This article first appeared in The Edge Financial Daily, on November 30, 2015.

Imaspro Corporation Bhd

IMASPRO (Fundamental: 1.45/3, Valuation: 1.4/3) is a leading manufacturer of pesticides including herbicides, fungicides, insecticides and related agrochemicals, mainly used for crop protection in the agriculture sector. It has over 270 products registered globally, supported by a 43-acre testing facility in Melaka to develop improved pesticide formulations. This gives it a competitive edge in innovation and penetrating new markets. 

Imaspro’s revenue base is well diversified across various agriculture sectors, and countries. Exports accounted for nearly 51% of sales in FYJune2015, to over 30 countries. Hence, the company offers investors a more defensive and far cheaper exposure to the plantation sector, with minimal exposure to volatile commodity prices. 

Despite gaining 44.7% year-to-date, the stock still trades attractively at single digit trailing ex-cash P/E of only 7.6 times. Plantation stocks, in contrast, are trading at average 28.2 times. 

The company has a strong balance sheet with net cash of RM58.9 million or 41.9% of its market capitalization. This has supported dividends consistently at 3.5 sen per share since FY2008, translating into a net yield of 2% at RM1.75 and a relatively low payout ratio of 28%. 

After surging 37.5% to RM105.1 million back in FY2013, revenue has since been stable, averaging around RM107 million through to FY2015. For FY2015, net profit grew 9.4% to RM10.0 million despite a marginal decline of 2.8% in sales to RM105.4 million. The better margins were achieved by reconfiguring sales mix towards fungicides, which command higher margins than herbicides and insecticides.  

With a large export base, Imaspro also benefits from the depreciating ringgit. Earnings jumped 42.5% y-y to RM2.6 million in Q1FY2016, boosted by higher forex gain. Meanwhile, sales fell 20.2% as overseas customers held back purchases due to delay in occurrence of El Nino weather. Going forward, there is room for future earnings growth and margin improvement as Imaspro’s capacity utilization only runs at just around 30% currently.