Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on October 5 - October 11, 2015.

 

Small-cap agricultural company Greenyield Bhd hopes to weather the continuing weak commodity market by venturing into furniture making.

“While we remain committed to growing the plantation segment, we are increasing our focus on the non-plantation segment in the near term. Barring any unforeseen circumstances, we anticipate an increase in orders from the latter,” its senior manager of corporate finance and strategy, Tham Kin-On, tells The Edge.

Greenyield (fundamental: 2.50; valuation: 1.40) will not be manufacturing typical wood furniture but rather premium garden furniture with its proprietary weather-resistant material called Artstone. 

The family-run business, which was established in 1937, currently uses Artstone to make plant pots that are lightweight and have a self-watering system. “We are currently in the prototyping phase [for the garden furniture]. If successful, we aim to present samples at trade shows in FY2017 [ending July 31, 2017],” Tham says.

Greenyield, which manufactures agricultural and horticultural products and provides services based on agro-technology, may be seen as a little late to the industry because the past year has seen many Malaysian-listed furniture makers enjoy capital appreciation and growing fortunes, thanks to their US-derived income.

But then the company’s premium offering is timed to catch better consumer sentiment in tandem with economic conditions that are expected to improve by then.

Tham concedes that weak consumer sentiment in the US and Europe in the past year has affected Greenyield’s sales as its Artstone plant pots are priced at a premium and are thus sensitive to economic conditions.

In FY2015, the company’s net profit fell 32% year on year to RM4.4 million while revenue dropped 14.5% to RM44.3 million.

“We expect a pick-up in sales in FY2016 but we will see a stronger impact come FY2017,” says Tham.

Based on its latest results, the non-plantation segment contributes about 40% to the group’s revenue — the bulk of which comes from the Artstone plant pots — while the plantation segment, which comprises the fertiliser, plant nutrition product and rubber plantation operations, accounts for the rest. 

“Our plant pot sales are concentrated in the US and Europe. We aim to grow sales in other countries, including but not limited to Australia [which is catching up with the US and Europe], Japan, China and Malaysia. New sales channels include online and retail,” says Tham, declining to provide growth expectations.

The company is seeking to build a presence on its home ground Malaysia via online and retail channels. If successful, this could be replicated in Singapore and China. Greenyield relies on distributors in all other markets.

For the company, FY2017 could shape up to be a big year with new Artstone capacity coming on stream.

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A year ago, Greenyield bought a 10,660 sq m parcel in Kuala Langat for RM3.56 million to build a new plant, where it will manufacture the furniture and double its Artstone capacity. 

“We are still in the process of obtaining approvals for construction,” Tham says, adding that with luck they will begin construction in this financial year and begin operations by FY2017.

Greenyield is financing the land purchase and construction with a RM4.489 million loan facility from Public Bank while any further costs will come out of its cash reserves. Its net cash stood at RM3.1 million as at July 31. 

Tham, who is the son of group managing director Tham Foo Keong, says Greenyield’s positive cash position has allowed it to stay on course despite the crumbling commodity market.

Despite being long-term positive, Greenyield will continue to tread cautiously in the plantation segment, where it expects rubber prices to trend sideways or be slightly negative next year as demand continues to lag supply.

Rubber prices have remained weak this year with the price of SMR20 dropping from an average of US$1.70 per kg last year to US$1.25 last Wednesday.

 

Plantation segment  impacted by low prices

“A major factor contributing to this trend is the demand for motor vehicles in China, which may continue to decline until the end of 2016. Similarly, we think the demand for rubber goods will decline with poor economic performance in most commodity-producing countries,” says Tham.

The company’s plantation segment has been impacted by low prices as growers try to cut back costs. It has 400ha of rubber plantation land in Kelantan that will be fully planted by FY2016 and a 30% stake in 2,400ha more that will become ready for tapping in FY2016.

The stock has been on a downward trend this year amid a bearish market. Year to date, it has lost almost 50%, closing at 21.5 sen last Thursday.

The Edge Research’s fundamental score for Greenyield of 2.5 out of 3 is an indicator of a strong balance sheet and profitability.

Despite taking a hit from the weak rubber market, which has affected planters across the board, Greenyield remains cash-positive as it diversifies its premium offerings.

Its net profit margin in the past three years has remained within the 10% to 15% range.

The company pays out dividends consistently and has a trailing twelve-month dividend yield of 5.12% as at last Thursday’s closing.

The Tham family remains its major shareholder with a 48.58% stake held by a private vehicle.


Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

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