PESTICIDE manufacturer Imaspro Bhd, the latest investment target of Datuk Dr Yu Kuan Chon, seems to have piqued the curiosity of investors again. They want to know what in it has attracted the veteran investor who is famed for taking up key stakes in lesser-known companies.
While Imaspro managing director Tong Chin Hen claims to be unaware of why the company is subject to Yu’s sudden interest, he points out that the local pesticide maker exports to the EU as its products are compliant with European requirements.
“We are the only Malaysian producer whose products are ‘proven equivalent’ in the EU, which allows us to sell to its members. The pesticide registration process is long and comprehensive and as tightly regulated as pharmaceutical drugs,” he tells The Edge in a telephone interview.
“Our products are registered in many countries. Because of my background and with networking, we are very strong in Eastern Europe,” he says, adding that Imaspro has traditionally been very active in this region.
Tong adds that Imaspro’s strong ties with communist countries like Cuba has enabled it to gain entry into them.
The company has 277 product registrations globally.
In the financial year ended June 30, 2014, local sales accounted for about 45% of its revenue while 55% came from overseas.
Imaspro (fundamental: 1.45; valuation: 0.6) is in the business of manufacturing and distributing pesticides, including herbicides, insecticides and fungicides, as well as related agrochemicals.
Besides its EU certification, perhaps Yu also likes the company’s balance sheet, which showed net cash of RM51.3 million or 64 sen per share and zero borrowings as at Dec 31, 2014.
Little-traded Imaspro saw its volume skyrocket to 1.3 million compared with barely 200,000 shares a day in the past. The surge in interest sent up the company’s share price to an all-time high of RM1.95 on March 25. However, it had retreated to RM1.74 by last Friday.
Imaspro is trading at a price-earnings ratio of 16.4 times and has a market capitalisation of RM142.4 million.
Yu, who is YNH Property Bhd chairman and executive director, is now the second largest shareholder in Imaspro with a 12.38% stake.
His close associate, Chan Weng Fui, has also emerged as a substantial shareholder with 5.49% equity interest or 4.39 million shares.
Chan is known to have worked closely with Yu in past transactions, the most notable of which are Rapid Synergy Bhd and Pan Malaysia Holdings Bhd — companies in which the latter has substantial interests.
Tong remains the single largest shareholder of Imaspro with a 42.43% stake or 33.95 million shares through Swiss Revenue Sdn Bhd.
He says Imaspro plans to be more aggressive in the local market after successfully securing a tender recently to supply herbicides to Sime Darby Plantation Sdn Bhd, although he notes that the contract is “not much”.
“We have not been actively involved in (tendering for projects) locally as we have been concentrating on overseas market growth. But we want to have a more aggressive policy on local plantations going forward,” says Tong, adding that management believes a stronger focus on the local plantation business would be worthwhile for Imaspro.
He says Imaspro has come to a stage where its daily operations are on “auto cruise”.
The company’s net profit jumped from RM5.1 million in FY2012 to RM9.1 million in FY2014 but declined 10% to RM4.28 million in calendar year 2014. This was attributed to a lower margin caused by the fluctuating prices of its main raw material — glyphosate technical.
In the second quarter ended Dec 31, 2014 (2QFY2015), Imaspro’s net profit fell to RM2.44 million from RM2.64 million in the previous corresponding period while revenue dropped to RM25.36 million from RM27.97 million.
Glyphosate is the most widely used agrochemical in the world. More than 50% of Imaspro’s revenue is derived from glyphosate-related products, according to Imaspro’s 2014 annual report. “While the group purchasing policy keeps the procurement cycle to the shortest possible, we were nevertheless impacted by these widely fluctuating prices of glyphosate technical,” it says, noting that the price of glyphosate technical went on a roller-coaster ride last year.
CIMB Investment Bank’s head of retail research for equities, Kong Seh Siang, comments that should the raw material’s price drop further, Imaspro may have to write down more of its inventories.
He says glyphosate prices have continued to weaken — from between US$4 and US$4.20 per kilogramme in 1QFY2015 to US$3.50 at present.
Imaspro’s lower revenue in the first half of FY2015 ended Dec 31, 2014, was due to slower replanting of crops on subdued global commodity prices globally, Kong points out. Revenue decreased 11% to RM44.14 million from RM49.62 million a year ago in both the local and export segments,
“The weak outlook for commodity prices remains a banana skin here as planters may choose to defer purchases or even switch to cheaper pesticides in the near future,” says Kong.
Crude palm oil prices had fallen 18.24% to RM2,156 per metric ton (MT) last Thursday from RM2,637 a year ago. Most research houses are “neutral” on the plantation sector with CPO price forecasts for this year ranging from about RM2,100 to RM2,700.
Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for details on a company’s financial dashboard.
This article first appeared in The Edge Malaysia Weekly, on April 6 - 12, 2015.
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