YEELEE (5584) - Little RED-Riding-BULL 一粒小“红牛”


YEELEE (5584) - Little RED-Riding-BULL 一粒小“红牛”


It had been one year since GST was implemented in Malaysia. The confidence from the consumers had been revived. Most consumers now had get used to the GST. So it's also our time to look at the consumer sector and the consumer counters in our FBMKLCI. Why consumer sectors? Click here to refer to my previous post, Consumer - The Next Jewel Sector to be Aimed. And YEELEE will be my jewel counter of consumer sector for the year 2016
YEELEE began its core business as an edible oil repacker in Malaysia in 1968. Since then, it had grown into a fully integrated manufacturer and distributor, venturing into various sectors, such as manufacturing, marketing and distribution of fast moving consumer products, plantation and eco-tourism.
YEELEE basically operates in four segments:[1][2][3]
a) Manufacturing - (Packaging Division: Canpac S/B-100% & South East Asia Paper Products-100% ; Palm Oil Refinery Division: Yee Lee Edible Oils S/B-100% ; Palm Oil Mill Division: Yee Lee Palm Oil Industries S/B-100%) Cooking oils, margarine, corrugated paper cartons, crude palm oil, kernel, general line tin cans;
b) Trading/Marketing - (Yee Lee Trading Co S/B-100%)Edible oils, kernel and other consumer products (Morning Kiss, Spritzer, RedBull)
c) Plantation - (Sementara Plantations S/B-100% & Desa Tea S/B-100%)Oil palm and tea.
d) Hospitality - (Sabah Tea Resort S/B-100%)Tourism in Sabah
*Direct Subsidiary Companies is italized. 
**YEELEE has total of 7 direct subsidiaries and 7 indirect subsidiaries.
What really caught my attention is YEELEE is running a "full-cycle" business model. Full-cycle here means from producing the raw material, processing them into products, packaging the end products and selling them to the consumers. So thats why YEELEE had a plantation sector, manufacturing sector and the trading/marketing sector.


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Let's go through the segments one by one. We start off with Plantation Sector. Sementra Plantations S/B is involved in oil palm plantation business with estates in Gopeng and Tapah, Perak. The oil palm estates are located near forest reserves and the native settlements. The foreign workers were hired from Indonesia to work in the states. The illustrations below are the processes of the fresh fruit bunch. The fresh fruit bunch (FFB) is harvested and supplied to palm oil mills in Bidor.
Process of Fresh Fruit Bunch (FFB) from Harvesting to Bidoi, Perak

Sementra Plantations and Yee Lee Palm Oil Industries S/B (YLPOI)  are located in the same place, in Bidor, Perak. Next on the Manufacturing Sector, YLPOI is involved in the crushing of Oil Plan FFB for Crude Palm Oil (CPO) extraction and palm kernel (PK), which are the principal products. YLPOI not only processes FFB received from own estates, it also processes the FFB from dealers and third party estates to produce CPO and PK to be sold to local oil refineries and kernel crushers respectively.
Process of FFB to CPO and PKO

Next the CPO and PKO are transported to Yee Lee Edible Oils SB (YLEO) in Ipoh. YLEO is involved in the refinery of palm oil and in the manufacturing of high quality cooking oils, margarine and shortening. Through years of R&D, YLEO had developed an oil refining process that retains up to 90% of Vitamin E in cooking oil, an achievement that won the recognition of the Swiss Vitamin Institute. The famous product is the Helang Oil, which also had been awarded the Reader's Digest Trusted Brand Gold Award in 2015.[2]
Process of Refinery of CPO and PKO to Edible Oil

Next this is the Packaging Sector. South East Asia Paper Products S/B (SEAPP) is one of Malaysia's leading manufacturers of corrugated fiberboard cartons and boxes for product packaging purposes. SEAPP serves a large clientele in the food, rubber based, wood-based, furniture, cut flowers and fruits, electronics and other consumer good industries.
Process of Packaging Corrugated Boxes
Customers for Corrugated Boxes which include Spritzer, Vesawit, Helang, SunLico, Neu Vida, Cactus

Lastly, will be the Trading Sector. Yee Lee Trading Co. SB (YLT) is one of the leading trading companies in Malaysia. Its principal activity is the marketing and distribution of fast-moving, high quality consumer products. Its wide range of products include the famous "Red Eagle" & "Vesawit" palm-based cooking oil, "NeuVida" omega-9 cooking oil, "Spritzer" range of everage together with oral care products, household products and laundry products. The sales network of 18 branches are located in all major towns in Peninsular and East Malaysia. Each branch is fully equipped with full warehousing and distribution facilities, enabling YLT to penetrate through the market and reach out to a multitude of retail outlets.
YEELEE Trading Branches Network
So from the illustrations and the processes, we can understand that, from plantation of palm oil, manufacturing of cooking oils, packaging of the end products till the marketing and distribution of the products to the hands of consumers. This is a complete cycle. The benefit of self-owned process cycle can reduce wastage and can contain the expenses among the company itself.

Canpac SB is one of their direct subsidiary, which is specialized in manufacturing aerosol cans in Malaysia. Established in manufacturing Aerosol can in 1990, acquired a manufacturing plant in Ho Chi Minh City, Vietnam in 2005 to cater for domestic and exports demands. Canpac is fully equipped with latest metal printing and can making machines from Europe, with a total capacity of 100 million cans per year. Its customers include multinational Europe customers like Reckitt & Benkiser and SCJ. Its products are exported to Australia, Bangladesh, Vietnam, Sri Lanka and other countries, which meaning to say, they are benefiting from stronger USD.

The aerosol production is more of specialized products manufactured for paints, cosmetic (hair sprays/moose), air fresheners, insecticide, butane gas, car care products and etc. Good things about this is we cannot reuse the cans, they can only be thrown away after we had finished using them.
Notice any familiar products that we use in our daily life?

Desa Tea SB (DT) is involved in the plantation, manufacturing and distribution of tea. DT's tea plantation is nestled into the lush tropical wilderness of Malaysia's first ever World Heritage Site, Mount Kinabalu, sits on a 6,200-acre land at 2,272 feet above sea level. It is surrounded by the world's oldest rainforest of about 130 million years. Sabah Tea Plantation is the largest single commercial tea plantation in Borneo. It is also one of the very few tea plantations in the world that certified to produce organic tea by SKAL International B.V of the Netherlands, an internationally recognized organization that performs inspections and grants certification for organic production methods.
Process of Tea Processing 

Sabah Tea Resort Sdn Bhd (STR) is involved in tourism activities. Its Sabah Tea Garden is situated within the single largest tea plantation in Borneo in the highlands of Mount Kinabalu. It offers a unique tourist destination for those interested in Borneo's well-known rainforest and cultural diversity. Sabah is a place known for its natural surroundings and beautiful scenery. It is one of the main attraction for the tourists.
Hospitality/Tourism Industries offered by YEELEE in Sabah

1. Fundamental Analysis:

Revenue and Net Profit from 2013 to Current
Despite having so many business divisions, its revenue and net profit are inconsistent, however YEELEE maintained their net profit margin around 4% every year. Their revenue had been growing since 2014. For 2016, YEELEE had just released their Q1 result (yellow colour)[2][5]. YEELEE, when translated literally means Integrity before Profits. More than just a concoction of words, the philosophy of integrity before profits is our way of life[1].

Cover Page of Annual Report 2015
Let's look at the Annual Report 2015. The cover of YEELEE is basically quite interesting. Expanding Possibilities, Creating Opportunities. And it is designed by their trading products, whereby we can see, Morning Kiss toothpaste, Spritzer, oil palm, Redbulls, Helang Oil, Sabah Tea box and Neu Vida Oil. As a company, YEELEE strives to keep moving forward. Where things are going well, YEELEE shall endeavour to carve out even more business ares where they can expand into. Where there are challenges, they shall endeavour to discover opportunities for improvement[2].

According to Mr Chairman, Dato Dr Haji Mohamed Ishak Bin Haji Mohamed Ariff, he expects that YEELEE will keep growing due to scorching hot weather prompted by El-Nino thus boosting the demand for bottled water (Spritzer Berhad) and also the distribution of new Red Bull Gold energy drinks. These factor will contribute positively to YEELEE future profitability.

For the review of operations of manufacturing division, aerosol can operation in Rawang maintained its profitability while the Vietnam operation is expanding its production capacity and warehouse facility to improve the operational efficiencies and to support the sales growth. However, for the corrugated carton boxes, they suffered losses due to difficulty in passing on the full cost to customers due to stiff competitions. Therefore, to curb the issue, actions had been taken such as automation process and upgrading of machineries to improve on its production efficiencies, reduce costs and wastages. As for palm oil refinery and mill business, the average CPO price dropped by 9.6% to RM2,154 per metric tonne against RM2,384 per metric tonne in 2014. Despite the low CPO price, the palm oil refinery and mill still manage to achieve higher sales growth through better sales of cooking oils, palm kernel and bulk oils. Manufacturing division's revenue had increased 5% while net profit had increased 30%.
CPO Price Range of 2 Years[6]

When we look at the CPO price for the last 2 years, the chart is mostly hovering between RM2,100 to RM2,250. But for the first half of 2016, the price is already around RM2,500. And at the second half of the year, the price of CPO to stabilize around RM 2,300 to RM2,600[8]. El-Nino was over and now is the time for La-Nina[7] and production should continue its upswing in line with seasonal trends[8]. When the revenue for palm oil refinery is higher, the net profit by right, will be linear and higher. But in 2016, not to forget the labour fee is much more expensive, therefore the operating costs will be higher.

For the trading division, the robust sales growth was driven by the beverage segment, such as bottled waters, Old Town products and Red Bull energy drinks coupled with cooking oils and Campbell products. After the implementation of GST in April 2015, consumers spending patters remained cautious. However after a year, i think the consumers had already get used to the GST. A point to note, Spritzer and Helang both had won a few prestigious awards such as, Platinum Winner of Reader's Digest Trusted Brands Award 2015 and other massive awards. These brands are always consumer's number one choice. Revenue had increased 25% whilst net profit had increased 31%.

The plantation division comprises of two oil palm estates in Tapah and Gopeng and a tea plantation in Kampung Nalapak, Sabah. YEELEE is developing its 2,500 acres idle land in Ranau, Sabah into a new oil palm plantation. Revenue for plantation division reduced 27% and net profit decreased 90%. The poor performance was mainly attributed from the insufficient sales volume from the tea plantation and also El-Nino hot weather condition. However, management will continue to focus on estate operation management aspects, for example proper maintenance and treatment of palm trees and tea plants. More varieties of tea flavours with attractive packaging will be launched together with aggressive marketing strategies to boost sales of tea.

Both manufacturing and trading division is the biggest revenue contribution in 2015. Manufacturing division contributes 60% while trading division contributes 73%. The biggest division contributor for net profit is manufacturing division with 65%, followed by trading division with 34%. That's why i mentioned that when manufacturing division increases its revenue, logically the net profit should be increased since net profit margin for manufacturing is high at 5%.The management are tackling the issues of the loss making industry (corrugated carton boxes) and the CPO price is performing better than last year, but hedged down by the higher labour fee. However i am still confident that their revenue and net profit will increase. As for trading division, the consumer products will still lead the way, with most of the festive seasons at the second half of the year. As for plantation division, the management had pledged to solve the issues. All in all, i think YEELEE should be making good progress.

Revenue & Net Profit by Quarter
The left chart is the movement of revenue and net profit by quarter. YEELEE's revenue is increasing every year while its net profit had been in uptrend since 1 year ago. The Q1 revenue increased 56% yoy and 6% qoq, while net profit had improved 42% yoy and 6% qoq[5]. YEELEE is not a net cash company. 
When we look at its Quarterly Report, trading division had become the largest revenue and net profit contributor with 81% and 53% respectively. In its future prospect, again the management puts a high hope in Red Bull energy drink after they obtained the distributorship in October 2015. 

2. Technical Analysis:

YEELEE Daily Chart
From the daily chart, the immediate resistance will be 2.34. Do notice that YEELEE tried to break 2.34 and stay above the resistance but it failed. For me, my comfort level is, if YEELEE can break 2.34, and maintain above 2.34 for at least 5 days, then, i will assume that it is a successful breakthrough. But so far, it had failed to do so. Lately YEELEE's BB had been getting narrower forming a golden triangle, about to choose its direction either to go up or to go down. If we notice its chart, previously there are another 2 symmetrical triangles being formed.

For the triangle 1, YEELEE actually breakthrough the resistance of 2.2 with a huge volume. A successful breakthrough must be paired with a high volume. Therefore, now 2.2 is our support. For the triangle 2, because the volume is not sufficient, therefore YEELEE failed to breakthrough and in the end, it formed a death triangle but supported by 2.2. Now it is forming a triangle number 3, if YEELEE wants to breakthrough the resistance of 2.34, it required around 60% of 15 July's volume. To simplify, YEELEE required a volume of more than 700k in order to have a successful breakthrough of 2.34. And on 12 August, YEELEE had successfully break the 2.34 resistance. If YEELEE can sustain above 2.34 for at least 5 days without being broken, then, we can say that 2.34 is a strong support.

The SMA20 had crossed over SMA40, making it a short term bullish. Remember SMA20 is basically a 1 month moving average while SMA40 is a 2 months moving average. Once YEELEE break the immediate resistance of 2.34, next resistance will be 2.43, after that, sky is the limit for YEELEE.

3. Projection Analysis:

A) SPRITZER BERHAD

SPRITZER Daily Chart
SPRITZER revenue and net profit from 2011 to 2016
YEELEE Corporation holds SPRITZER's shares by 32.57%[2]. And SPRTIZER's revenue and net profit had been growing consistently, hitting a net profit margin averagely 8% every year. SPRITZER had been getting attentions lately for a year as being observed in the volume. In the Annual Report 2015, there are a lot of institutional investors for SPRITZER. Quoted from the Q4 2016 report, "Water is an essential product and is needed for the sustenance of human life. With our wide product range catering to the various market segments, our strong branding, our premium silicon-rich water source and our leading position in the bottled water industry, we will be able to sustain the demand of our various bottled water products.". I think this quote said it all. Clean water is getting lesser and lesser. 
In Malaysia, we have hot season and also flood season. In hot season, we need water while in flood season, we also need water. First 6 months is the El-Nino while the late 6 months is the La-Nina. It is an irony, because during flood, we are surrounded by water, but those water are undrinkable. SPRITZER's source of water is still clean and not contaminated. I strongly believe the demand for clean water is still there, with more and more competitors in the market now, the branding is very important. And the brand SPRITZER is already well-known in our mind.

B) Red Bull Energy Drink

It all started when F&N was not renewing the marketing, distribution and sales of Red Bull energy drinks with Allexcel Trading SB[11]. The contract commenced from 1 April 2010 and expired on 31 March 2015. And from 1 April 2015 to 30 September 2015, F&N handed back the responsibility to Allexcel phase by phase. And after that, F&N produce their own Energy Drink, called Ranger.
And we need to calculate how much did Red Bull contribute to F&N's earnings and then only we can translate to YEELEE. The easiest way is we can take Q1 of 2015/16 revenue and compared with Q1 of 2014/15 and Q4 of 2014/15 whereby F&N stopped selling Red Bull[12].


From the snapshot on the left, we can assume that Red Bull contributed revenue of around RM33 Mil to RM39 Mil per quarter. This is also aligned with an article mentioned that Red Bull is expected to contribute approximately RM120 million in revenue in the first full year[13]. In an article reported by The Star, YEELEE recorded RM60 Mil sales from Red Bull products against total trading sales of RM314mil in the second half of FY15[14].

From these sources, we can conclude that Red Bull is one of the most favourite energy drink in Malaysia. YEELEE is expected to reap around RM30 Mil to RM60 Mil per quarter just from Red Bull.

Thats why in the QR, we managed to see an increase of 72% from the Trading Division revenue, from RM119 Mil to RM205 Mil. Net profit also increased 89% from RM3.6 Mil to RM6.9 Mil. Allow me to make a wild projection, RM50 Mil per quarter for a 4 quarters, YEELEE will benefit RM200 Mil from Red Bull alone. Hence, i am quite firm that YEELEE's revenue for trading division will increase due to Red Bull. And the net profit and EPS will increase as well. Increase by how much? Let's just wait and see.

C) Peer Comparison

I had made comparison between the same distribution sector. HARISON (5008), DKSH ( 5908) and KTC (0180). For KTC, it is just listed in November 2015, therefore i annualised the EPS and its PE. It does not seems right to me, however we can take a look at HARISON and DKSH for peer comparison purpose.
Peer Comparison for Distribution Sector

HARISON is the distributor for Milo, Maggi, Nescafe, etc which we can observe from the product itself[9]. DKSH is the distributor for Kit-Kat, Old Town White Coffee, etc[10]. The similarities between YEELEE, HARISON and DKSH is they are distributing consumer products. And i would like to emphasize that consumer index is climbing a new high after a year of GST, therefore, the distributor companies will benefit. Just for a rough calculation, the average PE (HARISON and DKSH) is 16 times. With the rolling EPS of 0.19, the projected target price for YEELEE is around 3.00. However, the EPS taken is only 0.19, which i think will be broken easily. Therefore the YEELEE's TP should be higher.

DKSH Weekly Chart
DKSH had gone sideways after struggling out from the downtrend channel. Lately it is showing an uptrend due to stronger consumer power.

HARISON Weekly Chart
HARISON also showed a breakout from downtrend channel. The technical indicators such as MACD and RSI are healthy for HARISON. Looks like it is ready to pick up and go up.

Summary:

YEELEE is definitely a little Red-Riding-BULL and will be big bullish bull in a year time due to:
- Riding on the wind of rising consumer power
- Distributes a lot of famous consumer products, Spritzer, Helang Oil, Neu Vida, Morning Kiss toothpaste, Red Bull energy drinks, Sabah Tea, you can name it, they got it~
- Well diversified with manufacturing division,  trading division, plantation division and hospitality division. The best thing is YEELEE had the complete business cycle for the palm oil. From plantation of the palm oil, to the processing from the CPO to cooking oil, as well as packaging and sell them at the consumer shelves.
- Mr Chairman mentioned that 2 key drivers will be the demand for water (SPRITZER) due to hot weather in Malaysia and the sales of Red Bull are expected to boost up YEELEE.
- Both manufacturing and trading division is the biggest revenue contribution for YEELEE, while for net profit, manufacturing division covers for 65% and trading division is 34%. 
- SPRITZER's share price had been going up and up and YEELEE is holding 32.57% of them.
- Red Bull Energy Drink to contribute around RM30 Mil to RM60 Mil per quarter, totaling up to around RM120 Mil to RM240 Mil, when translated to net profit, it will be increase.
- With promising and better CPO prices than 2015, the manufacturing sector's revenue will be higher and when translated to net profit, logically, the net profit will be higher also.
- Will be announcing their Q2 results soon. Expected to break new high if announced good results.
- The share price had broken the resistance of 2.34 last Friday (12 May 2016), if can stay above 2.34 for at least 5 days, can 2.34 can be considered as a support.

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Let's Ride the Wind and Gainvest
Gainvestor 10sai
15 Aug 2016
1.05am
For those interested with Gainvestor Sharing Session, the session is still available, please click HERE. If there are not enough participants, i will call it off and wait for better time.
Sources:
[1]: YEELEE Official Website: http://yeelee.com.my/
[2]: Annual Report 2015
[3]: http://klse.i3investor.com/servlets/stk/bizbg/5584.jsp
[4]: I Got It - Malaysia - Palm Oil (Season 2|2011)https://www.youtube.com/watch?v=ghXk2aJG0H8
[4]: http://www.bloombergtv.my/loss-red-bulls-dealership-adversely-affect-fn/
[5]: YEELEE Q12016
[6]: http://www.mpob.gov.my/smndimple/mpob_chart.php
[7]: http://www.nst.com.my/news/2016/05/145940/goodbye-el-nino-hello-la-nina-more-rain-expected-till-year-end
[8]: http://www.thestar.com.my/business/business-news/2016/08/05/palm-oil-stockpile-in-malaysia-seen-rising-in-july/
[9]: http://www.harrisons.com.my/fmcg.asp
[10]: http://www.dksh.com/cs/dksh_com/o/industries/business-line/cg-fmcg/fast-moving-consumer-goods
[11]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/1195593
[12]: F&N QR: 2016Q1, 2015Q4, 2015Q3
[13]: http://www.marketing-interactive.com/fn-malaysia-looses-distributorship-rights-red-bull/
[14]: http://www.thestar.com.my/business/business-news/2016/04/09/yee-lee-targets-at-least-10-growth-in-revenue/

YEELEE (5584) - Little RED-Riding-BULL 一粒小“红牛”
http://gainvestor10sai.blogspot.my/2016/08/yeelee-little-red-riding-bull.html