Kingboard Laminates Holdings Ltd (1888) has announced its annual result for 2006 on 28th March, 2007. Let's have a close review of this company to see whether the company has any improvements over the past year. Figures obtained from its result announcements were summarized as below with a comparison with the figures from 2005 :
Summary of key figures in 2006 vs key figures in 2005 :
Revenue : HK$8.47 billion (2006) vs HK$ 6.13 billion (2005) +38%
Profit : HK$1.74 billion (2006) vs HK$1.14 billion (2005) +52.6%
ROE : 30.85%(2006) vs 22.62% (2005) +8.23% (simple subtraction)
Gross Profit : 28.45% (2006) vs 28.22% (2005) Similar
Debt to Equity Ratio : 81.74% vs 162.3% (2005) Dropped
Shareholders Equity : HK$5.64 billion (2006) vs HK$5.05 billion +11.68%
PE (2006) : 13.14
(Based on HK$7.53 closing price on 31/03/2007)
Analysis
1. The overall performance of the company is quite satisfactory as the growth of revenue and profit is 38% and 52.6% respectively. ROE also increases to 30.85% from 22.62% which means the management has made use of shareholders equity quite efficiently.
2. The management is set to increase its production capacity by around 35% in 2007 and right now the production is run at about its full capacity which quite encouraging.
3. Increase in shareholder's equity is not quite good as the increase is only around 11% from which it needs around 9 years to double the existing shareholders equity. The company should be more focused on increasing the shareholders equity.
4. Debt to equity ratio is still quite high though it has been dropped from 162.3% of 2005. Such high ratio is due to a 5-year term loan of HK$2.54 billion in December 2006 after the IPO. Without such loan, the debt to equity ratio of the company is only 36.7% which is much more healthy. The management's action of getting loans after the IPO is clearly to avoid the dilution of share interest of major shareholders for giving up too many shares during the IPO and KB Laminate after IPO is a company which can get loans from the bank more easier. However, such action has increased the debt of the company and in turn increase the risk of the company.
Future Risks
1. Price of Copper is rising quickly recently which will increase the cost pressure of KB Laminates.
2. Demand of laminates slow down a bit during the first quarter of 2007 as stated by its management in its result announcement.
3. High debt to equity ratio increases the risk of investment in the company which is led by the loan decision of the management after the IPO. It is no doubt that the Kingboard Laminate (1888) is a better performed company than Kingboard Chemical Group (148) as we have predicted before. However, if the management continued with the mindset (which is common within many major shareholders of Hong Kong listed comanies) of getting easy money from loans through a better company, the company will be harmed finally. This is also one of the reason why the share price performance of KB Laminate is worse than that of KB Chemical.
Conclusion
KB Laminate's performance in 2006 is good and I still recommend this stock as my recommendation of 2007. Many people have been very disappointed with the share performance of this company and it is time for the management to be more focused on increasing shareholders equity at a higher rate and decrease the high debt to equity ratio in order to maximize the interest of shareholders. As long as these aspects are improved, the share price will reflect the true value of the company.
REMEMBER : PATIENCE IS AN ESSENCE OF INVESTMENT
