I have 3 biji MEGB.
by maddie@bizedge.com (Insider Asia)
In our previous piece on select stocks that currently offer higher-than-market average yields, we highlighted White Horse Bhd, one of the leading manufacturers of ceramic and homogeneous tiles in the country.
White Horse has performed very well over the past three years, recovering smartly from the sharp decline in 2006-2007. Net profit expanded from RM38.4 million in 2007 to RM69.1 million in 2010, equivalent to a compounded growth rate of more than 21.6% per annum.
We are fairly sanguine on the outlook for the industry, despite the intense competition, including from imported tiles. Demand is expected to remain robust over the next year or two at least, given the property boom, which started near end-2009. There is typically a time lag before a property launch translates into demand for tiles, which comes into play towards the end of the project.
The positive environment should also bode well for Yi-Lai Bhd, another listed tiles manufacturer on the local bourse. The company started operations back in 1990, setting up a manufacturing facility in Kulai, Johor and producing tiles under the brand name “Alpha”.
Worst may be over for Yi-Lai
Yi-Lai’s earnings track record, however, has been less robust compared with that for White Horse. After hitting a high of RM27.7 million in 2005, net profit dipped sharply to RM17.6 million in 2007. Earnings continued to decline in 2008-2009. The recovery did not begin until last year when margins steadied and net profit rebounded to RM15.3 million from a low of RM11.8 million in 2009.
As a result, its shares have under-performed the broader market although the stock has recouped some lost ground over the past one year. Its share price rebounded from a low of about 70 sen in mid-2010 to the current 90 sen.
The worst could be over for the stock, which is now trading well below its net assets of RM1.26 per share. Indeed, expectations of a sustained earnings recovery coupled with a high dividend payout are likely to bolster its appeal to investors.
Yi-Lai has maintained generous dividends
Despite earnings weakness in the past few years, Yi-Lai’s dividend payments have been less affected, thanks to the company’s strong balance sheet. Annual net dividends have held fairly steady, averaging at roughly 6.7 sen per share over the past four years. Its net cash stood at RM50.6 million or roughly 32 sen per share at end-2010, which is sufficient to maintain this level of dividends for almost five years.
Assuming dividends totalling seven sen per share for the current year, investors would earn an attractive net yield of 7.8% whilst P/E valuation for the stock is fairly modest at an estimated 9.3 times earnings.
Recent selldown lowers valuations and raises yields for Masterskill
Another stock expected to offer investors higher-than-market average yield, driven by the sharp decline in its share price is Masterskill Education Group Bhd.
The stock has fallen well off its peak of RM4.25 last year, depressed by a confluence of factors. These include uncertainty over potential cutbacks in the National Higher Education Fund Corp (PTPTN) loan scheme, selldown by foreign investors as well as some delays in the opening of its new campuses. Still, despite its share price weakness, the company’s earnings have met market expectations. Revenue was up 15% to RM315.7 million in 2010 while net profit grew 5% to RM102.1 million or 24.9 sen per share.
Its outlook appears upbeat. The education industry, as a whole, is widely viewed as recession-proof and prospects for growth are good. The company, which offers a wide range of higher education and training services in nursing and health services, expects to maintain earnings growth on the back of campus expansion plans and rising student numbers. It recently secured approval for programmes for its new campuses in Kuching and Seri Alam, Johor, from the Higher Education Ministry. In a related development, the government recently indicated that repayments for study loans under the PTPTN have improved in the past three years. This bodes well for Masterskill. The national fund is in deep deficit, raising concerns on its future funding capability — which is the primary source of financing for the majority of students undertaking Masterskill courses.
Some of the measures undertaken include the transfer of loan collection responsibility to the Internal Revenue Department last May, so that repayments could be made through salary deductions. PTPTN is also developing a loan management system, to be completed next year, to further improve and enhance repayments.
Masterskill targets to pay out 50%-60% of net profit
Masterskill has a relatively generous dividend policy, with a target payout of 50%-60% of annual net profit. We estimate dividends to total 13.6 sen per share for the current year, assuming a 50% earnings payout. That would translate into an attractive net yield of 7.3% at the prevailing price of RM1.85.
Steady cashflow from operations and a strong balance sheet would support both the company’s expansion plans and dividend payout. Net cash totalled RM99.4 million at end-2010 or roughly 24.3 sen per share.
The recent selldown has driven Masterskill’s valuations lower — forward P/E estimated at just about 6.8 times — well below that of peers HELP International Corp Bhd and SEG International Bhd as well as the broader market’s average valuations.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, March 25, 2011.