Advertisement

Tuesday, March 11, 2014

Kheesan: Yet to taste the sweet taste of success

Background

Khee San Bhd ('Kheesan') is involved in the manufacture of sweet and confectionery products. The Company’s products are being sold in the local and international markets. The Sweet and Candies segment is subdivided into categories: such as candies, bubble gum, chewing gum, tablets, sweets and wafers are being manufactured by the Company, which includes household brands, such as Fruitplus, Torrone and Bento.

Kheesan is controlled by London Biscuits Bhd ('Lonbisc') which owns a 30.7%-stake in Kheesan. Lonbisc acquired this stake for RM27.63 million (or RM1.50 per share) in October 2007.

Recent Financial Results

Kheesan'as revenue has been rising steadily for the past 5 years. The strong growth was not undertaken at the expense of margin.


Table: Kheesan's last 14 years results plus annualized FY14 result

 
Chart 1: Kheesan's last 14 years results plus annualized FY14 result

Financial Position

Kheesan's financial position is deemed mixed, with low liquidity as reflected by a current ratio of 0.5 time as at 31/12/2013. Its gearing ratio is satisfactory at 0.6 time. The low current ratio is the result of using short-term borrowings to tie over its fixed assets. On further checking, Kheesan appears to be very inefficient in the use of capital as reflected by its Property, Plant & Equipment of RM148 million as compared to its annualized revenue of RM110 million for FY2014.  

Valuation

Kheesan (closed at RM0.625 today) is trading at a PE of 8 times (based on annualized EPS of 7.58). Measured by PER, Kheesan is deemed fully valued for a smallcap.  If measured by PBV, Kheesan is deemed cheap at current PBV of 0.4x.

Technical Outlook

Kheesan is in an intermediate uptrend line, with support at RM0.50 (see Chart 2). This intermediate uptrend began after Kheesan broke above its 'possible' long-term downtrend line at RM0.50 in late part of 2013 (see Chart 3). Kheesan's immediate resistance is at horizontal lines RM0.60, RM0.65 & RM0.70.

 
Chart 2: Kheesan's daily chart as at Mar 10, 2014 (Source: Tradesignum) 


Chart 3: Kheesan's weekly chart as at Mar 10, 2014 (Source: Tradesignum)

Conclusion

Based on mildly positive technical outlook & steady improvement in financial performance, Kheesan could be a good stock for a recovery play. The negative factors to consider are the poor liquidity position & unsatisfactory management of financial resources.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Kheesan.

No comments: