WHILE the rally in some furniture stocks is losing steam, Jaycorp Bhd’s share price has been on a steady climb. It has gained more than 40% since early August, outperforming the benchmark FBM KLCI.
In the middle of last month, the furniture maker’s share price hit a record high of RM1.56. The stock has largely maintained its momentum, hovering at above RM1.40. It closed at RM1.54 last Thursday.
Some investors are curious about the small cap’s strong rally. A fund manager with a foreign brokerage firm says, “I’m guessing it could be because of the better results that were announced in end-September.”
Looking at Jaycorp’s finanical accounts, the fund manager says, “It looks like a decent company, it is in a net cash position. It has positive operating cash flow. But I am not sure whether its growth will continue. Too little is known about the company.”
Jaycorp’s recent financial results showed significant improvement. For its financial year ended July 2016, Jaycorp posted a net profit of RM21.14 million on revenue of RM289.43 million. Earnings per share was 15.46 sen.
This is the best set of financials Jaycorp has posted since it was listed in November 2002. In contrast to FY2015, its net profit surged nearly 165% while revenue grew by 16.7%.
According to notes that accompany its financials, Jaycorp’s better results were due to improved operational efficiency, better market sentiment in the North American and Asian markets and the strengthening of the US dollar against the ringgit. Nonetheless, the gains were most visible in the second quarter of the financial year.
The key advantage for Jaycorp has been the weaker ringgit, which makes the furniture maker’s pricing more competitive than that of lower-cost economies such as Vietnam and China.
Apart from impressive earnings growth, Jaycorp also has a clean balance sheet. As at July 31, it had a cash balance of RM38.34 million, which is equivalent to gross cash per share of 28 sen. The company had current liabilities of RM16.12 million, and long-term borrowings of RM6.49 million. Its finance cost for FY2016 was RM1.47 million, and it has retained profits of RM75.3 million.
Taking its borrowings into account, the company is in a net cash position of RM15.73 million, or 11.5 sen per share.
It is noteworthy that Jaycorp has consistently paid out dividends. Over the past five years, the payout has been between two and four sen a share. Based on last Thursday’s closing, Jaycorp had an indicated gross dividend yield of 2.6%.
Jaycorp, which was formerly known as Yeo Aik Resources Bhd, at last Thursday’s closing of RM1.54, was trading at a single-digit price earnings multiple of 9.95 times.
Commenting on its prospects, Jaycorp says: “The furniture industry remains the group’s core business. The group will continue to focus on controlling its cost structure and exploring new markets for its products in order to achieve better profits and business growth.”
In the latest annual report, Jaycorp states that some of its new export markets are China, South Korea and Japan, after successful exhibitions in the countries. However, according to Bloomberg, for FY2016, the bulk of Jaycorp’s revenue, almost 94%, was derived from the home market, with the remainder coming from Indonesia.
According to Jaycorp’s annual report, it has a 51% stake in Indonesian company PT Tiga Mutiara Nusantara Indonesia, whose mainstay is the pressure treatment and kiln-drying of rubberwood. It has no other foreign ventures.
It is also noted that some of Jaycorp’s directors and substantial shareholders sold some shares as the price went up.
Last week, its managing director Yeo Eck Liong sold one million shares at RM1.45 apiece, trimming his stake to 32.75 million shares or 23.95% equity interest. About 22.2% of his shares is held by Central Glamour Sdn Bhd — the investment vehicle of Eck Liong and his brothers Ayk Ke, Yek Meng and Aik Tan.
The week before, the company’s executive chairman, Tan Sri Abdul Majid Khan, hived off 787,500 shares at RM1.42 apiece, to reduce his shareholding to 31 million shares or 26.67%. Abdul Majid’s shares are held through Jawala Corp Sdn Bhd.
Other than the two, there are no other substantial shareholders in Jaycorp.
Interestingly, Jaycorp’s annual report shows that as at Oct 23, 2015, a private company, NCCT Resources Sdn Bhd, had 5.24 million shares or a 3.83% stake in the company.
A filing with the Companies Commission of Malaysia indicates that some of NCCT’s shareholders —Neoh Cher Leong, Tan Bee Eng, Tok Heng Leong and Chua Lee Seng — also control Assets Muar Sdn Bhd, a company which has a 42.81% stake in Lii Hen Industries Bhd, a Muar-based furniture player, which is larger than Jaycorp, with a market capitalisation of RM583.2 million.
One shareholder of NCCT, Chua Yong Haup, is Lii Hen’s managing director, while Lee Seng, Tan and Tok are executive directors of Lii Hen. NCCT was not among the top 30 shareholders in earlier annual reports of Jaycorp.
As NCCT is not a substantial shareholder of Jaycorp, with more than 5% equity interest, it is not clear if it has divested or strengthened its shareholding.
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