as 3.8%, Gearing ratio up solely because of the company increase their stake on V.S international group limited(VSIG), dividend payout ratio is considered high as the company is having a dividend policy of minimum 40% payout. 

Where is the revenue sources?

From the annual report 2013, we knew that Malaysia operation generated 88% of revenue, 8% are derived from Indonesia's operation, the balance are coming from China's operation. V.S increase of stake on VSIG making it one of their subsidiaries, and hereon will contribute to V.S top line and bottom line. The manufacturing plant in Malaysia and Indonesia primarily serve customers from Europe and US, while the China operation will be focus on Japan, Europe and US. We can see that most of the products of V.S are export oriented and apparently US Dollar will be the main currency been used. Despite of it, i don't think that V.S will be benefit on the strengthen of USD against MYR recently.

Taking a quick look on latest quarter result ended 31st October 2013, the outstanding performance is merely due to the consolidation of figures from VSIG. With that, China operation has increased its contribution to 33% of total revenue. However, it is still incurring a net loss for the quarter alone.


Future Prospect

The management of V.S is ambitious. They always focus on expanding their operation to higher value-added chain, while at the same time they need to keep their cost managed well to remain competitive.The company has allocated 20M as capital expenditure (CAPEX) for plastic injection machine for new coffee machine models and assembly lines on FY2014. Besides that, with the consolidation effect, we can expect an increase on the top line and bottom line for subsequent quarter on FY2014.

On PART 2, i will talk more on its business risk, management and valuation. 

The Store- A potential asset play or a value trap?

The Store Corporation Berhad is a leading operator of supermarket, department stores and hypermarket in Malaysia. It is operated through three store formats, The Store Supermarket & Department Stores, Pacific Hypermarket & Department Stores, and Milimewa Supermarket & Department Stores.In Malaysia, The Stores is operating under a competitive industry, we have a lot of huge supermarket/hypermarket like Mydin, Tesco,Aeon, Aeon Big(previously Carrefour), Giant, Econsave and so on. The Store is having a wide presence in Malaysia, it has it outlets located at all the states in Peninsular Malaysia.

Financial Performance

Having a look on its revenue for past 9 years, i would say it is flattish.

Its net profit for past 9 years is inconsistent, fall dramatically after 2008 but improving gradually after that. (no adjustment had been made, all the figures is purely extracted from annual report). Although The Store is well known among the household, its financial performance is so so only. The profit margin is quite fluctuate, dropping from around 2% to around 0.5%. It raised to above 1% in FYE 2013.  

As an investor, we would like to grow our capital, hence we always prefer those company with solid business, good management with growing potential. The best is at the same time we could buy in low valuation. Although it is not a foolproof method but by far its the greatest chance we ever had. In this case, The Store is having a solid business as a prominent retailer in Malaysia, however, it shows no sign of growing in terms of revenue and gradually rebound on its earning in recent years. Let's us have a look on the stock valuation, price over net tangible asset per share. (NTA per share)

Total Asset

As we can see, the asset quality for the company is quite good. Property, plant and equipment constitute 43% of total asset. Other major portion are cash and bank deposits, inventories as well as investment properties. When one trying to value a company's NTA, the quality of asset is important. We should not blindly follow the accounting figure but instead, understand what is the component behind the figures. 

Net Tangible asset per share

To calculate NTA, we took Total Asset to minus Total liabilities and Intangible Assets. The figure we get is 439,557,000. Divide it with the share base of 68.503 Million shares, we get NTA per share of RM6.42 or price over NTA per share of 0.4. (using share price of RM2.55 as reference for date 5/02/14). Current price is trading at 60% discount to its NTA per share, which is deeply undervalued in book. 

Is it a value trap or a value buy? 

Now we know that theoretically The Store is deeply undervalued. If we look into its closest comparison in Bursa stock, Aeon is trading at price to book value of above 2. So, are we finally found a super value stock to buy? Are we going to "huat" this time? When we decide to buy a stock solely because of book value, we need to be extra careful as the stated book value might bear less or no relationship to the company true worth. Why? Let's imagine, when a company went bankrupt, how much can a company assets worth? If most of the assets for a company are inventories, do you think it can still sell at normal prices? During bankruptcy, inventories can be worthless especially for finished goods. As for The Store, I believe the building and investment properties are worth much more than before due to the property boom on recent years.  Let's have a glance on the historical share price against book value. 

From the above table we can see that since FYE 2009 until now, the share price is trading way below the NTA per share. While the assets are valuable, Mr. Market had been ignoring it for years. So what are the chances that the value will be realized? How long do we have to wait? I believe this is the case where many investors got frustrated because in Bursa, we can always spot on this kinda companies. Sometimes, what we need is to be patient and wait for some "Catalysts". If you happen to buy into a cyclical stock, you might need to wait for the upswing of the cycle, just like properties or furniture companies. More often that not it is highly dependent on the management of the company to unlock the value. 

Tan Sri Dato' Sri Tang Yeam Soon and his wife, Puan Sri Datin Khor Guik Lee are the major shareholders through their holding on Equatorial Century Sdn.Bhd. However, 

One of the Malaysia tycoon, Vincent Tan is the substantial shareholder of the company. I believe for some people they know this tycoon well. When we bought into a company' shares, we entrusted our money to the company and hopefully the management will create wealth for the shareholders, be it minority or majority shareholders. 

Hartalega - where is it standing now in glove industry?

Hartalega had became the best glove companies and the fancy of investors for this few years. It has the best profit margin, the highest ROE and earning growth among the glove companies in Malaysia. With our MYR going weak against USD recently, i can see a lot of export-oriented companies- especially those export to US- doing well in term of their share price in the market. However, why doesn't Harta go along the trend? Is it Harta been leftover by investors? Have people lost their interested on it? Is the fundamental remain status quo?

Share price	Hartalega	Supermx	Topglove	Kossan
As at 31/12/13	7.23	2.77	5.63	4.32
As at 24/01/14	6.77	2.91	5.42	4.09
Up/Down (%)	-6.36	+5.05	-3.73	-5.32

Having a look on this year share price performance, Hartalega is the biggest loser among all. If we looked for long term share price performance, Supermx and Kossan is now nearing the all the high, or basically they are in uptrend. Topglove share price had been retreated from its highest 6.60 level after its weak earning on quarter report. Hartalega had posted a good quarter result, but somehow its share price is hammered down, especially in year 2014.

	Hartalega	Kossan	Supermx	topglove
Share price as at 24/01/14	6.77	4.09	2.91	5.42
L4Q earning(cents)	33.91	21.18	20.57	30.44
PE ratio	19.96	19.31	14.15	17.8

Hartalega used to enjoy the highest PE in the market, but somehow the gap had been narrowed down in 2014.



First, who are the one selling the shares? Does it make you curios on the recent sell down, especially when the company is so good? Of course it is not hard to know if you follow their announcements closely.

Exercise of ESOS, some exercise price are as low as RM2.25. ESOS are always good, it serves as an additional reward to the employees especially when the stock price going up. Then we can see the sell down by the company directors.

DR DANARAJ has been selling down the shares to  large extent of his total shareholding. Probably he exercised his ESOS and sell on market? Is it purely profit taking? As a non independent executive director, certainly he knows something we do not know.

Surely, we can see the substantial shareholder selling, especially the EPF, who has been selling and buying on this share,

I believe it is normal for EPF to sell and buy back the company as their fund are so big, profit taking is normal too especially the cost are low. Besides that, what causes the sell down of the shares? I believe the public expectation on the company is one of the reasons to drive down the price. The price hike on electricity, and the potential price hike of natural gas as well as the raw materials is the major concern i think. Raw materials might see some price hike as the political unrest at Thailand probably dragging the rubber output down.


Probably in 2014 or the years to come, glove industry will become less lucrative, as more companies are venturing into nitrile gloves, and that means price war will occur and thus, margin erosion. In spite of that, the management of Hartalega is being positive on it.

Other than the price war, the potential rebound of raw materials, and the potential fall of demand growth are another reasons too, despite we do not see any of these happen yet. If it is going to happen, i believe it will bring bigger impacts on others glove companies. Overall i will think that the glove industry is still promising. So, if we assume the industry outlook still good, then the company alone got problem?

Story rechecking

	3 years earning CAGR	Profit Margin for FYE13(%)	ROE for FYE13 (%)
Hartalega	17.75	22.6	30
Kossan	6	8.5	12
Supermx	-5.3	12.2	14.6
Topglov	-6.8	8.77	14.75

The calculation of net profit compounded annual growth rate is from year 2010 to year 2013, in which the last quarter result for Kossan and Supermx is based on conservative estimation as the result is pending for released.

Having a quick check on the top 4 gloves companies in Malaysia, we can see that Hartalega is doing so much better than its peers, in term of earning growth, profit margin and return of equity. It is mainly because of its good operating efficiency, and greater exposure in nitrile gloves. If we try to look at the company cash flow in FYE2013, Harta is the one having the highest free cash flow. In fact, hartalega is the one with most consistent operation cash flow and free cash flow over the last few years. Taking the latest share price and divided it by FYE 2013 free cash flow for all the 4 companies, hartalega is the one with lowest Price/FCF ratio of 16, whereas Topglov is having a negative free cash flow on the year.

Well, no matter how good hartalega is, that is the past figures. It serves as a reference for us to find a great company and there are a lot of factors to determine whether the company is worth to invest or not. In fact, a company without proper expansion plan will face stagnant on their earning growth and hence, become less attractive and probably its position will be overtaken by competitors. Now, lets have a look on the expansion plan by each of the companies

extracted from RHB research report

Like others, Hartalega is planning to expand the capacity, and certainly it is the largest nitrile glove manufacturer. Nonetheless, we might see hartalega growth remain stagnant in the coming quarters due to its high utilization rate and capacity constraints. We might see Kossan became the highest PE company among the glove industries due to its robust expansion plan. Supermx is the cheapest among all, we can also see it starts to catch up with its peers.

extracted from amsecurities research report

That is, we might be able to see hartalega growth starts picking up in August 2014, provided the capacity expansion job does not delay. The growth story for coming quarters might not be so good like past years, and as the punishment of slowing down, the share price is falling, and the PE is coming down, quite an efficient market we have, is it? The narrowing of discount gap between nitrile to latex due to the price surge of nitrile is one of the factors to drive down the share price. 

Conclusion

Overall i think Hartalega is still the best in long term perspective. Their capacities will be quadrupled, and they will need less labor when their automated machines start working. They always focus on research and development on glove manufacturing, and they have came out a new oatmeal glove which will potential create a new market niche, although it is still early to say.  We will see their earning grows aggressively again when the first line starts to commission, if the demand remain robust, and barring any unforeseen circumstances. 

YOCB - Is it a true gem waiting to be revealed?

Yoong Onn Corporation Berhad, a company which involved in design, manufacture, distribute and retail of home linen products and bedding accessories.  When talk about Yoong onn, it is not a famous name, however, I believe most of the household are familiar with the brand Novelle or Jean Perry . This few years, the company has been opening more retail outlets under the name “ Home’s Harmony” which mostly located around Kl and Selangor area.   As we know, it is not easy to build up a brand and I believe the company is doing a right thing in forming up own retail outlets to gain more recognition from consumers. In Malaysia, Yoong Onn is having a whopping 30% market share according to sources, which is surprisingly huge in such a competitive market. Yoong Onn is having its profit growing at 5 years compounded annual growth rate of 14%. The management have found their niche market and been working hard in R&D as well as growing their distribution network. The company has been partner with department stores to grow their business.

('000)	2009	2010	2011	2012	2013
REVENUE	130084	127541	141002	153913	178607
PATAMI	13881	15528	18302	17277	20453

  

Having a 5 years CAGR of 14% is considered as  a high growing stock for me. According to Kenanga report, the company is planning to grow even further in years to come

In 2013 annual report the management said

If one is having a quick look on this company, definitely it is attracting. The company is growing fast, the ROE is 14%, company is in a net cash position, current P/E is considered low(is it?) compared to its peers, current price is close to book value even without considered the intangible asset( the value of its long established brand), the management is not a stingy one and paying out dividend year on year. All the financial data is showing it a good buy, and one might starts screaming to buy buy buy. Now, is it a true gem to be discovered? Is it a good company which can keep up its growth consistently in years to come?


Competitors

Before we come to a conclusion, let's at least have a look on one of its greatest competitors, Eastern Decorator(ED), which is the owner of Akemi brand. Whenever you see Novelle or Jean Perry in any department stores, you can always see Akemi there. Another famous brand you can see is Windsir. Akemi brand had been long established back in year 1992 and its the proud of ED and perhaps you might not know,

In fact, ED present is not only in Malaysia, it is also having operation in other SEA countries like Singapore, Thailand, Indonesia and etc. Its is famous in whole SEA in compare to YOCB which having more than 70% sales on local market. ED is having more than 30 brands and YOCB is having 14 home grown brands.
 In term of manufacturing capacity per day, Eastern Decorator is way larger than Yoong Onn. ED able to manufacture 12,000 set of bed linen daily while Yoong Onn can manufacture 3,000 set daily now. While YOCB is having 16 retail outlets and around 120 counters in department stores, ED is having :

One might think that such comparison is unfair as YOCB is just a small company with market cap around 140 million now. However what i trying to stress out is, can a small firm like YOCB continue to grow its market share for let's say, another 5 years? Can it grab more market shares from ED? Well, before one starts guessing, let's have a look on some "worrisome" part:

Working Capital Analysis

What does it mean to you when you spotted a company with continuous increasing in receivable and inventory? As for me, when a company having its inventory and receivable been increasing so aggressively, red flag should be raised. In fact if you notice, inventories and receivable are increasing every year from 2009 to 2013, in some years, receivable even outgrow the revenue which signify that the company is using credit sales to boost the revenue. Besides that, what went wrong to inventories?

If we know the business model of the company, it is not hard to find out the reason. First, the company is depend heavily on consignment counters to expand the business. The selling of goods through the premier department stores make up more than half of the sales. As when the company expands to more consignment counters, more inventories will be piling up. How about the receivable? Having partner with more department stores, the number of receivable should be increasing too, just like inventories. The good part is they are collaborating with big department stores like Isetan, Jusco, Parkson and etc which have high credibility. Personally, I would think that the management is not good in handling their inventory estimation or the whole working capital. Or is it? Let's have a look on its cash flow statement.

Cash Flow Analysis

Please have a look on the figures circled in red. Most of the cash generated are stuck in working capital which leads to a low operating cash flow, or a weak earning quality. (earning quality for 2013, 12578 divided by 27680 = 0.4544)


Valuation

Kenanga has put up a research report stating that YOCB is undervalued by comparing its PE against its peers, which is a norm in looking on the valuation of different companies in same industry. In my humble opinion, i always believe that price is driven by the market, and there is always a reason behind it. Example, there is a reason why the market favors Hartalega in the glove industry and thus, a higher PE. Having a look through its historical PE, YOCB is currently trading at its highest PE since 2010.

However, if we put in the growth factor in account by calculating PEG(taking 14% 5 years CAGR as norm), the figure we get is less than 1, which shows that the stock is undervalued.


Conclusion

Undeniably, Yoong Onn has showed a solid growth for the past few years amid a high competition industry.The good part is while the big department stores, hypermarkets, shopping malls are growing in Malaysia, it helps YOCB to grow further. On the other hand, it also means that YOCB growth will be capped if all these big players stop or slow down their growth, that's why the management had been growing their retail outlets aggressively on 2012 and certainly it is something worth to monitor for although current retail sales only constitute a small portion of earning. Having considered the high competition and the potential of housing market slow down, it is not easy for YOCB to have double digits growth for the next five years, nevertheless it is good to monitor its progress of future planning as well as earning.

Note: This write-up might consist some financial terms, please feel free to raise your question, if there is any.