Stock With Momentum: Classic Scenic

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This article first appeared in The Edge Financial Daily, on March 23, 2016.


Classic Scenic Bhd (-ve)

WOODEN picture frame mould maker Classic Scenic (fundamental: 1.95/3; valuation: 2/3) triggered our momentum algorithm yesterday after 336,500 shares exchanged hands. Its shares have rebounded by 25.5% to an all-time high of RM1.36 yesterday from its one-year low of RM1.084 last August.

 For its fourth quarter ended Dec 31,2015 (4QFY15), Classic Scenic posted a 78.7% jump in net profit to RM4.6 million from RM2.6 million a year ago, despite a 4.5% decline in revenue. The company attributed the improved earnings to the stronger US dollar, more efficient use of materials, and the fair value gain from foreign currency forward contracts.

Concurrently, the company declared a second interim dividend of 6 sen, which will go ‘ex’ on April 28. Dividends for FY15 totalled 10 sen, up from 8 sen last year, giving an attractive yield of 7.4%.

For the full year, net profit increased 13.6% year-on-year to RM11.5 million on the stronger US dollar, while revenue fell 7.6% to RM53.9 million due to lower export volume. Notably, export sales to North America dropped RM9.6 million to RM36.9 million, though somewhat offset by a RM4.8 million increase in sales from Asia Pacific region.

Largely an exporter, Classic Scenic derived over 90% of its sales from outside Malaysia, mostly to the US (85.2%) and Australia (5.9%) in 2014. Although the sales contribution from the US decreased to 68.4% this year, the company said it could stand to benefit from the stronger US dollar and improving US economy.

With minimal capital expenditure requirements, the company has paid out most (91%-105%) of its earnings in the past five years. As of end-December 2015, its net cash position stood at RM21.4 million, which could sustain its dividend payment for about two years.

Substantial shareholder Lim Chee Khoon, who retired as executive director in 2014, has gradually reduced its stake through open market transactions by 3% to 10.7% over the past year.