Yeo Hiap Seng chalks up good growth

KUALA LUMPUR: Yeo Hiap Seng (M) Bhd (YHS), the owner of the popular household brand Yeo’s and Cintan noodles, seems to be chalking up impressive earnings growth so far this year.

For the six months ended June 30, the food and beverage (F&B) manufacturer posted a net profit of RM11.76 million or 7.7 sen per share, compared with barely RM264,000 or 0.17 sen a year ago.

Revenue rose slightly to RM267.7 million from RM254.4 million in the previous corresponding period.

In fact, the profit achieved for 1HFY11 ended June 30 had exceeded earnings for the entire FY10 ended Dec 31 when it posted a net profit of RM3.8 million.
Nonetheless, the F&B maker’s earnings were dragged down by an impairment provision of RM10.4 million in 2Q.

The company attributed the improved earnings to higher sales, particularly in Indonesia after it relaunched the products in the republic.

Sales in Indonesia more than doubled recorded growth of 124% and exports to Singapore went up 26%.

Vincent Chui, general manager (marketing) of YHS, said the company is positive on its prospects for the current year and will continue to grow operating profit further through brand building, promotion efforts and cost management.

In addition to beverages and instant noodles, YHS also produces canned food and sauces.

YHS is committed to introduce healthy products in line with market demands, he added.

After peaking in 2006, YHS profits have been rather inconsistent. It reported annual net losses in 2007 and 2009 of RM13.6 million and RM11.1 million respectively. Its performance in 2008 and 2010 were also lacklustre with respective annual net profits of RM2.2 million and RM3.8 million.

In late 2009, YHS suffered a setback in Indonesia. The authorities there cancelled 15 of the 31 registration numbers for imports of food issued by Badan Pengawas Obat and Makanan to the company’s wholly owned unit PT YHS Indonesia. The registration numbers are for the marketing and sales of Yeo’s products in Indonesia.

In April 2010, YHS lost the distribution rights of Red Bull energy drinks to rival Fraser & Neave Holdings Bhd (F&N), which dented YHS earnings.

F&N is estimated to earn RM120 million from the distribution of Red Bull energy drink.

In FY09, Red Bull energy drink generated a revenue of RM108.3 million for YHS, with an operating profit of RM1.2 million.

However, in the latest results for 2QFY11 ended June 30, YHS said it had relaunched its products in Indonesia and sales grew by 254% during the quarter.

Malaysia is the biggest market contributing 81% revenue for YHS in FY10. The Singapore market generated about 17% and Indonesia barely 1.8%.

YHS is a market leader in Asian drinks such as chrysanthemum tea, winter melon tea, sugarcane and lychee.

“We are the market leader in the Asian drinks segment with a 37.9% share of the market,” Chui told The Edge Financial Daily.

YHS exports its products to various countries including the US, Canada, Australia, New Zealand, China, Hong Kong, Japan and Vietnam.

In addition to beverages, instant noodle is another core product in the portfolio under the brand, Cintan. YHS also produces canned food and sauces.

“Cintan has a 13.2% market share in Malaysia’s instant noodle soup-based segment. We are also the leading brand in curry chicken and kaya segments [under its canned food products],” said Chui.

Earnings aside, not many have noticed that YHS actually has a clean balance sheet with zero borrowing. As at June 30, the company’s cash balance amounted to RM30 million.

The substantial improvement in earnings appears to have gotten the attention of investors seeking exposure to F&B companies, besides the usual names like F&N and CI Holdings.

CI Holdings is selling its core subsidiary Permanis Sdn Bhd for RM820 million to Japan’s Asahi Group Holdings Ltd. For 3QFY11 ended March 31, Permanis contributed RM129.29 million in revenue to CI’s total revenue of RM140.1mil.

YHS share price was a steady climb from RM1.50 in April to a high of RM2.01 in May. The stock closed at RM1.79 last Friday, and it has gained 28% year-to-date.

To annualise the half-year profit, YHS earnings per share may possibly come in at 15.4 sen. Based on the stock price of RM1.79, YHS shares are trading at price-earnings ratio of 11.6 times.