This article first appeared in The Edge Financial Daily on August 7, 2017 - August 13, 2017

Yee Lee Corp Bhd
(Aug 4, RM2.41)
Initiate coverage on Yee Lee with an outperform call and a target price (TP) of RM2.72: Yee Lee Corp Bhd is synonymous with high quality oil brands such as Helang and Vesawit, produced through operating a palm oil refinery and palm oil mill. Of note is its distributorship of more than 50 brands, mostly food and beverages (F&B) and household products. It has been in the business for 49 years.

Yee Lee also manufactures packaging materials, including aerosol cans and corrugated carton boxes, and markets and distributes fast-moving consumer products. Over the next three years, we are looking at a compound annual growth rate of 9%, driven by both the manufacturing and trading divisions.

We initiate coverage on Yee Lee with an outperform call and a TP of RM2.72, implying an upside of 13% from its last traded price.

We like Yee Lee for i) steady growth in aerosol can manufacturing; ii) trading strength F&B and household products distribution; and iii) synergy of own brands with distributorship. 

In the year up to May, the monthly data for sales of pesticides and the paint industry has shown an average year-on-year growth of 6% and 25% respectively. We believe the consistent and steady sales will continue to support demand for the aerosol can segment. Going forward, about RM13 million to RM14 million capital expenditure is allocated for Yee Lee’s aerosol can segment. Yee Lee is investing in new printing machine, which should enable them to offer premium-quality print to customers while reducing wastages and improving printing efficiency.

Yee Lee is shifting its Kota Baru distribution centre from a rented warehouse to its own new warehouse this year. This will add another 23,000-sq ft capacity to its existing storage space of about 480,000 sq ft, which will enable Yee Lee to store more products in supporting future growth. Currently, Yee Lee owns a distribution network of 16 distribution centres across major towns in Peninsular and East Malaysia, which supply for a customer base of about 33,000, ranging from large hypermarkets and supermarkets to sundry shops and convenience stores.

We derive our 12-month target price of RM2.72 based on the sum-of-parts valuation method. For Yee Lee’s manufacturing, we have applied a price-earnings ratio of eight times to the segments’ financial year 2018 (FY18F) contributions, taking into consideration its peers. Our coverage of DKSH is valued at 16 times price earnings (PE), but as Yee Lee is not market leader, it does not command such a high valuation. Hence, the trading segment is given a multiple of 10 times PE. As for its stake in Spritzer, we have ascribed a conservative PE of 13 times. — PublicInvest Research, Aug 4