Insider Asia’s Stock Of The Day: Apollo Food Holdings

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Apollo Food Holdings Bhd
Apollo Food Holdings Bhd is a leading manufacturer of compound chocolate confectionary products and layer cakes. For FY April 2013, some 56% of its sales were sold locally and the balance of 44% exported, mostly to the Asia Pacific region.

Apollo has a solid cash-rich balance sheet. As at 1Q2015, net cash stood at RM86.6 million or RM1.08 per share, amounting to 21% of its current share price of RM5.10. The company pays consistently high dividends.  From FY2009 to FY2013, dividends per share averaged 20 sen, increasing to 25 sen in FY2014.

From FY2010 to FY2014, Apollo’s sales grew by a compounded annual growth rate (CAGR) of 8.4% to RM220.7 million while pre-tax profit grew by a CAGR of 7.8% to RM43.6 million. During the same period, shareholders’ equity increased by a CAGR of only 4.3%, implying a large portion of earnings are returned to shareholders.

The company is majority owned by its managing director, Singaporean Liang Chiang Heng, with a 51% stake, followed by Amanah Saham Bumiputera (ASB) with a 20% stake.

Historically, Apollo appears to have defensive earnings. During the financial crisis of 2008-2009, it managed to maintain pre-tax profit at RM 20.9 million in FY2009, although sales declined 3.2%. However, the company has recently been hit by rising cocoa prices – which surged over 50% in the last 18 months — and falling demand.

For 1Q2015, sales fell by 10.2% y-o-y to RM51.6 million, while pre-tax profit slumped by 40.5% y-o-y to RM 8.3 million. Despite the weaker quarter, valuations are still undemanding – especially for a consumer stock — with trailing 12-month trailing P/E ratio of 14.3 times, a price-to-book ratio of 1.6 times and with a 4.9% dividend yield.

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This article first appeared in The Edge Financial Daily, on November 25, 2014