Apollo Food Holdings Bhd
Apollo Food Holdings (Fundamental: 1.95/3, Valuation: 2.4/3), a leading manufacturer of compound chocolate confectionary products and layer cakes, announced its 1QFYApril2016 earning results last Thursday. Net profit jumped by an outsized 95.7% y-o-y to RM11.2 million — despite a 3.3% decline in sales to RM49.9 million — boosted by foreign exchange gain and lower operating expenses. 

The company also declared a first and final dividend of 25 sen per share for FY2015, giving an attractive net yield of 5.4%. The dividend will go “ex” on December 9.

The stronger earnings were anticipated as the company is a beneficiary of the weakening ringgit and lower global commodity prices (hence lower raw material costs). To recap, Apollo derives about 40-50% of its sales from export, which are mainly denominated in the US dollar. Year-to-date, the ringgit has depreciated by 17.5% against the greenback.

The stock was last featured by InsiderAsia on April 23 at RM4.60. It has since risen to a high of RM4.94 before ending at RM4.65 yesterday, in line with the broader market selloff.

We continue to like Apollo for its above-market average yields, strong balance sheet and steady operating cashflow. Valuations remain attractive — at a trailing 12-month P/E of 11.7 times and 1.39 times book. By comparison, peers Oriental Food Industries and Hup Seng Industries are trading at P/E of 15.7 times and 19.7 times respectively.

Net cash increased to RM100.0 million or RM1.25 per share at end-July, from RM56.6 million in 2012, despite paying consistently high dividends. From FY2008 to FY2012, dividend per share averaged 18.55 sen, and increased to 25 sen in FY2013 to FY2015.

We expect Apollo to sustain its dividend per share of at least 25 sen for FY2016, supported by its cash rich balance sheet and low capex requirements. 

This article first appeared in digitaledge Daily, on September 4, 2015.