Low-profile Master-pack raises dividends after chalking up better profit
IT is rare for companies to be raising their dividends during these challenging times.
The exception are rubber glove makers, who remain for now, the biggest winners during this pandemic. Hartalega Holdings Bhd for example, whose market capitalisation has become the largest of all locally listed rubber producers, raised their fourth quarter dividends to 2.05 sen per share, from 1.9 sen per share in the same quarter last year.
One other small low-profile company has also raised its payout – Master-pack Group Bhd announced on Wednesday that it will give its shareholders 4 sen per share in an interim dividend for the financial year ending Dec 31, 2020 (FY20).
It paid only 2 sen last year.
In a Bursa Malaysia filing, Master-pack explained that the higher interim dividend declared for FY20 as compared to the previous financial year was mainly due to the group’s good financial performance in 2019 and cash position.
While the total payout is relatively low, amounting to only Rm2.18mil compared to the estimated Rm190.9mil that Hartalega will dish out, some investors chased Master-pack shares following the announcement.
The stock rose some 24.2% from May 27, to Thursday’s close at RM2.05 apiece, giving it a market capitalisation of Rm111.9mil.
It is also noteworthy that Master-pack maintained its profit numbers in its latest quarter.
The Penang-based group, which makes corrugated paper packaging, posted a net profit of Rm3.04mil for the first quarter ended March 31, 2020.
This was on the back of a 14% lower revenue at Rm40.66mil during the quarter, compared to the same quarter last year.
Master-pack attributed the lower quarterly revenue to lower demand from customers.
It adds that the movement control order (MCO) had contributed to a drop in revenue by 50% during the last two weeks of March 2020.
During the MCO period, Master-pack’s two facilities in Nibong Tebal and Kuching were allowed to operate, albeit at 50% capacity, while its facility in Vietnam continued operating as usual.
Master-pack though makes clear the challenges it faces.
On prospects ahead, the group notes in its quarterly results filing that 2020 will be a very challenging year as the impact of Covid19 will take effect on all aspects of livelihood, in terms of health, social interactions and businesses.
Master-pack too will not be spared from the business disruptions on supply and demand.
However, the group is encouraged that it will be able to ride through the year, given its strong balance sheet built over the years and a basket of diversified customers.
On a positive note, the company said there are opportunities to tap into, given the emerging trend of deliveries.
“Packaging is essential in the shipping of goods from one location to another.
“The new trend that emerged during the last two months in Malaysia was the rise in food deliveries and online shopping during the MCO, which translates into the greater need for packaging,” says Master-pack, adding that the management will review its business processes and procedures, as well as identify its strengths, weakness and business strategies moving forward.
Hence, Master-pack is likely a small beneficiary of the current times.
It is clearly one of the companies that has refrained from making a big announcement on this, compared to the hundred or so other companies which have been quick to announce deals indicating that they will be getting new business stemming from the pandemic.
Master-pack even declined to comment for this article.
The stock trades at an undemanding price-earnings multiple of 7.33 times.
It is impressive that Master-pack registered a 173% jump in net profit to Rm15.69mil for FY19, as compared to the previous financial year.
This was on the back of a 40.5% year-onyear rise in revenue to Rm204.61mil, as well as an improved pre-tax profit margin of 8.6%, compared to 5.7% in FY18.
The group received greater revenue contribution from full capacity operations by its Vietnam operations, which was set up in the fourth quarter of 2018.
Master-pack supplies its packaging solutions to solar equipment manufacturers, and sectors like food and beverage (F&B), electrical and electronics, as well as other sectors that comprise automotive, chemicals, and medical.
In terms of revenue breakdown by industry, the solar industry remained the largest, contributing to 67% of total revenue in FY19.
The F&B sector only contributed to 10% of total group revenue.
However, in his statement in the 2019 annual report, group executive chairman Datuk Syed Mohamad Syed Murtaza highlights that there may be a shift in revenue composition for 2020 to the F&B and medical sectors.
“Master-pack is a player in the packaging industry with a wide range of customers including the F&B and medical sectors which are essential, if not critical for normal daily lives.
“Nevertheless, it is hard to foresee ahead in the year what can or would happen,” he says.
As at April 22, Master-pack’s major shareholder is Yayasan Bumiputera Pulau Pinang Bhd with a 29.06% equity, followed by its independent and non-executive director Datuk Seri Khor Teng Tong, who holds a direct stake of 1.46% and an indirect stake of 2.06% in the company.
Master-pack can trace its roots to the Hunza Group, founded by Khor.
Master-pack was previously known as Hunza Consolidation Bhd, incorporated in 1994 and listed on the second board of Bursa Malaysia.
Hunza Consolidation was involved in the business of seafood processing and manufacturing of corrugated carton boxes.
The company was controlled by Khor, who also controls Hunza Properties Bhd.
Together, both companies formed the Hunza Group then. Hunza Properties has since been privatised.
In 2004, Yayasan Bumiputra Pulau Pinang acquired a significant amount of shares in Hunza Consolidation, which saw the appointment of new chairman, Syed Mohamad, who led the company through a strategic change.
Hunza Consolidation was later renamed to Master-pack Group in June 2009.