Stocks With Momentum: Stronger solar sales to lift Tek Seng’s FY14 earnings

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fd_momentum_emblem_theedgemarketsKUALA LUMPUR: Penang-based polyvinyl chloride (PVC) products manufacturer Tek Seng Holdings Bhd is upbeat on its financial performance this year, with higher profit and revenue expected in its financial year ending December 2014 (FY14), underpinned by more demand from its solar division.

The stronger performance is also because of its subsidiaries’ positive contribution to its financials this year, the group’s executive director Loh Joo Eng told The Edge Financial Daily in an email interview recently.

Although the full-year FY14 figures are not yet known, it should be noted that its cumulative six months ended June 30 this year (1HFY14) showed a net profit of RM10.81 million, up over 970% year-on-year (y-o-y) from RM1.01 million. Revenue was also significantly higher, up 25.56% y-o-y to RM122.35 million from RM97.44 million.

Notably, its solar division recorded a profit before tax of RM1.15 million in 1HFY14, an improvement of RM8.06 million from a loss of RM6.91 million in 1HFY13, mainly due to higher sales volume and other operating income.

Comparatively, the group registered a net profit of RM3.73 million in its FY13 results, down 44.07% y-o-y from RM6.67 million, even though revenue was up 8.78% y-o-y to RM206.33 million from RM189.68 million.

Tek Seng was one of The Edge Research’s Stocks with Momentum on Oct 21, 2014. It is primarily involved in the manufacturing and trading of PVC sheeting. It ventured into the solar photovoltaic cell manufacturing business in 2012 through its 86.1%-owned unit, TS Solartech Sdn Bhd.

Its shares marched to an all-time high of 86.5 sen on Oct 31, rallying 183.61% from 30.5 sen on Jan 2 this year, following the news that Taiwan-listed Solartech Energy Corp proposed an investment of RM100 million in TS Solartech in September.

It inked a memorandum of understanding (MoU) with Solartech on Sept 11 on the latter’s investment into its unit for a “strategic alliance”, but it is worth noting that negotiations with the Taiwanese company on the terms of the proposed investment are yet to be finalised.

Last Friday, the counter settled 1.22% higher at 83 sen, giving it a market capitalisation of RM199.2 million.

The Edge Research had also noted that its solar division is gaining more prominence with the rise in demand for solar energy, and is likely the reason Tek Seng is seeing increased interest.

Still, the overall solar industry is just recovering from the huge dip in prices years ago, said Loh, and cautioned that there is still a glut in the global market, mainly from Chinese and Taiwanese photovoltaic (PV) makers.

“As an infant industry in most countries, feed-in tariff (FiT) and other incentives by government will be the driving factor behind the demand for solar PV systems,” she said.

Meanwhile, on its PVC business, Loh said demand for such products is on the decline in North America and Western Europe, but stressed that statistical data suggests that it still looks promising in other parts of the world.

Tek Seng, which has a wide presence in Asia and the Middle East, has been planning to explore new markets like Latin America and Africa.

“We are facing competition mainly from China, especially with regards to pricing, but we are making a name for ourselves as a customer-oriented company,” said Loh.

As to the falling Brent crude price, Loh said it will inevitably affect the price of PVC products, though she thinks the impact would neither be huge nor immediate.

“It depends on upstream raw materials such as ethylene and vinyl chloride monomer,” she said.

Year-to-date, Brent crude oil’s spot price dipped 24.98% to US$83.12 last Friday (RM277.99) from US$110.80 on Dec 31, 2013. It hit a high of US$115.06 on June 19 this year.

Two weeks ago, Tek Seng proposed a bonus issue of up to 120 million free warrants on the basis of one free warrant for every two existing Tek Seng shares to raise up to RM300 million, based on an indicative price of 25 sen per warrant. The proceeds of the cash call will be used to buy raw materials and to pay utility bills and staff costs.

 

This article first appeared in The Edge Financial Daily, on November 10, 2014.