Background of the Company
Master-Pack Group Berhad, an investment holding company, manufactures, sells, and distributes corrugated fiberboard cartons and packaging materials in Malaysia, Vietnam, and internationally.
The company had a record-breaking revenue of more than RM200 million in Financial Year (FY) 2019. This is attributed to higher contribution from operating subsidiary in Vietnam. The subsidiary is expected to contribute significantly to the group's revenue moving ahead.
Extract from the Annual Report 2019:
It is important to understand the customer base because any material impact on the customers will negatively affect the group's revenue. It is worthwhile to note that the group's main customers are solar equipment manufacturers where 67% of the group's revenue comes from them.
Solar Equipment Manufacturers
Our immediate question will be, "Who are the solar equipment manufacturers?". From my findings, I strongly believe that the customer is First Solar Inc. First Solar is a US-based solar panel manufacturer. The manufacturing facilities are located at Malaysia and Vietnam.
Did Covid-19 materially impacted the group’s main customer?
During the investor briefing on 7th May 2020, First Solar has confirmed that its manufacturing facility in Malaysia and Vietnam are operating at 100% capacity utilisation despite the pandemic. In addition to that, the company is continuing with its Series 6 capacity expansion plans (Series 6 factories are in Malaysia and Vietnam).
This is a very positive note to Master Pack since its main customer is not affected materially and instead, continuing to expand its operation.
Full investor briefing slides can be found through the following link: https://s2.q4cdn.com/646275317/files/doc_presentations/2020/05/First-Solar-Investor-Overview-(May-2020)-vF.pdf
Cost of Production
Raw materials for the corrugated cartons are mainly paper which is a product from wood pulp. The company, in its annual report, mentioned that the unit price of raw materials, paper in particular for 2019 was trending downwards due to lower global demand.
There was a sharp drop in the price, from a high of $211 in January 2019 to $138 in January 2020 and the price stayed almost the same thereafter. This will translate into a significant reduction in the cost of production thus increase the profitability of the group (specifically a higher gross margin).
Performance of the group for the quarter ended 31.03.2020
The group performed unexpectedly well for the first quarter of the year despite the pandemic. Although revenue declined by approximately RM7 million, the group was still able to maintain the bottom line which is the earnings per share. The main reason why I always look at the bottom line is because even though a company records a high revenue but if its gross margin and operating margin are low, then there is not much to shout about.
On quarter to quarter basis, the revenue declined by RM10 million which is about 20% mainly due to the reduction of orders affected by line change of model which will take around 9 months for modification of the production facility. Two weeks partial closure in March added to the drop-in deliveries (which was expected).
Moving forward, the group is expecting to see a shift in the composition of revenue for financial year 2020 to the Food & Beverage and Medical sectors which are essential for the “new normal” daily lives. This shift should be taking up the slack in revenue.
Strong Balance Sheet Position (Net Debt is ZERO)