Revenue Group Berhad vs GHL System Berhad

Company Background

Revenue Group Berhad

1. Listed on KLSE ace market in July 2018 for RM0.37:
• Revenue and net profit for 2017 is RM25 million and RM7 million respectively. Share price is RM0.37.
• Revenue and net profit for 2019 is RM58 million and RM9 million respectively. Share price is RM0.90.
• Its revenue grew 132%, net profit grew 28%, share price increased 143%
2. Products and services: 
• Sales of EDC (Electronic Data Capture) Terminals and spare parts [Revenue: RM21 million, 37%].
• Monthly rental/maintenance income of renting and maintaining EDC Terminals [Revenue: RM13 million, 21%]
• Electronic Transaction Processing - net merchant discount rate (Net MDR) or commission earned from processing electronic transaction via the EDC Terminal and e-commerce (Net MDR earned as third party payment processor or master merchant) [Revenue: RM19 million, 34%].  
• Solution & Services related to payment infrastructure:- commission earned on digital payment via e-commerce website, phone/utilities bill payment, game credits and etc [Revenue: RM3 million, 6%]
3. 99.9% of their business are in Malaysia.
4. 4 customers contributes 65% of its total revenue. 
5. Director remuneration in 2019 is RM2.7 million [Revenue: RM58 million, net profit: RM9 million]

GHL Systems Berhad

1. Listed on KLSE in 2003: 
• In 2009, its revenue is RM57 million, net loss is RM6 million, share price is RM0.37
• In 2019, its revenue is RM347 million, net profit is RM28 million, share price is RM1.67
• Its revenue grew 508% while profit grew 566%. Share price increased by 352%
2. Products and services: 
• Transaction payment acquisition such as MyDebit payment, supporting e-wallet payment, internet payment solutions etc [Revenue: RM204 million, 60%]
• Sales or rental of EDC terminals [Revenue: RM131 million, 37%]
• Solution services such as consumer loyalty program, prepaid e wallet solution etc [Revenue: RM11.9 million, 3%]
3. Malaysia contributes 78% of their business followed by Philippines 13%, Thailand 8% and others 1%. 
4. No single customer contributes more than 10% of its revenue. 
5. Director remuneration in 2019 is RM2.1 million [Revenue: 347 million, net profit: RM27 million]

Financial Backgrounds

• Revenue's operating cash flow is low at RM2 million due to higher settlement on trade payable and increase in trade receivables. 

Future Prospect

Revenue Group Berhad

• Expand to Myanmar and Cambodia partner with local financial institution (no company set up in Myanmar and Cambodia yet).
• In March 2019, Revenue acquire 70% in Buymall and 51% in AnyPay which contributes RM300k and RM150k of net profit to Revenue for 6 months. 
• For more information on how Buymall and Anypay will compliment Revenue business:  https://www.theedgemarkets.com/article/revenue-group-looks-beyond-payment-solutions  
• Opportunity to transfer to main board as Revenue has meet the RM20 million PAT requirement (2018 + 2019 + 2020). 

GHL System Berhad

• Expand to Indonesia and Cambodia - acquiring 51% into Speed Pay PLC in Cambodia for RM8.4 million in 2019. SpeedPay commence operation and has a net loss of RM1.5 million in 2017. 
• PT Pembayaran Elektronik Indonesia partner with Bank of Indonesia in February 2019 on transaction payment acquisition. 

Valuation 

• Revenue Group Berhad: Average PE for REVENUE is 30. Based on its current EPS of 2.8 sen, at PE30, Revenue fair price should be RM0.84

• GHL System Berhad: Average PE for GHLSYS is 47. Based on its current EPS of 3.19, at PE47, GHYSYS fair price should be RM1.49

 * Covid 19 has impacted the business model of REVENUE and GHLSYS significantly as consumers are unable to spend in shopping mall causing earnings from transaction processing segment to drop. Therefore a discount of 20% on fair price should seen reasonable. 

GENM 2019 Annual Report & Q1 2020

Highlight of 2019 Annual Report

• Overall, business across all sectors posted a positive growth in 2019 except gaming sector with a decrease of RM103 million / 0.01%  due to reduction in incentives offered to the players as part of the cost rationalisation initiatives.

• Its EBITA margin dropped from 31% to 27% in 2019 in Malaysia mainly because of the increase in casino duty. However, overall business remain intact with EBITA of RM2554 million in 2019 despite higher casino duty while revenue grew by 6.6%.

• Number of visitors that visited Genting Highland were record high at 28.7 millions visitor in 2019. 

Concern of Genm moving forward

1. Share of result in associate (Empire Resort): In 2019 Q4, Genm recognize a loss of RM31.6 million from Empire Resort (Assuming if Empire Resort posted the same losses per quarter, RM31.6 x 4 = RM126.4 million in 2020)
2. Rising of finance cost and its gearing ratio:
•  2017: Finance cost = RM115 million, Gearing ratio = 0.05 times
•  2018: Finance cost = RM156 million, Gearing ratio = 0.09 times
•  2019: Finance cost = RM250 million, Gearing ratio = 0.19 times
• Nonetheless, its balance sheet remain strong with cash of RM6,529 million, Net Operating cash flow of RM2,577 million, borrowings due in less than 1 year amounting RM1,524 million and administrative expenses of RM780 million.
3. Suspended operations at RWG, Resorts World Awana, Resorts World Kijal and Resorts World Langkawi since 18 March 2020 in compliance with the Movement Control Order announced by the Prime Minister. Similarly, as required by the respective authorities, RWNYC, RWC, RW Bimini, Resorts World Birmingham and the Group’s other land-based casinos in the UK are also temporarily closed to curb the spread of COVID-19.

Future Prospect

Malaysia:

• Opening of theme-park will be further delayed until Q4 2021. 

UK:

• Rebranded online business as ‘GentingBet’ in addition to launching a new website with exclusive content.
• Embarked on vertical integration in the online gaming space by acquiring Authentic Gaming Limited (“Authentic Gaming”), an online gaming specialist, to expand the Group’s offering through the utilisation of Authentic Gaming’s innovative streaming technologies to bring together its offline and online gaming experiences.

US: 

• Resorts World Casino New York City (“RWNYC”) maintained its market leading position by gaming revenue in the Northeast US region and the expansion of 400 rooms hotel is expected to open in second half of 2020. 
• Empire Resort gaming revenues registering a 33% increase in December 2019. 

GENM Q1 2020

• Revenue was lower by 36% due to lockdown of 12 days in March. 
• Lower other income recorded in Q1 2020 as there is one off disposal gain of UK subsidiary amounting RM124 million in Q1 2019. 
• Higher impairment loss in Q1 2020 in view of the impact of Coronavirus Disease 2019 (“COVID19”) on the business activities, in accordance with MFRS 136 “Impairment of Assets”. 
• An impairment loss of RM223.3 million relating to the assets of Resorts World Birmingham
• An impairment loss of RM56.5 million relating to certain casino licences and assets in the United Kingdom
• An impairment loss of RM66.5 million relating to the assets of Resorts World Bimini
• Finance cost continue to increase with higher borrowings. Gearing ratio increase from 0.19 to 0.25 in Q1 2020. 
• Losses incurred were RM100 millions on Empire Resort mainly due to the share of costs associated with the refinancing of Empire’s loans.
• EBITA for Q1 2020 were RM355 million as compared to RM684 mmillion in Q1 2019. A dropped of  48%. 

Future Prospect

• Impact on Genm is very big as all its operation in Malaysia, US and UK were halted due to Covid 19. 
• Losses on Empire Resort can be bigger than expected. If RM100 million x 4 = RM400 million which is equivalent to 30% of 2019 net profit.  

Valuation of GENM at RM2.60

1. In 2019, Revenue = RM10,406 million, EBITA = RM2,554 million, Share price = RM3.03
2. As Genm operations in Malaysia unable to operate from 18 March 2020 - 31 August 2020 which is approximately 6 months. Lets discount its earnings and share price by half + an additional 15% for consumer sentiment to pick up. If discounting share price by 50%, Genm should worth RM1.50, if discounting share price by 65%, Genm should worth RM1.1. So RM1.1 - RM1.5 should serve as the rock bottom price for Genm to factor in the full impact of covid 19 on Genm financial.
3. I do not expect Genm to pay any special dividend in 2020, assuming a 50% dividend cut on its interim and final dividend, Genm will pay a total of 5.5 sen. At the price of RM2.6, its DY is 2.1%
4. Market is always irrational. Any price that we buy into above RM 1.1 - RM1.5, we would need to ensure that we have sufficient money to average down if necessary. 

FPI 2019 Annual Report & Q1 2020

Highlights in FPI 2019 Annual Report

• Revenue increased by 37%, EBITA incrased by 26%, net profit increased by 14% (Increase in revenue mainly due to increase sales to its holding company: Wistron Group. Lower net profit due to higher ITDA)

• Inventories turnover days = 23 days to sell its inventory upon receiving it from suppliers
  Receivable / debtors turnover days = 49 days to collect money from customers after billing them
  Payable / creditors turnover days = 64 days to pay its suppliers after being billed by them
  Cash Conversion Cycle days = 23 + 49 - 64 = 8 days.   
• Strong cash flow from operating of RM 71 million which is 173% of its net profit. 
• In 2019 FPI only spend RM 9 million on purchase of PPE as compared to RM 20 million in 2018. This could further strengthen FPI balance sheet.                                                                                              

• Forex gain in 2019 amounting to RM 7 million which accounts for 13% of its net profit. Excluding the forex gain, FPI net profit is RM 34 million where the profit margin is about 4.5%. 

• Sales to Customer A (Sony) in 2018 - RM 256 million, 2019 - RM 263 million
• Sales to Customer B (Roland) in 2018 - RM 109 million, 2019 - RM 150 million
• Sales to Customer C (Wistron) in 2018 - Nil, 2019 - RM 189 million

• 56% of its trade receivables are in USD while remaining in MYR. 

• Only 0.5% of their receivables have chances of becoming bad debts. 

• Only 32% of their payable is denominated in USD and 62% in MYR. 
• This could probably explain the high forex gain for FPI. A stronger USD is beneficial to FPI. As they sell most of their products in USD but pay most of their supplier in MYR.

FPI Q1 2020

• Q1 always serves as the weakest quarter for FPI and Q3 the strongest due to christmas and new year sales. 
• Revenue reduced by 13% however profit reduced by 30% due to lower sales volume as the Group shut down its operations from 18 March 2020 in compliance with the MCO. (one quarter has 90 days, MCO close down for 12 days  = 13% drop in sales is in line with the drop in revenue. Fixed cost remain the same which causes its net profit to drop 30%)
• Higher other income in Q1 2020 most likely due to a forex gain of RM 3.2 million. If exclude the forex gain, its net profit would likely be somewhere around RM 2 million (its EBITA is RM10 million for Q1 2020)

• Sales to Wistron grew by 100% as compared to previous year (this is something good). 

• Expect the performance 2020 to be impacted. 

Valuation of FPI at RM1.36

• At the price of RM1.36 with EPS of 15.84 sen , current PE of FPI is 8.59 times. 
• Assuming a 30% drop in EPS for 2021, Its estimated EPS for 2021 is 11.76 sen. 
• Average PE of FPI from 2016 - 2019 is 9.5 times. PE of 9.5 with EPS of 11.76 sen, its share price with margin of safety should be RM1.12
• FPI paid out around 65% of its earnings as dividend in the past 2 years. Assuming a 7.5 sen of dividend payout for 2020, its dividend yield is 5.5% based on its current share price of RM1.36. 

Aeoncr 2020 Annual Report

• Revenue increased by 17% with financing receivables increased by 19%.
• Net profit dropped by 17% due to higher impairment loss on financing receivables. In 2020, Aeoncr recognized an additional RM142 million of impairment as compared to 2019. 
• Operating profit before working capital changes were actually higher in 2020 at RM 1228 million compared to RM 1068 million in 2019. 
• NPL stood at 1.92% for 2020.
• Drop in dividend per share in 2020 is due to lower EPS caused by higher impairment loss. Dividend payout ratio remain the same as 2019 which is approximately 34%. 

• On average, Aeoncr is charging 17.09% of interest to their borrowers. 

• However, Aeoncr only paid an average of 3% - 4.5% of interest to the bank to secure their fund. 

• 2.5% of their finance receivable portfolio failed to pay their loan within 30 days (Stage 1). 
• 1.7% of their finance receivable portfolio failed to pay their loan within 90 days (Stage 2). 
• 2.3% of their finance receivable portfolio failed to pay their loan for over 90 days (Stage 3). 
• Non Performing Loan for Aeoncr in 2020 is 1.92% meaning to say they are still able to collect 20% of their money back under Stage 3 customers. 

• Revenue contributed by each segment from 2018 - 2019

Future Prospect

• GDP growth for Malaysia in 2021 expected to be 0.5% to -2%.
• Focus on three strategic business drivers: digitization, regionalisation and operational efficiency.
• Leveraging on FinTech, AEON Credit aims to progressively transition to a lower-cost business model.  Offering retail financing solutions online is the future for AEON Credit, similar to other financial service providers.
• Through digitization, the Company is looking at tapping into the rural and semi rural market.

Valuation of Aeoncr at RM10

• Average PE of Aeoncr from 2015 - 2020 is 9.5 times. At the price of RM10, its PE is 9.3 which is below its average PE. 
• Aeoncr paid a dividend of 36 sen in 2020 which translate into 3.6% at the price of RM10. Historically its DY is always around 3% or below hence a 3.6% yield is consider above its average. 
• Price to book value is now 1.45 times which is above its average of 1.11 times. 
• In 2020, its EPS shrink 21% as compared to 2019 however its share price shrink 45% which means the price drop is greater than its drop in earning. 
• Assuming a 20% drop in EPS in 2021, at PE 9.5, Aeoncr is worth RM8.2 (9.5 x 86 sen).
• Assuming a 10% drop in EPS in 2021, at PE9.5, Aeoncr is worth RM9.2 (9.5 x 97sen).

For more info: https://www.aeoncredit.com.my/ul/1586432648674_acsm_q4fye20_final2.pdf

Carlsberg VS Heineken

Products

Brands Under Carlsberg

Brands under Heineken

Company Background

Carlsberg Brewery Malaysia Berhad

1. Owned by CARLSBERG BREWERIES A/S (51%) with top 30 shareholders holding a total of 66.3%. 
2. Carlsberg Malaysia is holding 25% of Lion Brewery (Ceylon) PLC which is an associate company that manufacture and distribute beers in Sri Lanka. Lion Brewery contributes RM16 millions of net profit to Carlsberg Malaysia in 2019. 
3. In 2019 Malaysia contributes 70% (RM1581 mil) of its revenue where Singapore contributes 27% (RM 618 mil) of its revenue. Remaining 3% are by other countries. 
4. Revenue and profit growth over the 10 years. 
• In 2010 its revenue is RM1368 million, net profit is RM134 million, share price is RM6.34.
• In 2019 its revenue is RM2256 million, net profit is RM300 million, current share price is RM 25 
• Its revenue grew 65% while profit grew 123%. Share price grew 294% over the 9 years period. 
5. Adopting 100% dividend payout policy. 

Heineken Malaysia Berhad

1. Owned by GAPL Pte Ltd (51%) with top 30 shareholders holding a total of 71.07%. 
2. Malaysia contributes 99% (RM2297 mil) of its revenue and only 1% are by other countries. 
3. Revenue and profit growth over the 10 years. 
• In 2010 its revenue is RM1358 million, net profit is RM152 million, share price is RM9.59.
• In 2019 its revenue is RM2320 million, net profit is RM313 million, current share price is RM 21.80 
• Its revenue grew 71% while profit grew 106%. Share price grew 127% over the 9 years period. 
4. Adopting 100% dividend payout policy. 
5. Heineken dominates 60% of Malaysia legal beer market. 

Financial Background

• Heineken have slightly higher sales and profit as compared to Carlsberg, hence, higher EPS
• Carlsberg paid a special dividend in YA2019, hence, the dividend payout ratio is 134% of its earning (not expecting this kind of dividend payout moving forward).
• Heineken has higher operating cash flow, which is 134% of its net profit as compared to Carlsberg of 126%. 
• Heineken has higher shareholder equity in 2019 because Carlsberg payout a higher dividend for YA2019 causes its shareholder equity to drop. 
• Both Carlsberg and Heineken do not need much cash on hand to do business as:
• Carlsberg takes 26 days to sell off its inventories, 38 days for them to collect their money from their customers and 105 days for them to pay off their supplier. 
• Heineken takes 24 days to sell off its inventories, 88 days to collect their money from their customers and 110 days to pay off their supplier. 
• This explain why Carlsberg and Heineken do not need to keep too much cash on hand for cash flow purpose. And they are both not capex intensive company to do business. 

Facts for Brewery Industry

• Illicit beer dominates 20% - 25% of Malaysia beer market. 
• Excise duty for alcohol are 51% of sales. 
• Malaysia is the 2nd highest country among the world for excise duty, behind Norway and alongside Singapore. 

Covid Impact on Carlsberg & Heineken Financial for Year 2020

• Calculation is done based on 2019 earnings discounting by 25% to reflect a 3 months lockdown period. 

Banking Sector Comparison

(A) Net Interest Margin 

• BIMB has the highest NIM while Ambank has the Lowest NIM therefore BIMB got 1 point.

(B) Gross Impaired Loan

• PBBANK has the lowest NPL while CIMB has the highest NPL. If corporate or individual started to have default loan/bankruptcy, the risk on PBBANK will be the lowest compare to other bank therefore PBBANK got 1 point. 

(C) Loan Growth Rate

• BIMB has the highest CAGR on loan while AMBANK has the lowest CAGR on loan from year 2009 - 2019 therefore BIMB got 1 point. 

(D) Net Profit Growth Rate 

• BIMB has the highest CAGR on its net profit while CIMB has the lowest CAGR on net profit from year 2009 - 2019 therefore BIMB got 1 point. 

(E) Cost to Income Ratio

• PBBANK has the lowest overhead to income ratio while BIMB & CIMB has the highest overhead to income ratio. This means that PBBANK is the strongest in controlling its cost among all bank therefore PBBANK got 1 point. 

(F) Total Capital Ratio

• MAYBANK has the highest total capital ratio while HLBANK has the lowest total capital ratio. The higher the capital ratio, the higher the reserve of the particular bank has to prevent the bank from bankruptcy. Therefore, MAYBANK got 1 point. 

(G) Return on Equity

• BIMB has the highest ROE while CIMB has the lowest ROE. This means BIMB is the most efficient bank in using its equity therefore BIMB got 1 point. 

(H) Price to Book Value

• The current price to book value of PBBANK, MAYBANK, RHB, HLBANK & AMBANK is lower than PB value in 2008 crisis when KLCI is trading at 850 points. 
• The current price to book value of CIMB and BIMB is higher than PB value in 2008 crisis when KLCI is trading at 850 points. 
• CIMB has the lowest price to book value among all banks therefore got 1 point.  
• Public Bank has the highest price to book value among all banks. 
• Public Bank has the steepest drop in price to book value from year 2008 to 2019 as compare to other banks therefore got 1 point.  

(I) Price to Earning Ratio

• The current price to earning ratio of AMBANK, MAYBANK & PBBANK is lower than PE ratio in 2008 crisis when KLCI is trading at 850 points. 
• The current price to earning ratio of BIMB, CIMB, RHB & HLBANK is higher than PE ratio in 2008 crisis when KLCI is trading at 850 points. 
• Ambank has the lowest PE among all banks therefore Ambank got 1 point. 
• Public Bank has the highest PE among all banks. 
• Maybank has the steepest drop in PE from year 2008 to 2019 as compare to other banks therefore Maybank got 1 point. 

(J) Dividend Yield

• MAYBANK has the highest DY which is 9.23% while HLBANK has the lowest DY which is 3.52% based on current price. Therefore, MAYBANK got 1 point. 
• Lets assume a 20% dividend cut from all bank due to the current market condition where bank's earning is expected to be lower. Based on current price, only MAYBANK, CIMB, RHB & AMBANK are able to maintain a dividend yield of more than 5%. 

(K) Net Interest Income over Total Income

• Bank Negara has made it compulsory for all banks to provide a 6 months moratorium to everyone to defer their loan payment for 6 months. Therefore, i have compute the percentage of net interest income over its total income to evaluate the impact of moratorium to each bank. 
• Maybank has the lowest net interest income over its total income, hence i expect the impact to Maybank will be the smallest compare to other banks. Therefore Maybank got 1 point. 
•  Public Bank has the highest net interest income over total income. 

Conclusion

• If based on the above rating score:  
• Maybank - 5 points
• Bimb - 4 points
• Public Bank - 3 points
• Cimb - 1 point
• Ambank - 1 point
• Hlbank - NIL
• Rhb - NIL
• BIMB has the greatest growth rate over the 10 years. 
• Non performing loan for Public bank, Bimb and Hlbank is lower than 1%. this is very important in tough days like this. Public Bank has the lowest NPL among all banks
• ROE of Bimb, Maybank and Public Bank is more than 10% which means they are efficient in using their own equity compare to other banks. BIMB has the highest ROE among all banks. 
• Price to book value of BIMB, Ambank, CIMB & RHB is now lower than 1. CIMB has the lowest PB value among all banks. 
•  If 10 - 11 is the reasonable PE for banking sector, then based on current price, Public bank, Maybank and Hlbank is trading at fair value. Ambank has the lowest PE followed by BIMB. 
• Maybank has the highest DY with 9.23% even if the bank decides to cut 20% of its dividend payout, the DY is still 7.38%. 
• The 6 months moratorium could impact Public bank the most and Maybank would be the least impacted. 

RCECAP Q3 2020

• Revenue increased by 7.39% while net profit increased by 14.97% (This is damn amazing, its net profit margin increased to 39% as compared to 36% previously). 
• Interest income increased by 9.13% while interest expenses associate to its revenue increased by only 5.11% (meaning the cost of goods sold decrease, might due to lower OPR rate hence lower borrowing cost).
• Director remuneration and staff cost increased by 13.05% where the increase is higher than the increase in revenue.
• Allowance for impairment loss on receivables decreased 15.18% (improvement on quality of loan).
• Net profit margin increased from 36.38% to 39.24%. 

• Total assets grew by 1.26% while its total liabilities decreased by 1.96% (this is damn amazing). 
• Loan and receivables grew by 4.93% while its borrowings dropped by 2.16% (I perceive this as they borrow little money to grew their business). And their revenue actually increased by 7% while under the circumstances that its borrowing actually reduced. 
• Gearing ratio currently stood at 1.76 as compared to 1.91 last year. 

• Overall, the management explained that the increase in revenue and profit mainly due to increase in interest income and higher early settlement by its customer. Lower OPR rate also make it cheaper for RCECAP to do funding to grow its business and the management is positive on its outlook with caution. 

Comments

• Without a doubt that 2020 earnings is going to beat 2019. Assuming if RCECAP is able to achieve EPS of 30 sen for 2020, a 30% dividend payout will be 10sen. However RCECAP increased its DPS for the past 2 years so i expect it to do the same in 2020. Therefore i would expect at least an 11sen payout. At current price of RM1.77 per share, its DY work out to be 6.2%. 
• NTA stood at RM1.72 per share and current share price stood at RM1.77, hence its price to book value is 1.02. 
• At RM1.77 per share, its PE work out to be 6.21. At PE8 calculated based on EPS of 30 sen, RCECAP worth at least RM2.40. Anything below RM1.70 is an opportunity to collect this amazing company.