Thursday 26 January 2012

Greenyield finds its pot of gold

KAJANG: Greenyield Bhd has created its own pot of gold at the end of the rainbow. The ACE Market-listed company manufactures unique plant pots made from a secret formulation and production process. Its artstone pots are not as heavy as the traditional ceramic pots, nor are they as vulnerable as the plastic ones.

The pots are lighter, more durable and possess a unique homogeneous travertine appearance.

“A woman can now go to the supermarket and purchase one of our very big pots and carry it home all by herself. Those who live in an apartment can carry the pots up to their floor by themselves without having to pay extra for delivery,” Greenyield group managing director Don Tham Foo Keong told The Edge Financial Daily.

But making artstone plant pots is not Greenyield’s main business. The company primarily develops, manufactures and markets agricultural systems, products and services based on agro-technology.

Its systems include gaseous stimulation systems, liquid stimulation systems, agricultural chemicals such as GreenPlus and rubber tapping utensils.

Nevertheless, the artstone plant pot making business, under its non-plantation arm, is gaining prominence in Greenyield which was founded in 1937 and listed in 2007.  Tham expects revenue contribution from the non-plantation segment to overtake its core business in the future.

“We expect  [the non-plantation business] to overtake our plantation-related products and services earnings in 2013 or 2014. But it might not happen if the plantation business grows more than we expected though,” he said.

Tham said Greenyield is also putting put more effort into sustaining turnover for its core business in view of the current challenging global economic environment.

As Greenyield’s plantation division is mainly focused on the rubber sector, Tham said the business could be affected if rubber prices remain stagnant this year.

“We expect rubber prices to remain quite stagnant this year but we believe the price could possibly go up at year-end on the back of increasing demand. But again, demand is very sensitive to the economic situation in Europe and the US, despite China being the No 1 user of rubber in the world.

“Rubber goods produced in China are meant for the US and Europe. If their economies are down, exports of rubber products will go down, too. Apart from that, rubber prices are very sensitive to the prices of crude oil,” he said.

The price of rubber slumped some 29% last year, but has rallied strongly since the new year.

Rubber futures for June delivery traded in Tokyo closed at a three-month high of ¥320.7 (RM12.63) per kg yesterday, with traders turning bullish due to Thailand’s recent price stabilisation measures.

Besides the outlook on the rubber sector, Tham said Greenyield’s earnings are highly exposed to foreign exchange fluctuations due to its large global presence.

“We engage in effective hedging against the greenback and euro, but still, there is only so much we can do. We can’t do it all,” he said.

Since its debut on the then Mesdaq market over four years ago, the company has been consistently profitable, with annual net profit ranging between RM4 million and RM7.4 million. For FY11 ended July 31, it posted a net profit of RM7.38 million, or 4.4 sen per share, on RM48.24 million in revenue.

The company saw its non-plantation business revenue grow 129% to RM36.21 million in FY11 compared with RM15.8 million a year earlier.

This comprised RM12.96 million in external sales, some 6% higher than the year before, and RM23.25 million in inter-segment revenue, a 6½-fold jump from RM3.59 million in FY10.

Its plantation division saw revenue from external customers increase 34.3% to RM35.28 million in FY11 from RM26.27 million a year before.

Greenyield derives more than 75% of its total revenue from the export markets. The company’s artstone plant pots are mainly exported to the US, Australia and Europe.

“The market [for artstone plant pots] is so small in Malaysia. Our buying power is not there and not many people have the money to spend on these things.

A big artstone plant pot is sold at some RM1,000 [a piece] by retailers here. But they are selling like mad in the US and Europe despite the financial troubles there,” said Tham.

Greenyield does not plan to patent its secret formula and production process for artstone material, he said.

“We talked to our patent lawyers and suddenly they started asking too much on both the process and ingredients. We are not going to apply [for patents], just like Coca-Cola, they don’t have a patent either,” Tham said.

The company’s net profit for 1QFY12 ended Oct 31 jumped significantly to RM2.19 million from RM786,000 a year earlier, due mainly to strong demand for plantation-related products and services from the overseas markets. Its revenue for the quarter rose to RM13.58 million from RM8.02 million a year ago, while earnings per share expanded to RM1.32 from 48 sen previously.

Greenyield is relatively cash rich. As at Oct 31, 2011, the company had RM16.2 million net cash, equivalent to 10 sen per share and comprises one-third of its shareholders’ funds of RM48.68 million.

“We will continue to invest despite the current challenging economic situation. We believe the best opportunities come when the economic environment is bad. On the whole, we are now trying to concentrate on expanding our plantations and plant pot businesses,” Tham said.

Greenyield’s share price closed at 21 sen yesterday, below its net assets per share of 29.2 sen as at Oct 31, 2011. At that price, the company has a market capitalisation of RM35 million.

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