Mainstream
New initiatives to drive Signature’s growth
Ng Wai Mun 
The company is set to gain from higher number of condo projects with kitchen systems
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Although Signature International Bhd had an impressive dividend payout for FY16, it is interesting to note that the company does not have an official minimum dividend policy.

Group MD Tan Kee Choong tells FocusM that the kitchen cabinet and wardrobe manufacturer and supplier has only a dividend guideline. “We have no minimum dividend payout policy. We do have a guideline though, where 30% of the profit after tax is allocated for dividends.”

The company paid out a total dividend of 12 sen for the financial year ended June 2016 (FY16), equivalent to a yield of 13.7%.

As such, the counter is an attractive dividend play to mid-term and long-term investors. For FY16, the company paid out a total dividend of RM28.5 mil, which is equivalent to 56% of its FY16 after-tax profit of RM50.6 mil.

Investors who seek dividend plays would be drawn to Signature International. Given this scenario, and if analysts’ earnings estimate of RM30 mil for FY18 is achieved, 30% of the dividend could provide a yield of almost 5%. 

For its fourth quarter ended June 30, Signature International posted a profit after tax of RM10.43 mil. Its unaudited full-year cumulative profit after tax was RM21.44 mil for the year. Although the full-year profit declined by 58% from FY16, analysts are confident it will be able to hit RM30 mil profit in FY18. This represents a 40% increase from FY17’s profit after tax.

In recognition of its performance in FY16, Signature International won the award for Best Dividend Yield at Focus Malaysia’s Best Under Billion Awards (BUBA) 2017. The company won the award for companies with market capitalisation of RM150 mil to RM499 mil. Dividend yield was calculated based on the total dividend paid out in FY16.

 

Aiming for growth despite property slowdown

Investors have generally been cautious about property-linked counters due to the bearish outlook. Since Signature International’s financial performance is also dependent on the property sector, investors are wary.

Nevertheless, Tan believes the company’s strategy will provide the impetus for growth over the next few years. This partially acts as a buffer for any expected slowdown in property sales.

According to Tan, there is generally a two-year lag time between a property slowdown and the impact on kitchen cabinet and wardrobe providers. When the property sector slows down, kitchen cabinet players normally see a dip in their sales only two years later. This is because they would still be working on projects in hand despite the slowdown in the property market.

But Tan is positive on the company’s outlook as property launches are continuing. “The tier-1 developers are continuously launching projects and this should benefit the company,” Tan tells FocusM.

Tan says the company will focus on Vietnam, Indonesia, Thailand and Cambodia

Signature International divides itself mainly into two business segments – project and retail. The project segment relies rather heavily on the property sector for growth. It typically secures contracts to provide kitchen systems to developers for their residential units. This segment contributes about 70% of total revenue. The remaining 30% comes from the retail business.

As of end-June, Signature International had an unbilled order book of some RM200 mil for the projects segment. Tan says the company has another RM10 mil order book from the retail segment.

Still, investors are concerned about the bearish property outlook and Signature International’s fluctuating revenue record. However, Tan allays fears by underlining that fluctuations are normal. 

“Some property project sites may not be ready for us to move in to do our part. The delays mean we can’t convert the projects into revenue,” says Tan, explaining the revenue fluctuations.

 

Tie-ups with property developers

To maintain growth, the company is proactively looking at new marketing schemes.

One scheme it has initiated is the cash voucher tie-up with property developers. Under the scheme, the developers will issue Signature International cash vouchers to purchasers of landed property. The vouchers, of various denominations, are seen as discounts by property owners when they buy Signature International’s kitchen systems.

“It is a win-win for all. Previously, (when) developers install kitchen systems in newly-launched units, the cost is high to them, especially when the units are unsold,” says Tan.

This way, Signature International continues to get sales from the property sold and when buyers redeem the vouchers. With the voucher scheme, it collected about RM30 mil to RM40 mil sales in the last two years.

“Even if the property sector were to slow down, the manner in which developers have repackaged the units to be marketed is beneficial to Signature International,” says Tan. About five to 10 years ago, not many condominiums were sold with kitchen systems. However, more condominium projects are now sold fitted with kitchen systems.

As a result, demand for kitchen systems has increased even if the number of projects remained stagnant or slowed down. “The increase in demand for kitchen systems should more than offset project slowdown and will be beneficial to companies like Signature International,” Tan explains.

“To boost growth, the company will come up with new parts and hardware fittings to complement its existing kitchen systems. Higher integration of such hardware will provide customers with more options, translating into growth.”

The company plans to incorporate a “Customise Built In Home Furniture” segment next year. This will basically cover the living and study areas as an extension of its product range.

It also provides integrated services, covering several areas of kitchen systems, thus acting as an entry barrier. “We also have carpentry, plumbing, ducting and so forth. Coordination is important in this line,” says Tan.

 

Looking to Asean markets

The company also aims to grow its business in Asean countries, especially Vietnam, Indonesia, Thailand and Cambodia. Signature International is changing its dealers in these countries and wants to change from being retail segment-oriented to more project-based.

The company is on the verge of appointing a dealer in Vietnam and is still in talks with potential dealers in other Asean countries.

Signature International managed to turn around strongly in H2 FY17 to hit a revenue of RM121 mil. This is commendable given the 32% decline in revenue in the second half of FY16.



This article first appeared in Focus Malaysia Issue 258.