This article first appeared in The Edge Financial Daily, on November 6, 2015.

Apollo Food Holdings Bhd

ESTABLISHED for nearly half a century, Apollo Food Holdings (Fundamental: 1.95/3, Valuation: 2.0/3) has grown to become a leading manufacturer and exporter of compound chocolate confectionary products and layer cakes in Malaysia, and a strong regional player. The company’s products, marketed under the well-known “Apollo” brand, are exported to over 50 countries. Exports, mainly to the Asia Pacific region, account for about 40-50% of its sales and are mainly denominated in the US dollar, making the company a prime beneficiary of the ringgit’s depreciation. 

For the latest 1QFYApril2016 results, Apollo posted an outsized 95.7% y-o-y growth in net profit to RM11.2 million — despite a 3.3% decline in sales to RM49.9 million — driven by foreign exchange gains and lower operating expenses. It also declared a first and final dividend per share (DPS) of 25 sen for FY2015, giving a decent yield of 4.8%. The dividend will go “ex” on December 9.

The stronger earnings were anticipated as Apollo benefits from the falling ringgit and commodity prices. Year-to-date, the prices of sugar and flour have declined by 10.8% and 17.2% respectively, which more than offset the 11.2% increase in cocoa prices. 

Despite the strong financial performance, its share price has yet to perform, up only 6.7% over the past one year. 

We continue to like Apollo for its above-market average yields, steady operating cashflows and export exposure. Valuations remain undemanding — at a trailing P/E of 13.8 times and 1.6 times book. By comparison, peers Oriental Food Industries and Hup Seng Industries are trading at higher P/E of 19.8 times and 21.5 times respectively.

It has net cash of RM100.0 million or RM1.25 per share, almost doubled from RM56.6 million at end-2012, despite paying consistently high dividends during the same period. From FY2008-FY2012, dividend per share (DPS) averaged 18.55 sen, and increased to 25 sen in FY2013-FY2015.

We expect Apollo to sustain its DPS of at least 25 sen for FY2016, supported by its cash rich balance sheet and low capex requirements.