Monday 11 November 2013

Yoong Onn expands to meet peak demand

KUALA LUMPUR: Little known Yoong Onn Corp Bhd is on an expansion trail to meet the growing demand for home linen and bedding accessories.

Yoong Onn expects to increase its production capacity by 50% from its planned expansion on the newly acquired piece of land adjacent to its factory. The new capacity will come in handy during the seasonal peak period when demand tends to spike.

“With the new factory in place, we will be able to increase our production capacity to an additional 50% by 2015,” said Yoong Onn head of production Eric Chew, adding that it currently produces 3,000 bedsheets a day.

The 2.22-acre (0.88ha) piece of land in Nilai, Negeri Sembilan, was purchased at RM5.7 million for expanding Yoong Onn’s manufacturing and warehousing operations.

While the family-owned Yoong Onn is a familiar name in the investing community, its homegrown brands — Jean Perry, Novelle and Louis Casa — are well-known premium household brands in the local home linen and bedding accessories market.

“We have diligently cultivated our homegrown brands over the decades and they are our key assets,” managing director Roland Chew told The Edge Financial Daily.

From its humble beginnings as a store in Petaling Street, Kuala Lumpur, Yoong Onn now owns 14 homegrown brands, 16 fully owned retail outlets and 120 counters in department stores and hypermarkets. It exports to more than 10 countries worldwide.

“According to an independent report, we are a leading player in this market with a share of more than 30%,” said Chew.

Yoong Onn is the first company listed on Bursa Malaysia dealing in the home linen and bedding accessories business.

Kenanga Research in its note dated Oct 29 described the company as a hidden gem waiting to be discovered. Based on its share price of 78 sen, Kenanga said the stock is deeply undervalued with a price-earnings ratio (PER) of 6.2 times, which is at a 40% discount to its peers’ average of 10.4 times.

“Yoong Onn is trading at only 0.9 times its book value of 87 sen [at share price of 78 sen]. We believe the discounts are not justified due to its good earnings growth prospect and superior dividend yield,” the research house said in the report.

The company has achieved a good five-year net profit compound annual growth rate of 14%, according to Kenanga Research. “We reckon that its strong earnings growth track record reflects the growing demand for its products as Malaysia’s household income rises.”

Kenanga noted that Yoong Onn has given out regular dividends, thanks to its strong balance sheet. The company is in a net cash position of RM7.24 million after taking into account borrowings of RM24.12 million.

Its share price has been on a steady climb since last month from 70 sen to a historical high of 90.5 sen on Nov 4. It closed at 88 sen last Friday.

Sales to premium department stores make up half of the total revenue. Projected sales to hotels and hospitals generate 10% and overseas exports contribute 20%.

According to Chew, Yoong Onn is well-known locally in department stores such as Parkson, Aeon, The Store and Robinsons.

“We grow faster when we partner with department stores as they are expanding rapidly.

“In smaller towns where the population is not big enough for us to set up a boutique, we rely on department stores to which we supply our products where growth is very consistent,” he said.

Chew acknowledges that competition from low-cost manufacturers in China and Vietnam has always been a concern. Hence, Yoong Onn targets more sophisticated, middle- to high-end customers who value quality and comfort rather than mere functionality.

“As we invest a lot in innovation, quality and design, it is pointless to compete with any player who only competes on prices by compromising on quality. We don’t want to lose our focus and head into the wrong game,” said Chew, adding that Yoong Onn is a trendsetter producing about 50 new designs every month.

He said compared with overseas manufacturers, Yoong Onn has a superior understanding of the local culture and markets, which enables it to deliver designs popular with the locals.

“Chinese manufacturers are not well-versed with fusing Malaysian culture into their designs and they mainly sell to price-sensitive customers. This is not our target group,” said Chew.

Yoong Onn purchases raw materials from 10 factories in India, Pakistan and China with which it has established strong working relationships for many years.

“We don’t operate our printing and dyeing here in Malaysia. We provide the factories with the specifications, designs and colours and they print and dye for us,” said Chew, adding that manufacturing products that are less-labour intensive has been effective in helping to reduce labour costs.

Yoong Onn is a licensed manufacturing warehouse under the Royal Customs and Excise Department, which enables its goods produced for export to be exempted from customs duties.

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