Insider Asia’s Stock Of The Day: Superlon Holdings Bhd

SUPERLON (Fundamental: 3.0/3, Valuation: 2.0/3) manufactures nitrile butadiene rubber (NBR) foam insulation materials for the heating and air conditioning industry. Based in Klang, it exports about 70% of its production, mostly to other Asian countries.  

Last December, the company declared an interim dividend of 2 sen per share and a special dividend of 4 sen per share — compared with total dividends of 3.25 sen for FYApril2014. 

This means that dividends totalled 8 sen per share in the past 12 months, translating into an attractive yield of 5.4%. 

The higher-than-market average yield generated investor interest in the relatively low-profile manufacturer — its share price has more than doubled since then, to RM1.49 currently. 

Besides the generous dividends, its improving financial performance has also not gone unnoticed. After exiting from the loss-making steel pipes division in FY12, the company has turned around, from a net loss of RM0.6 million in FY12 to net profit of RM5.9 million in FY14. 

For FY15, net profit climbed 60% to RM9.4 million, lifted by a 21% increase in turnover. Margins expanded on the back of economies of scale and strengthening of the US dollar. The company declared an interim dividend of 2 sen per share for FY2016, which will go ex on 20 July 2015

Stronger operating cash flow enabled the company to pare its debts. It now has net cash of RM11.7 million, a reversal from net debt of RM4.1 million in FY12.  

Going forward, Superlon intends to focus on expanding its domestic and regional market shares as well as strengthen its distribution network. In anticipation of a recovery in global demand, Superlon plans to invest RM12 million in the next two years to expand production capacity. 

The stock is trading at a trailing 12-month P/E of 12.6 times — low relative to the 43% earnings growth in FY14 and 60% growth in FY15.

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