UPA Corporation Bhd (7757.KL) is a manufacturer of paper and plastic products. The company is also trading printing and binding machines. The paper-based products, which includes notebooks, diaries, calendars, and fine stationery, accounts for 41% of the company’s revenues.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] Plastic products, which includes packaging material in rigid films, accounts for 44%, and machine trading, which includes selling, reconditioning, and servicing of printing and bookbinding machinery, accounts for 15% of the revenues.
The company generates almost half of its revenues in Malaysia, followed by 23% in North America, 21% in other Asia Pacific countries and 10% in Europe. One customer accounts for almost a fifth of the company’s total revenues.
UPA Corporation was founded in 1975 and is headquartered in Kuala Lumpur, Malaysia. The shares are listed on the main board of Kuala Lumpur’s stock exchange. Major shareholder is UPA Holdings Sdn Bhd, the ultimate holding company, with an ownership of 53%. None of the UPA Corporation’s directors holds a significant stake in the company. 24% of the shares are in public hand.
With a workforce of 547 employees, UPA Corporation reported revenues of 72m MYR (17m USD) and profit before tax of 37m MYR (9m USD) over the first half year 2017. This is a decrease in revenues of 3%, but an increase in profits of 393% compared to the same period a year ago. The high growth in earnings is due to a gain of 33m MYR from a compulsory sale of three land plots to the government to build a public MRT line. Gross profits, on the other hand, fell by 18% during the same period. In 2016, revenues decreased already by 10%, while profits increased by 52%. Without a value gain due to the revaluation of properties, profits would have declined by 53%. The gross profit margin of 14% is well below industry average. UPA Corporation had cash reserves of 46m MYR (11m USD) at the end of June 2017. The company shows a solid balance sheet with an equity ratio of 85% and a gearing, defined here as total liabilities to total equity, of 18%.
UPA Corporation’s shares are in an uptrend since mid-2013 and gained 106% in value since, 17% alone this year. The company is priced at three times earnings. The shares trade slightly below book value and at three times cash flow only. The last dividend yielded around 3%.
On a first glance, the company looks undervalued. However, digging deeper, most profits come from unusual items such as revaluated properties and the compulsory sale of land to the government. The three business segments are declining due to lower demand, intense competition and eroding margins. The outlook remains uncertain. The company is trying to venture into new markets and to identify new opportunities. The recent joint venture with Top Ten Plastics Industries, a manufacturer of flexible packaging material, the complete purchase of Sharp Litho and the repurchase of some own shares in 2016 are first positive signals. Let’s see if the company will find a growth path again in the near future.
AIS Rating: ★★★☆☆
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 H1 only |
|
|---|---|---|---|---|---|---|---|
| EPS (MYRsen) | 11 | 17.5 | 16 | 18.6 | 25 | 41.4 | 39.85 |
| Change | -39% | 59% | -9% | 16% | 34% | 66% | 544% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | Debt/ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 3 | 16 | 0.7 | 3 | 85% | 24% | 18% | 3.3% |
* Equity / Total Assets, ** Total Liabilities / Equity
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