Dominant Enterprise to expand capacity at BM, Dengkil plants

TheStar Tue, Jan 16, 2018 08:18am - 6 years View Original


KUALA LUMPUR: Dominant Enterprise , which manufactures environmentally friendly engineered wood mouldings, laminated wood panel products, plans to expand its production capacity through its Bukit Mertajam and Dengkil plants.

CIMB Equities Research said on Tuesday the company also distributes and exports a wide range of wood panel products worldwide. 

Its plants are in Johor Bahru, Kulai, Muar, Sungai Buloh, Penang in Malaysia and Ho Chi Minh in Vietnam, which are adequate for present demand. 

The newly Bukit Mertajam plant may complement the existing production capacity of the Penang’s factory and allow the company to cater more effectively to demand from northern Peninsular Malaysia, as well as southern Thailand.

CIMB Research said Dominant intends to build a factory in Dengkil which is slated to start operations in 2020. 

This factory will place the company near its central peninsular customers with hope to capture a larger market share. 

It plans to expand its geographical coverage to South Africa, the Philippines, and the Middle East as well as produce new products annually to remain innovative and competitive.

Dominant is trading at 10.6 times 12-month trailing P/E, which is 19.5% premium to its wood-based manufacturing peers such as Evergreen, HeveaBoard and Mieco Chipboard) P/E of 8.9 times. 

In FY17, Dominant’s total sales were made up of 81% local market vs. 19% export markets (Australia 2%; Asia excluding Malaysia 16% and others 1%).  

The company’s 2QFY18 net gearing rose to 0.50 times (vs. 0.46 times in 1QFY18). Based on FY17 annual report, it incurred a capital expenditure of RM17.7m for the construction of the Bukit Mertajam plant which was funded by internally-generated funds and bank borrowing.
  
Dominant has been paying dividend consistently since FY05. Its dividend yield has been fluctuating between 2.96% and 3.70% since FY13. However, its dividend payout has declined from 53.6% in FY16 to 36.0% in FY17. 

NS Pacific Sdn Bhd (NSP), the largest shareholder, holds 45.05% stake. The owners of NSP include Cha Aku Wai @ Sia Ah Kow and Teo Chiew Peng  Cha is the main driving force and is actively involved in its overall operations and corporate planning. 

Dominant’s three-year (FYE15-17) compounded annual growth rate (CAGR) for sales was a stable 6.2%. 

However for FY16, the global economic uncertainties and the weak Ringgit against USD have resulted in the company facing compressed margins on the back of higher cost of imported raw materials. 

Its performance improved in FY17, with the company posting a 5.9% and 89.3% rise in its revenues and profit after tax & minority interest (PATAMI) respectively on-year. 

This positive performance was underpinned by additional market share captured in Malaysia, Thailand and Vietnam; favourable product mix; and also a sharply lower effective tax rate of 20.9% (compared to 30.3% previously). 

Its FY17 PATAMI margin improved to 4% following three consecutive years of declines. The distribution segment contributed 79.3% to its total revenues in FY17 while the manufacturing arms made up the rest. 

Compared to the previous year, Dominant registered a 12.6% and 5.6% increase in its sales and PATAMI respectively, thanks to market share expansion; penetration into new markets and the advantage gained from economies of scale.  

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