Stock Review – PWF (7134) (PWF CORPORATION BERHAD)

Bursa Malaysia - 7134
Bloomberg - PW:MK

Yahoo - 7134 .kl
Webpage - http://www.pwconsolidated.com.my/

Sector : Consumer Products and Services

Sub Sector : Agriculture Products
Focus : Poultry

Company Profile:

PWF core business is integrated poultry farming. PWF had it headquarter in Penang. PWF involves in feed manufacturing with a maximum capacity of 26,000 metric tonnes per month. The feed manufacturing process is fully automated.

PWF main products are boiler, table eggs and process chicken. PWF able to produce over 5 million kgs of boiler per year, 3 million birds of day old chicken per month, and 700,000 eggs per day.

Revenue:

PWF only had one operating segment and only operated in Malaysia. Below is the revenue and operating margin of PWF.

5 Years Annualise Growth of Revenue	6.30 %
9 Years Annualise Growth of Revenue	3.94 %

In 2012, PWF operating margin had drop to the lowest over the past 10 years at 2.3 %. This is due to oversupply of broiler in the Malaysia market and increase of commodity price, soya and corn, the main ingredient for poultry feed.

Nett Profit

Bar Chart below shows PWF nett profit from 2010 – 2018.

5 Years Annualise Growth of Nett Profit	18.83 %
9 Years Annualise Growth of Nett Profit	20.58 %

From 2010 to 2012 PWF had done a corporate restructure and report discontinue of operation in the annual report which cause the significant low nett profit.

The discontinue operation are mainly from the acquisition of companies from 2004 to 2008 by PWF. Some of companies acquired by PWF over the year are Nayang Prosper Sdn Bhd, Liang Hwa Farm Sdn Bhd, Evergreen Breeding Farm Sdn Bhd, Din-Hin Farm Sdn Bhd, Lean  Hong Duckfeed Sdn Bhd.

In 28 March 2013 three subsidiaries had wind up:

1) Everay Agritect Sdn Bhd

2) PW Tyres & Auto Service formerly known as Gold Star Tyre Mart Sdn Bhd which is a subsidiaries of Liang Hwa Farms Sdn Bhd.

3) PW Breeder (Taiping) Sdn Bhd formerly known as Evergreen Breeding Farm Sdn Bhd.

Other subsidiary wind up over the year are:

1) In 2019 Pin Wee Food Processing Sdn Bhd

2) In 2019 Pin Wee Chicken Trading Sdn Bhd formerly know as PinWee Food Industries (KL) Sdn Bhd

3) In 2017 PW Nutri Processing Sdn Bhd formerly known as Di Hin Chicken Processing Farms Sdn Bhd

4) In 2015 PW Properties Sdn Bhd formerly known as Liang Hwa Farms Sdn Bhd

There is a spike in 2017 revenue was mainly due to revaluation of non current asset with a revaluation surplus of RM 61,288,579.

Assets and Liabilities

Although PWF undergo restructure from 2010 to 2012 the asset value of the companies is maintain and PWF manage to reduce the liability and hence the debt ratio of thought out the period. PWF manage to grow their asset value over time while maintaining the liabilities. Most asset value gain are mainly through revaluation of non current asset

Year	Revaluation Surplus (RM)
2017	61,288,597
2012	89,800,000

Trade Receivables

After 2012, PWF trade receivable past due had decrease to around 30 %.

Financial Ratio

There would be few financial ratios to be look at here:

1)  Interest Coverage Ratio (Green Bar Chart)

2) Cash Ratio (Blue Line Chart)

3)  Current Ratio (Red Line Chart)

1) Interest Coverage Ratio

Interest coverage ratio measure how capable the company pay off the existing debt. With an interest coverage ratio above one mean the earnings before interest & tax (EBIT) is able to pay of the full amount of the financial cost of the year.

Despite lower EBIT in the recent year, PWF had maintain interest coverage ratio above one after 2012 and recently had increase the interest coverage ratio to 4 in 2018.

2) Cash Ratio

As cash is the most liquid assets of the company, cash ratio is use to determine company ability to pay off short term liabilities using cash. Cash ratio above one indicates that company able to settle all current liabilities using available cash.

PWF had low cash ratio less than 0.10. PWF operate in low cash reserve as most reserve is use for expandsion as a few acquisitions and investment in properties had done over the period.

3) Current Ratio

Current ratio measures ability of the company to pay off short term obligation (current liabilities). Current ratio above one means the company able to pay off the current liabilities with current asset.

PWF current ratio is maintain around 0.9 which is 10% below one. Despite low cash ratio, PWF had substantial amount of current asset to have a current ratio about 0.9.

Turnover in Days

Let look into three types of turn over as follow:

1) Inventory Turnover (Blue Line)

2) Trade Receivables Turnover (Red Line)

3) Trade Payable Turnover (Green Line)

1) Days Sales of Inventory

9 Years Days Sales of Inventory Median (days) – 75

PWF days of sales of inventory had drop significantly from 100 days to 40 days. This mean PWF manage to sell their inventories faster in 2018 compared to 2010.

2) Trade Receivable Turnover (Days)

9 Years Trade Receivable Turnover (Days) – 30

PWF trade receivable turnover is quite constant at around 30 days.

3) Trade Payable Turnover (Days)

9 Years Trade Payable Turnover (Days) – 30

After 2014 PWF to maintain it trade payable turnover above the receivable turnover. This indicated PWF manage collect money from its receivable and use the money to paid its payable

Per Share Analysis

PWF per share analysis is adjusted to 2:1 split in 11 July 2016

1) Earnings per share (sen) (Blue Bar)

2) Dividend per share (sen) (Red Bar)

3) Net total assets per share (Green Line)

1) Earnings per share

PWF had inconsistent earning per share. This is mainly due to disposal of non current asset and revaluation of non current asset.

In 2015 there is a drop in Earning per share because in 2015 ESOS is introduce and dilute the share outstanding.

2)  Dividends per share

PWF did not give out dividend consistently. After 2015 there is a consistent annual dividend pay-out however the dividend payment amount is varies.

3) Net total assets per share

There is a significant drop in net total assets per share in 2015 because ESOS is introduce and diluted the share outstanding. Share outstanding in 2014 after adjustment is 118,116,128 while in 2015 the share outstanding increase to 143,287,548 which is 21 % increase.

Director’s Remuneration

Some company paid high remuneration to director despite low profit. Let see how much is PWS director’s remuneration in comparison to staff fee and operating profit.

On average PWF director remuneration is around 12.30 % of the total salaries expenses.

Except 2012 where the operation profit is low, PWF director remuneration around 14 % of the operating profit.

ESOS and Warrant

As of 31^st December 2018 the ESOS are as follows:

ESOS	Exercise Price	Balance
I	0.575	656,000
II	0.62	100,000
III	0.96	1,600,000
IV	0.81	3,325,000

On 13^th April 2016, three free warrants is issued to every ten ordinary shares. As of 31^st December 2018 the warrant details as follows:

Warrant	Exercised Price	Expiring Date	Balance
2016/2021	0.62	20th July 2021	43,807,863

Material Ligation

On 28 November 2017, PWF subsidiaries  PW NutriEgg Sdn Bhd (PWNSB) had commerce legal proceedings against Dehias holding Sdn Bhd (Dehias) on refund of the RM 7,148,087 paid to Dehias for a bumiputraland which unable to registered under the name of PWNSB.

PWNSB also commerce legal procedures against Ong Teik Beng (“OTB”) for the refund of breakage fee of RM 1,429,790 which they withdraw later on 5^th November 2018.

The land purchase had cause PWNSB RM 8,577,877 which unable to transfer name of the company. RM 7,148,087 which is still under the book under other receivable as of 31th December 2018.

Summary of Stock Reviews

Summary of Industry Comparison

Industry Comparison - Poultry

Introduction

Companies which operate in poultry business is feed birds such as chickens, duck, gooses and etc for their egg and meat. In Malaysia chickens is the main bird. The public companies which listed in the Bursa which operate in poultry business are in the consumer staples segment.

The main raw material for the poultry business is the food use to feed chicken such as grains, corns and etc. The two main raw material corns and wheats have drop dramatically since June 2016 the will reduce the operating cost of the company as the animal feed cost had reduce.

The revenue of for poultry business is selling the product, chicken meats and eggs to the consumer. Since the holiday season, Christmas and Chinese New Yew is around the corner, the demand for meat and egg increase hence the price might increase.

In Malaysia there are 13 companies listed in these segment the company are:

1)           CAB Cakaran Cooperation Berhad (CAB 7174)

2)           CCK Consolidated Holding Berhad (CCK 7035)

3)           D.B.E Gurney Resources Berhad (DBE 7179)

4)           Farm’s Best Berhad (FARMBES 9776)

5)           HB Global Limited (HBGLOB 5187)

6)           Huat Lai Resources Berhad (HUATLAI 7141)

7)           Lay Hong Berhad (LAYHONG 9385)

8)           LTKM Berhad (LTKM 7085)

9)           PPB Group Berhad (PPB 4065)

10)                      PWF Consolidated Berhad (PWF 7134)

11)                      Saudee Group Berhad (SAUDEE 5157)

12)                      Teo Seng Capital Berhad (Teo Seng 7252)

13)                      TPC Plus Berhad (TPC 7176)

A value investor shall avoid company that having problem in their financial statement. In Malaysia, Bursa name them in the PN 17 list, investor shall avoid PN 17 companies as much as possible unless they had done substantial risk assessment and willing to take the risk. From the 13 companies mentioned above 2 companies HBGLOB 5187 and TPC 7176 are in the PN 17 list hence the company are remove from these industry comparisons. Although TPC had just got away from the PN 17 list, it is still taken out from this comparison because the company still need some time to prove it is still valuable for investment.

Besides that PPB 4065 is removed from this study although it has the largest market shares in poultry business because the group is too diversified. This study mainly focuses on poultry business itself as there might be an opportunity coming from the sharp decrease in the raw material price.

Finally the other company that remove from this study is Saudee Group. This is because Saudee Group is mainly a trading company which does not have advantage on low corns and wheat price.

2015 Revenue from Poultry Business

The 9 companies had combined revenue of about RM 3,691,112,520.00 from poultry segment for the year 2015 base on their latest annual report. The 9 companies are arranging from the highest market share to lowest as show below:

1)   HUATLAI – 32.67 %

2)   CAB – 19.00%

3)   LAYHONG – 13.87 %

4)   FARMBES – 9.09 %

5)   PWF – 7.88 %

6)   TEOSENG – 7.16 %

7)   LTKM – 4.5 %

8)   DBE – 3.24 %

9)   CCK – 2.59 %

Some companies have diversified to other business segment such as retails, fish product, fertiliser and etc. Below show the percentage of the revenue earn from poultry segment from the total revenue.

1)   DBE – 100 %

2)   PWF – 100 %

3)   LTKM – 98.26 %

4)   FARMBES – 96.79 %

5)   HUATLAI – 85.37 %

6)   LAYHONG – 79.26 %

7)   CAB – 78.66 %

8)   TEOSENG – 64 %

9)   CCK – 19.37 %

Market Shares

Usually company with larger company had the advantages over small company. Below arrange the company based on 29 NOV 2016 market value of equity:

1)   HUATLAI – RM 386,994,080.00

2)   TEOSENG – RM 295,295,341.63

3)   CAB – RM 242, 185,520.29

4)   LTKM – RM 163,931,047.56

5)   CCK – RM 95,472,884.75

6)   PWF – RM 56,470,404.64

7)   LAYHONG – RM 48,762,875.00

8)   FARMBES – RM 43,369,116.73

9)   DBE – RM 31,479,335.60

.

Asset Comparison

a) Intangible Asset

Intangible asset or Goodwill is form when there is an acquisition. Intangible assets can remove from the financial report anytime if the management think the intangible asset is not worthy anymore. Therefore company with lower intangible assets is a better company. Below show the percentage of asset a company had as intangible asset in ascending order:

1)   DBE – 0 %

2)   LTKM – 0 %

3)   TEOSENG – 0 %

4)   CCK – 0.11 %

5)   LAYHONG – 0.47 %

6)   FARMBES – 0.57 %

7)   HUATLAI – 1.07 %

8)   PWF – 1.33 %

9)   CAB – 3.49 %

Average – 0.78 %

b) Trade and other receivable

Trade receivable is sales that had sold to the customer and will only collect the cash from the customer in the later stage. Trade receivable usually non-interest bearing. Some trade receivable might not be collected and will be impairs. A business want to collect money as soon as possible hence the lower than average trade receivable and higher than average revenue is preferable. Below show the percentage of asset a company had as trade and other receivable in ascending order:

1)   LTKM – 6.11 %

2)   PWF – 8.11 %

3)   CCK – 10.15 %

4)   HUATLAI – 10.32 %

5)   TEOSENG – 16.02 %

6)   LAYHONG – 16.36 %

7)   CAB – 18.76 %

8)   DBE – 25.09 %

9)   FARMBES – 45.10 %

Average – 17.34 %

c) Inventories

Inventories are products for sale to customer in this case it is eggs, chicken meat and etc. Company required to keeps certain amount of inventory to make sure it able to cater the customer supply, high amount of inventories means the product the company sell is going to be obsolete. However low amount of inventories means the company is unable to caught up with the demand and hence loss some sales. Below show the percentage inventories of the company in ascending order:

1)   DBE – 3.68 %

2)   FARMBES – 4.59 %

3)   HUALAI – 4.73 %

4)   TEOSENG – 5.42 %

5)   LTKM – 8.50 %

6)   CAB – 8.67 %

7)   LAYHONG – 12.44 %

8)   PWF – 14.52 %

9)   CCK – 17.23 %

Average – 8.86 %

d) Cash and Equivalent

Company required cash for daily operation and emergency. However too much debt is bad for company because it unable to invest to cash to expend the company. Value investors love cash rich company because cash is the liquid and can be use anytime when there is a great opportunities such as acquisition of competitor. Below show the percentage of cash in ascending order.

1)   DBE – 0.38 %

2)   PWF – 1.52 %

3)   FARMBES – 1.53 %

4)   CAB – 1.59 %

5)   LAYHONG – 4.27 %

6)   HUATLAI – 4.33 %

7)   TEOSENG – 8.26 %

8)   CCK – 8.36 %

9)   LTKM - 15.19 %

Average – 5.05 %

Liability Comparison

a) Non Current Borrowing

Non current borrowing sometime is good for a company provided that they can borrow and invest in investments that give back a greater return. Below shows the percentage of non current borrowing over the total liabilities:

1)   CCK – 1.93 %

2)   LTKM – 7.78 %

3)   LAYHONG – 10.70 %

4)   TEOSENG – 13.52 %

5)   PWF – 17.12 %

6)   FARMBES – 19.27 %

7)   CAB – 23.73 %

8)   DBE – 25.12 %

9)   HUATLAI – 27.81 %

Average – 16.33 %

b) Current Borrowing

Current borrowing is the borrowing that the company had to settle by this financial year. Company had to make sure there is enough cash to settle the borrowing or roll over. Below shows the percentage of current borrowing over the total liabilities:

1)   DBE – 10.71 %

2)   LTKM – 26.25

3)   CAB – 33 %

4)   HUATLAI – 35.66 %

5)   PWF – 40.68 %

6)   LAYHONG – 44.62 %

7)   CCK - 51.29 %

8)   TEOSENG – 52.87 %

9)   FARMBES – 54.13 %

Average – 38.85 %

c) Trade Payable

Trade payable usually is the money the company owe their suppliers and required to pay at the later stage. If a company can owe the money for a longer term it is an advantage to them because they can use the service or product from the suppliers and only pay back in much later stage. Usually trade payable is interest free in other word it can be act as interest free loan. Below shows the percentage of trade payable over the total liabilities:

1)   LTKM – 12.55 %

2)   FARMBES – 20.40 %

3)   LAYHONG – 22.40 %

4)   TEOSENG – 23.66 %

5)   CCK – 24.43 %

6)   HUATLAI – 30.86 %

7)   PWF – 31.07 %

8)   CAB – 37. 24 %

9)   DBE – 55.86 %

Average – 28.72 %

Cash Flow

a) Operating Cash Flow

Companies with positive cash flow mean that they are able to sustain by themselves without any borrowing or addition cash from investor. Below show the company operating cash flow in ascending order:

1)   DBE – (RM 10,417,518)

2)   FARMBES – (RM 2,505,000)

3)   LTKM – RM 3,836,243

4)   LAYHONG – RM 19,316,120

5)   CCK – RM 23,327,504

6)   PWF – RM 26,802,036

7)   CAB – RM 34,289,505

8)   TEOSENG – RM 36,757,980

9)   HUATLAI – RM 144,948,000

b) Investing Cash Flow

Companies with negative investing cashflow mean their company invest in asset to expand the business with positive cash flow usually show companies is selling asset or winding a subsidiaries. Below show the company investing cash flow in ascending order:

1)   CAB – (RM 79,557,155)

2)   TEOSENG – (RM 55,244,618)

3)   HUATLAI – (RM 29,964,000)

4)   PWF – (RM 19,891,481)

5)   CCK – (RM 18,812,409)

6)   LAYHONG – (RM 18,572,182)

7)   LTKM – (RM 12,041,490)

8)   DBE – RM 6,210,524

9)   FARMBES – RM 19,488,000

c) Financing Cash Flow

Positive financing cash flow mean the company had increase the cash either from borrowing or shareholder. Hence the financing cash flow is usually negative unless the company had a good opportunity that it need cash from external party to invest. Below show the company investing cash flow in ascending order:

1)   HUATLAI – (RM 96,768,000)

2)   FARMBES – (RM 11,737,000)

3)   PWF – (RM 4,735,048)

4)   CCK – (RM 727,580)

5)   DBE – RM 4,293,269

6)   LTKM – RM 12,366,083

7)   TEOSENG – RM 13,862,705

8)   LAYHONG – RM 35,104,098

9)   CAB – RM 61,136,413

Dividends

Every investment, the investor is looking for some sort of return. In stock market there are two main type of return capital gain and dividends. The poultry companies dividend record for the past 10 years is shows below:

1)   CAB – 0/10

2)   DBE – 0/10

3)   FARMBES – 0/10

4)   HUATLAI – 4/10

5)   LAYHONG – 6/10

6)   PWF – 7/10

7)   CCK – 10/10

8)   LTKM  - 10/10

9)   TEOSENG – 10/10

Huatlai had been taken down by their founder, the Lim family on 30 December 2016. It is a waste because it is a good company to invest.

Summary of Stock Reviews