KUALA LUMPUR: Wong Engineering Corporation
Bhd, which makes high precision stamped and turned metal parts and components, is a turnaround story, says CIMB Equities Research.
It said on Tuesday Wong’s earnings started deteriorating since FY13 and it recorded 11 consecutive quarters of net losses.
However, due to improved operation efficiency; continued cost rationalization measures; as well as increase in demand from its major customers especially for machined products, Wong saw its performance improved and turned profitable from FY16 onwards.
FY17 was a momentous year for Wong as its revenue and earnings grew significantly on-year, by 29% and 755% respectively.
Its FY17 core earnings margin surged to 15% (vs. 0.1% in FY16). The increase was driven by strong demand in the semiconductor industry, particularly in the test instruments, and print and imaging sectors.
On-year basis, Wong’s revenue dropped slightly by 2% due to a minor reduction in sales volume. Its core earnings inched up 4% due to higher admin costs to support work initiation for its construction project at Kuchai Lama and also a stronger Ringgit.
To recap, Wong operates out of its own plant in Kulim Hi-Tech Park, Kedah. It serves a wide array of customers from various industries such as oil and gas to printing and imaging, telecommunication, test instrument (all within the electronics and electrical (E&E) industry) to medical devices.
Wong’s peers could be BSL Corp, Widetech (M), Kobay, and Foundpac Group.
In FY17, total revenue was made up of 66% local market vs. 34% export market (Europe-19%, outside Malaysia-12%, and others-3%).
CIMB Research said with the turnaround performance, Wong is in a net cash position of RM6.7mil (seven sen per share) as at Jan 31, 2018. In FY17, WONG invested RM2.8mil with RM1.8mil towards the purchase of a fibre laser machine to modernize and improve production capacity and output.
Wong has resumed its dividend payment in FY17. Its dividend yield for FY17 was 2.1% with a 28.5% dividend payout ratio.
“Moving forward, the rising cost of raw materials and also foreign currency risk on sales and purchases denominated in US$ will be the key factor affecting Wong’s performance.
“Thus, Wong’s management is expected to assess and expand its presence into medical devices and other industries to diversify revenue streams and customers base as well as to minimise dependence on the E&E industry which is prone to cyclical volatility.
“The diversification of business and operations into property development and construction has proven to be fruitful as Wong was awarded its first project with a gross development value of RM87.5m to build affordable housing apartments at Kuchai Lama Entrepreneurs Park in October 2017. The said project is expected to contribute positively to Wong’s future earnings.
Wong announced final dividend of two sen with ex-dividend date on April 16.
CIMB Research said the share price is currently trading at 9.1 times 12-month trailing P/E (8.4 times if excludes seven sen net cash per share), a 35.5% discount as compared to its peers, which are trading at a 12 months trailing P/E of 14.1 times.
Win a prize this Mother's Day by subscribing to our annual plan now! T&C applies.
