So the bull market is officially here.
Some signs include retailers making money within days, and stocks moving up 20% in a day.
In a sea of expensive valuations and record level volumes, it has become increasingly difficult to find an undervalued gem.
One stock that has relatively not moved, still trades below 20x price earnings ratio (PER) and is in net cash position, is aerosol spray painter DPI Holdings Bhd (stock code: 0205).
So cash rich is this company that on July 6, it wrote to Bursa Malaysia asking for an extension to utilise the remainder proceeds of its RM31.64mil it raised during its IPO!
To date, the company has only utilised some RM4.96mil.
The company is now asking for an extension up to Jan 2024, to utilise those monies.
For some background, DPI Holdings was founded by Peter Chai Mui Seng, currently the Executive Chairman and Managing Director of the company.
DPI was then a manufacturer of paints for decorative and household applications. In response to rising competition in the paints and coatings industry, in 1982, Peter Chai spearheaded DPI’s venture into the manufacture of aerosol paints, a niche segment within the paints and coatings industry as a means to differentiate ourselves from its competitors.
Credit: DPI Holdings
DPI has since grown from a small company manufacturing only 30 aerosol paint colours into a well-established aerosol paint manufacturer in Malaysia supplying more than 300 colours today.
Today, it supplies to over 700 distributors and retailers in Malaysia and to over 9 overseas private label customers.
M&A - just a matter of time . .
It is no secret that DPI Holdings has been actively looking for a mergers and acquisition exercise to grow the company.
As of May 31, 2020, the company has cash of RM18.39mil and fixed deposits of RM39.86mil.
While it has stated during its IPO that it is looking to spend some RM22.2mil for the expansion of its current factory, this still leaves the company with enough firepower to make an acquisition.
Management of DPI has been actively seeking out companies in related fields for M&A purposes.
Peter Chai, its 74 year old MD who has dabbled successfully in various businesses over the last 40 years, is extremely savvy and walks the straight line. He will only look to buy solid companies at bargains.
Listed in Jan 2019 at a price of 25 sen, this stock continues to trade below its IPO price. This despite the company paying dividends twice a year.
Solid financials and dividends.
Last year, the company paid 0.4 sen in dividends, and thus at DPI's current price of 22 sen, the stock has a dividend yield of 1.86%.
DPI's management has guided that they will be looking to give out the dividends on the consistent basis.
Meanwhile, the outstanding float of DPI extremely small, with roughly 75% of the company controlled by its managing director Peter Chai (see pic) and his family.
At some 486.73 million shares, DPI only has a market capitalisation of RM104.65mil.
For its full year ended May 31, 2020, the company recorded net profit of RM6.04mil compared to RM6.4mil in the same period of the previous year. Revenue also dropped to RM41.74mil from RM49.13mil last year.
While it might appear that the company did not grow, bear in mind that DPI still managed to maintain almost the same net profit despite its sales being terribly affected by the Movement Control Order (MCO).
In the fourth quarter to May 31, 2020, it only registered a net profit of RM728,000 from RM2.44mil in the same period of the previous year.
Growth moving forward
Organically, the business is very stable, and is anticipated to grow at some 20% per annum based on its factory expansion. The capacity expansion will see an immediate 30% increase in capacity
DPI is also planning for a second factory over the next 1-2 years
The company has been planning a move to the 'clean' business' as part of its business diversification and will be entering the sanitiser business in the next few months. This business is complementary to its existing business, and the company has indicated that it will not only produce liquid sanitisers but also high grade industrial spray surface disinfectants
DPI also plans to develop a wider range
of aerosol products to capture a bigger market share. The company has
begun manufacturing and sales for anti-bacterial disinfectant spray.
- The company is aggressively looking for an M&A exercise to grow the business.