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The analysis below meant to compare Q1 FY20 vs Q1 FY19.
Revenue dropped by about RM2.2mil, as communicated from the report, was mainly due to slower demand. Besides, the Covid-19 pandemic as well as Movement Control Order (MCO) that effective 18th of March, 2020 also contributed to the lower performance.
Based on the segmental analysis:
1. Revenue from the manufacturing division (Manufacturing and retailing of corrugated cartons, packing
materials, gift and display box) dropped by RM5.8mil due to lower market demand. Higher operating cost was observed following MCO. Thus, the margin for the manufacturing division dropped from 12.4% to 5.3%.
2. The trading division (Trading of paper products, design and sale of paper) recorded RM1.0mil higher revenue as compared to Q1 FY19 due to higher demand. The margin for the trading division increased from 18.7% to 27.2%.
3. The hotel division (The Prestige Hotel that commenced its operation on the 1st of June, 2019) contributed RM2.7mil to revenue. The margin is recorded at 1.0%.
Overall, we observed a dropped in revenue of about RM2.2mil. (-5.8 + 1.0 + 2.7 = -2.1)
While operating expenses increased by RM0.5mil, mainly contributed by higher depreciation cost of assets.
So, profit before tax dropped by RM2.7mil which is evident from the dropped in revenue as well as the higher operating expenses. (2.2 + 0.5 = 2.7)
As communicated from the report, PPHB is looking at
1. strengthen market position and expand its customer base in view to boost revenue.
2. enhancing operational efficiency and cost control, which is hopeful to bring up the margin of the respective business division, resulting in a better profit before tax.
Based on the current situation and the communicated Q1 FY20 results and future prospects of the company,
1. I would expect a higher revenue from the manufacturing division with the expanded customer base, with an improved margin between 5.3% and 12.4% for manufacturing division (however still lower than Q1 FY19 since there could be increased marketing expenses).
2. For trading division, I would expect higher revenue and margin following the spike in online shopping during MCO and thus higher market demand may be observed.
3. The other business division should post a negligible impact on the revenue of the company, however, the operation of hotel division may be affected, and hence, this could become a loss-making business for the coming quarter although the contribution to the overall performance is small.
Looking at the current price chart, MA200 = RM0.795.
I would expect a downward price movement to RM0.730 - RM0.750 in the short term. Strict CL if price below RM0.690.
Should the coming quarter results came in as per expectation, the price target is set at RM0.940.
Thian Teck Siow
Good financial analysis, however should also look into the perspective of operational data. The output of the carton manufacturing industry, which is the core business of the group, has fallen by -7.6%, -8.2%, and -14.0% for three consecutive quarters; its PBT margin has also dropped from an average of 12% -16% to latest 5.3%. The stock price will continue to return to the 0.5 level in the short term, and it is not suitable to buy now.
So sorry that I mistakenly deleted your comment @Thian Teck Siow. You got your point, but on the shorter term, I believe RM0.690 could be the support, at least this can be a safe point to cut loss for those already bought the counter. Any price below this level, like you said, a high chance to revisit RM0.500 (I will think around RM0.580). Hope this can be a guide for those with a position in the counter.
