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This article first appeared in The Edge Financial Daily, on December 4, 2015.

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Yoong Onn Corporation Bhd

YOCB (Fundamental: 2.8/3, Valuation: 3/3) is one of the country’s largest manufacturers and distributors of home linen products, which are sold through departmental stores as well as the company’s own boutique shops, Home’s Harmony. Some of the brands under its stable include Novelle, Jean Perry and Louis Casa. 

We like YOCB for its attractive valuations and strong underlying fundamentals. It also stands to benefit from falling commodity prices and export sales. Furthermore, we believe the company’s strong local brand name should continue to underpin future growth.

Revenue grew steadily, from RM127.5 million in FYJune2010 to RM197.9 million in FY2014 but declined 6.4% to RM185.3 million in the latest FY2015. In particular, revenue dropped 28.2% y-y in 4QFY2015, affected by the implementation of GST. 

Positively, sales in 1QFY2016 gained 10% q-q to RM42.3 million while pre-tax profit too rebounded smartly, as the impact from GST moderated. 

YOCB’s valuations remain attractive. The stock trades at a P/E of 7.86 times and 0.93 times book. Furthermore, yield-seeking investors will like YOCB for its dividend track record; it has paid dividends since FY2012 despite not having spelled out a dividend policy. 

Dividends totaled 4 sen per share annually over the past 3 years, translating into 4.04% yield.  

It should have no problem maintaining dividends at this level. Payout ratio was only about 34.5% for FY2015. Furthermore, YOCB is sitting on net cash of RM19 million or 11.9 sen per share, which is approximately 12% of its RM158.34 million market capitalisation. 

YOCB will benefit from lower commodity prices. Textile fabrics, which make up majority of costs, are imported and denominated in US dollar. Whilst the ringgit has fallen by 17.2% YTD against the greenback, prices of the key raw material, cotton, have also fallen by 3% YTD. This should partially offset the impact of weak ringgit. The company also hedges its exposure. 

Plus, 17.1% of its FY2015 revenue was derived from the exports, primarily from Singapore.

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