Hwa
Tai Industries Berhad appears to be another company which specializes
in biscuits and cakes manufacturing and trading field. Venturing into
this industry for two decades, the company has obtain countless awards
and international recognition. Also, the company is able to obtain
shelves spaces as its product lines can be easily found in almost every
market be it a small or large market. One of the features that enables
Hwa Tai to outstand from its competitors is its popular assorted
biscuits where it can be packaged as hampers, as gifts for visitations
or just any regular snacking for people from all walks of life due to
its flavor diversification. Another advantage reflected by the firm is
its low capital expenditure where annual purchase of plant and equipment
is not more than RM1 million in aggregate. In other words, its capital
expenditure is not more than 1.5% of its total revenue which is
EXTREMELY low. Again, reputations and recipes built up by Hwa Tai for
decades have captured the demand of consumers which is able to fend off
overseas competitors in a good way. Potential competitors will find it
hard to penetrate the barriers as well.
Recently,
Federal Government of Malaysia decided to pull back RM0.30 worth of
subsidies per kg of sugar which makes up a big amount of biscuit
manufacturing cost ( unless there is a no sugar biscuits recipes
developed). At the same time, seasonal uptrend of palm oil prices drive
up the cost even higher which is a disadvantage to the industry as a
whole (although it is temporary and we can average out the trend), not
to mention the minimum wages of RM900 set in Pennisular of Malaysia, all
this rocks are set to be huge challenges for the company and it will be
interesting to see how the management is able to manage it. Despite all
these challenges, I find the profit margin is quite low in the past.
There's certainly a huge space for improvement here.
Based
on the operating cash flows, extreme fluctuations were shown for the
past ten years which does not fulfil our 'consistency' criteria.
However, with its strong quantitative factors support, I believe the
company will be back on the right track in the future to realize its
high 'potential'. In short, it is definitely not in my watch list for
the moment.
Stock: Hwa Tai Code: 8478
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