Can You Find Success In Hup Seng Industries Bhd Now?

In 1958, four brothers had established a partnership known as Hup Seng Co. In Cantonese, ‘Hup’ means unity while ‘Seng’ means success. It has been the recipe for decades of successes and prosperity to the Kerk family. The family enterprise was listed on 2 November 2000 and since then, had matured into a leading crackers/biscuit manufacturer in Malaysia. In this article, I’ll share 9 things that you need to know about Hup Seng before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: HUPSENG / KLSE: 5024
Market Capitalization: RM 880 Million (23 April 2018)

Share Price: RM 1.10 (23 April 2018)

Industry: Consumer Products

Syariah Compliant: Yes

#2: The Business

Presently, Hup Seng derives income from two main businesses:

  1. Biscuit Manufacturing
    Hup Seng is a proud manufacturer of key iconic brands of sweet and savory biscuits which include ‘Cap Ping Pong’ and ‘Hup Seng Cream Crackers’ which are popular among the low-to-middle income group of customers. Meanwhile, brands such as ‘Kerk’ and ‘Naturell’ are the premium products of Hup Seng which are targeted to higher income group of customers. In 2017, Hup Seng has made RM 218.7 million in revenues and RM 33.9 million in segmental profits from this division. Thus, it remains as the main income contributor to Hup Seng.

  2. Beverages Manufacturing
    In 2005, Hup Seng has acquired In-Comix Food Industries Sdn Bhd (In-Comix). It is involved in manufacturing coffee mix and beverage mix under brands such as In-Comix. In 2017, this division has made RM 9.7 million in sales and RM 0.6 million in segment profits, thus, making it a less significant financial contributor to Hup Seng at the moment.

#3: Profitability

Overall, Hup Seng has delivered growth in sales and profits to shareholders over the last 10 years. It has achieved a CAGR of 4.5% in revenue as revenue had grown from RM 193.1 million in 2007 to RM 299.7 million in 2017. With improved margins, Hup Seng had grown its shareholders’ earnings from RM 4.8 million in 2007 to as high as RM 54.7 million in 2015. Profits had dipped marginally to RM 44.4 million in 2017 as Hup Seng had incurred higher raw material costs in 2016 and 2017.

Hup Seng has made a 10-Year Return on Equity (ROE) average of 21.78% per annum. It means, Hup Seng has generated, on average, RM 21.78 in earnings per year from every RM 100 in shareholders’ equity from 2008 to 2017.

Source: Annual Reports of Hup Seng Industries Bhd

Calculated from Figures Obtained from Hup Seng’s Annual Reports

#4: Balance Sheet Strength

As at 31 December 2017, Hup Seng does not have any interest-bearing debts, thus, having zero in gearing ratio. Hup Seng has continuously grown its cash reserves over the last 10 years. It grown from RM 15.6 million in 2007 to RM 90.8 million in 2017.

Source: Annual Reports of Hup Seng Industries Bhd

#5: Efficiency Ratio  

There are three efficiency ratios:

  1. Debtor Days
    It measures how efficient a stock is in collecting cash after it billed its customers. Hup Seng has lowered its debtor days slightly from 56.0 days in 2009 to 49.4 days in 2017. This means, Hup Seng has become more efficient in collecting cash from its customers over the last 8 years.

  2. Inventories Days
    It measures how efficient a stock is in selling off its inventories. Hup Seng has reduced its inventories days from 64.7 days in 2009 to 48.7 days in 2017. This means, Hup Seng is able to clear off its inventories faster and more efficiently over the last 8 years.

  3. Creditor Days
    It measures how long a stock takes to pay its suppliers once the stock is billed by its suppliers. Hup Seng has lifted it from 71.2 days in 2008 to 103.9 days in 2017. It could be an indication of greater relationships with its suppliers as suppliers are more willing to extend Hup Seng a much longer credit terms to keep Hup Seng as a customer.

Calculated from Figures Obtained from Hup Seng’s Annual Reports

#6: Future Outlook

Here are the key highlights of Hup Seng moving forward:

  1. Construction of New Factory
    On 9 March 2016, Hup Seng has acquired two parcels of land in Batu Pahat, Johor for RM 17.49 million to expand production capacity. The acquisition has been completed on 6 September 2016 and had grown its factory premises by nearly 57%.

  2. Distribution Channels
    In 2017, Hup Seng distributes its products via retail, wholesale and as well as modern channels with a total of about 9,500 accounts to local customers across Malaysia. Hup Seng intends to increase its channels of distributions in tandem with introduction of new shopping outlets  especially in Kuala Lumpur and Johor over the next few years.

  3. Auto Stacking System
    In 2016, Hup Seng has also acquired two sets of auto stacking system to replace manual operations and enhance packaging efficiency. The two systems are expected to be fully commissioned in 2018.

#7: Valuation

As I write, Hup Seng is trading at RM 1.10 a share.

In 2017, Hup Seng has reported earnings per share (EPS) of 5.56 sen. Hence, its current P/E Ratio works out to be 19.78.  In 2017, Hup Seng has reported to have RM 0.204 in net assets a share. Hence, it has a current P/B Ratio of 5.39.

Hup Seng has declared 2.0 sen in dividends per share (DPS) over the last 4 quarters. If it continues to do so, Hup Seng would pay out 8.0 sen in DPS in a year. As such, its expected gross dividend yields is 7.27% if I invest in Hup Seng at RM 1.10 a share.

#8: Investors Relation

For further enquiries or to request for additional investment information on Hup Seng Industries Bhd’s Investors Relation matters, you may contact:

Website: http://hsib.com.my/OurContact.html

#9: Major Shareholders

As at 20 March 2018, the substantial shareholders of Hup Seng Industries Bhd and their respective shareholdings are as followed:

– HSB Group Sdn Bhd: 51.00%

– Citibank New York (Norges Bank 14): 2.84%

– Cekap Kapital Sdn Bhd: 2.50%

Note:

The Kerk family remains the substantial shareholder of Hup Seng Industries Bhd via their interest in HSB Group Sdn Bhd. Dato’ Kerk Chu Koh sits in the board of Chairman. His brothers, Kerk Chew Siong and Kuo Choo Song are made Vice Chairman and Managing Director of the company respectively.

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Ian Tai

Ian Tai is the founder of Bursaking.com.my, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that sifts out stocks that grow profits consistently from a database of over 900+ stocks listed mainly in Malaysia. As a Malaysian with close family ties in Singapore, Ian publishes a series of newsletters on how anyone can invest profitability in both countries.

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