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4Q FYE DEC 2012 RESULTS REPORT Name of PLC: Grand-Flo Solution Berhad Target Price: 1 March 2013 RM 0.33 Business Summary : Specialise in the provision of comprehensive Enterprise Data Collection and Collation System (EDCCS) Solutions Major Shareholders : Grand-Flo Corporation Sdn Bhd, (21.4%) HeiTech Padu Berhad, (20.1%) (as at 30 April 2012) PLC Website : http://www.grand-flo.com IR Contact : Yap Li Li, Executive Director Email : liliyap@grand-flo.com Recommendation: Market Capitalisation: Current Price : Market / Sector: Stock Code: Analyst : Lim Boon Ngee Tel : +603 2163 3200; Email : bnlim@nra.com.my
Key Stock Statistics FY10 EPS (sen) 2.5 P/E (x) 8.6 Dividend/Share (sen) 0.5 NTA/Share (sen) 9.1 Book Value/Share (sen) 9.1 Issued Capital (m shares) 145.1 52-weeks Share Price Range (RM) FY11 FY12 FY13F 2.9 2.5 3.1 7.5 8.9 7.1 0.6 0.7 0.9 12.4 15.6 15.8 12.4 15.6 15.8 159.5 319.6 319.6 0.20 - 0.26

Buy RM75.1m RM 0.22 Main Board / Technology 0056

Share Price Chart


0.30 Share Price (RM) Volume ('000 Shares) 140000 120000 100000 80000 0.20 60000

Per Share Data Year-end 31 Dec Book Value (sen) Opt Cash Flow (sen) Earnings (sen) Dividend (sen) Payout Ratio (%) P/E (x) P/Cash Flow (x) P/Book Value (x) Dividend Yield (%) ROE (%) Net Gearing (%) P&L Analysis (RMm) Year-end 31 Dec Revenue Operating Profit Net Interest Expense Associate Pre-tax profit Effective Tax Rate (%) Net Profit Operating Margin (%) Pre-tax margin Net margin

FY10 9.1 0.8 2.5 1.0 19.6 8.6 28.5 2.4 4.5 16.8 16.5 FY10 68.6 8.0 (0.7) 1.2 8.5 (9.8) 7.4 11.6 12.4 10.8

FY11 12.4 1.6 2.9 1.2 20.2 7.5 13.7 1.8 5.4 16.6 8.5 FY11 74.7 9.1 (0.6) 1.5 10.1 (6.6) 9.4 12.2 13.5 12.6

FY12 FY13F
40000

15.6 3.1 2.5 0.7 28.4 8.9 7.2 1.4 3.2 11.4 11.2

15.8 2.8 3.1 0.9 27.6 7.1 7.8 1.4 3.9 13.0 6.8

20000 0.10 Jan-12 0 Mar-12 May-12 Jul-12 Aug-12 Oct-12 Dec-12 Feb-13

1.

4QFY12 Results Highlight / Review


4QFY12 RMm 23.3 1.5 (0.2) 2.4 2.0 6.3 10.4 8.7 4QFY11 RMm 19.9 1.2 (0.2) 2.2 2.3 5.8 11.3 11.5 Chg % 16.7 25.9 14.3 8.0 (11.9)

Year-ended 31 Dec Revenue Operating Profit Interest Expense Pre-tax Profit Net Profit Operating Margin (%) Pre-tax Margin (%) Net-Margin (%)

FY12 FY13F 87.6 6.9 (0.6) 2.6 8.8 (10.5) 7.9 7.9 10.1 9.0 96.4 9.5 (0.7) 2.0 10.8 (9.0) 9.8 9.9 11.2 10.2

Grand-Flo Solution (GF)s recorded 4QFY12 revenue growth of 16.7% to RM23.3m compared to RM19.9m in 4QFY11, driven by domestic demand for Enterprise Data Collection and Collation System (EDCCS).

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The group pre-tax profit increased 8.0% y-o-y to RM2.4m from RM2.2m in 4QFY11, mainly attributed to higher sales of EDCCS devices in Malaysia, but on a lower margin during the quarter under review. 4QFY12 net profit was -11.9% lower compared to the same period last year due to tax credit in 4QFY11. During the quarter under review, GFs overseas associate company delivered a satisfactory performance, having recorded profit contribution of RM1.1m in 4QFY12 compared to RM1.2m in 4QFY11.

FY12 results comparison


Year-ended 31 Dec Revenue Operating Profit Net Interest Income Pre-tax Profit Net Profit Operating Margin (%) Pre-tax Margin (%) Net-Margin (%) FY12 RMm 87.6 6.9 (0.7) 8.8 7.9 7.9 10.1 9.0 FY11 RMm 74.7 9.1 (0.6) 10.1 9.4 12.2 13.5 12.6 Chg % 17.3 (23.9) 12.7 (12.2) (16.0)

For the full year FY12, the group revenue rose 17.3% y-o-y to RM87.6m from RM74.7m recorded in FY11 on the back of steady domestic demand for its EDCCS products. Pre-tax profit declined -12.2% y-o-y to RM8.8m as compared to RM10.1m recorded in the FY11 on lower profit margins. The lower pre-tax profit was also affected by one-off transfer of listing expenses from the ACE Market to the Main Market of Bursa Malaysia amounted to RM0.8m. Stripping out the transfer of listing expenses, pre-tax profit would have been RM9.6m, which is -4.9% y-o-y lower compared to the same period last year. Consequently, net profit margin declined to 9.0% from 12.6% in FY11, with profit margins eroded by low margin sales and higher raw material costs in both the EDCCS and label business.

Review of segmental results


Segmental breakdown (RM million) Turnover - EDCCS - Labels Total Pre-tax profit - EDCCS - Labels Total Net profit - EDCCS - Labels Total Pre-tax margin * Refers to 4Q12/3Q12 Change y-o-y % 33.7% -19.3% 16.7% *Change q-o-q % 6.6% -6.1% 3.5% Change y-o-y % 29.4% -7.2% 17.3%

4Q12 18.1 5.1 23.3

4Q11 13.6 6.4 19.9

3Q12 17.0 5.5 22.5

FY12 64.8 22.8 87.6

FY11 50.1 24.6 74.7

2.2 0.3 2.4

1.5 0.7 2.2

43.8% -64.8% 8.2%

0.8 0.7 1.6

160.0% -64.9% 54.5%

6.4 2.4 8.8

8.3 1.7 10.1

-22.9% 39.8% -12.2%

1.8 0.2 2.0 10.4%

2.1 0.2 2.3 11.2%

-15.3% -33.3% -11.8%

0.8 0.6 1.4 7.0%

124.9% -64.4% 42.4%

5.9 2.0 7.9 10.1%

7.9 1.5 9.4 13.5%

-24.5% 28.4% -15.9%

EDCCS in Malaysia continues to be the main contributor, accounting for 87.2% of groups revenue, whilst the remaining 12.8% was from the labels business.

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Revenue contribution from its EDCCS business increased 33.7% y-o-y to RM18.1m in 4QFY12 from RM13.6m in 4QFY11, buoyed by healthy demand from the domestics market in the quarter under review. Its labels business, however, experienced lower demand which resulted in -19.3% declines in revenue to RM5.1m from RM6.4m in 4QFY11.

2. Company Background

GF is a fully integrated provider of comprehensive Enterprise Data Collection and Collation System (EDCCS) Solutions using mainly bar coding (current), and radio frequency (RF) (future) technologies. It services a wide range of sectors, including healthcare, warehousing, retail chains, manufacturing, but the key industries underpinning growth are logistics and the fast moving consumer goods (FMCG) sectors. GF have offices in Malaysia, Singapore, Thailand, Vietnam and China and a presence in Indonesia and the Philipines via value-added resellers. Group revenue comprises of sale of EDCCS products and software, sale of barcode labels, as well as system maintenance.

3. Recent Developments

On 27 February 2013, Simat Technologies Public Company Limited (Simat), Grand-Flos associate company in Thailand, proposed a private placement of up to 16.0m new shares amounting to THB126.9m. The proposed private placement will result in the dilution of Grand-Flos shareholding in Simat from 33.17% to 30.26%. On 27 February 2013, GF announced that Simat has been awarded the Internet Service License type 3 by the Broadcasting and Telecommunications Commission of Thailand for a period of 10 years from 19 December 2012 to 18 December 2022. GF also announced the completion of the fiber network project in 2 Thai provinces, namely Chiangmai and Nakornratchasima. To recap, Simat have invested RM52m in building the Fiber Cable Network System, which was planned to be leased to CAT Telecom Public Company Limited (CAT). The agreement with CAT was eventually terminated due to a breach in the terms of the contract by CAT. Consequently, Simat has sign MOU with TOT Public Company Limited (TOT) for a joint marketing partnership to increase the potential of the HISPEED internet services using the completed fibre network. TOT is the Thai-state owned telecommunications company, with a large customer base and entrenched market position in the telecommunication business in Thailand. Simat and TOT are expected to commence provision of the internet services in the 2 provinces upon completion of testing by TOT in April 2013.

4. Earnings Outlook Near term, we expect profit margin could still be affected by higher operating costs. Nonetheless, demand for EDCCS and label business in Malaysia remains healthy, driven by higher recurring earnings from maintenance contracts, as well as prospects in securing new projects and new customers. Based on the secured sales orders pending delivery and projects in the pipeline, GFs should able to deliver better result in FY13.

GFs 33.2% associate company, Simat in Thailand, has shown improvement to group earnings contribution. Recently Simat has been awarded the Internet Service License type 3 by the
Broadcasting and Telecommunications Commission of Thailand for a period of 10 years to provide internet services in 2 Thai provinces, namely Chiangmai and Nakornratchasima.

5. Valuation and Recommendation

Overall, we expect GF to deliver steady growth going forward. Demand for GFs services and solutions should remain steady. Although demand for labels business has been slightly affected by the global economic uncertainty, especially in the US and Euro Zone, the group is confident that this could be offset by higher demand for its EDCCS products from new and existing customers from the domestic market. At the current price level, GF is trading at a prospective FY13 P/E of 7.1x based on our EPS forecast of 3.1 sen. We are maintaining our BUY recommendation on the stock, with a price target of RM0.33 based on a target P/E of 10.7x for FY13.
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Disclosures/Disclaimer Investment ratings: Buy (generally >10% upside over the next 12 months) Hold (generally negative 10% downside to positive 10% upside over the next 12 months) Sell (generally >10% downside over the next 12 months) This report has been prepared by Netresearch-Asia Sdn Bhd for purposes of CMDF-Bursa Research Scheme (CBRS) III, administered by Bursa Malaysia Berhad (Administrator) and has been compensated to undertake the scheme. Netresearch-Asia Sdn Bhd has produced this report independent of any influence from the Administrator or the subject company. For more information about CBRS and other research reports, please visit Bursa Malaysias website at: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/eResearch.jsp The information and opinion in this document has been obtained from various sources believed to be reliable. This publication is for information purpose only, and must not be relied upon as authoritative or taken in substitution for the exercise of judgment. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. Opinions expressed in this publication are subject to change without notice and any recommendation herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. No representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in this publication. Accordingly, neither we nor any of our affiliates nor persons related to us accept any liability whatsoever for any direct, indirect or consequential losses (including loss and profit) or damages that may arise from the use of information or opinions in this publication. Netresearch-Asia Sdn Bhd and its related companies, their associates, directors, connected parties and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may materially be interested in any such securities. Netresearch-Asia Sdn Bhd and its related companies may from time to time perform advisory, investment, communications or other services for, or solicit such advisory, investment, communications or other services from any entity mentioned in this report. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest.
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