Ever tried HupSeng’s Ping Pong biscuit together with a hot
chocolate drink? It’s truly a classic combination and this is how I get to know
the brand which I believe is one of the Malaysia’s all-time favourite crackers!
Hup Seng has been manufacturing all sorts of cookies, biscuits and crackers for
decades. As a repetitive winner of numerous consumer products, it is obvious
that HupSeng possess a strong foundation of branding and popular product mixes
which ensures the position of HupSeng in the market. As recipes of most
products are well produced, the firm spends not much on capital purchase or
even research and development (averaging to RM6-8 million annually), thus the
firm accumulates a lot of cash which is able to finance any further expansion
and acquisition in the future. As 87% of the company’s total revenue is
generated from Malaysia, we can see that there is still a lot of opportunities
for HupSeng to grab in the future with such a strong cash flow position.
With the current market flooding with all sorts of products,
the competition has become stiffer than ever. This also includes competition
especially from China with low price advantage who wants pieces of the market pie.
Also, raising of utility rates and fuel costs put a heavy burden on the
industry as a whole. Furthermore, taste
and preference changes accordingly to regions. Although there are overseas
opportunities, it is a difficult mission to satisfy all kind of consumers’
need.
Looking into the company operating cash flows, it manage to
climb amid of fluctuation during the initial years. Both ratios are also
performing splendidly as shown in the table. The company did not go for further
leveraging for the past ten years which proves that the company is able to
gradually sustain on its own without much gearing which reduce a lot of risk at
the same time. With my calculation of RM4.13 intrinsic value after 10% margin
of safety, the price now is well above its value.
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