THE performance of cosmetics and beauty products manufacturer Eng Kah Corporation Bhd has always been lacklustre even back in 2015, as reported in a Jan 17-23, 2015 issue of FocusM.
During the time of the report, the company was in talks with two major multinational corporations (MNCs) from an Australian supermarket chain and a pharmacy chain in the United Kingdom (UK) for contract manufacturing jobs despite facing weaker earnings.
For the first nine months of FY14 ended Sept 30, 2015, Eng Kah’s net profit dropped 27% to RM4.16 mil from RM5.7 mil with a slightly lower revenue of RM46.5 mil. This was mainly attributed to a change in product mix that weighed on profit margin.
“The company has been highly reliant on a few key clients, thus when there are changes in product mix, they were affected badly,” an analyst told FocusM.
“We expect a tough environment ahead for Eng Kah, on the back of uncertainties in new large-order customers, as well as slow rise in orders by existing customers,” she added.
Eng Kah is principally involved in the contract manufacturing of perfumery, colour cosmetics, skincare, toiletries and household products for MNCs, and international and leading local brands.
From the article, it said that Eng Kah planned to continue its focus on MNCs in order to expand and diversify its customer base.
The article also pointed out that the company’s financial performance has been inconsistent over from 2010 to 2015 when its net profit surged to RM12 mil in FY10 from RM6.83 mil in FY09.
However, its earnings fell substantially to RM7.83 mil in FY13 due to the change in product mix, higher operating expenses following the implementation of minimum wage policy as well as additional expenses incurred for maintenance charges pertaining to SAP software system.
Later in December 2015, The Star reported that the company was ramping up its monthly production of cosmetics, perfumery and personal care products to a value of RM7 mil by mid-2016 from about RM5 mil during the time of the article.
According to Eng Kah’s group managing director Ewe Eng Kah, the company was also in the midst of securing a large contract to produce halal-certified coloured cosmetic products under its brand name.
However, in April 2018, Eng Kah disposed of its freehold land in Negeri Sembilan for RM9.37 mil to Kian Hoo Canpack Sdn Bhd.
“In a filing with the local stock exchange today, Eng Kah said its subsidiary Eng Kah Enterprise Sdn Bhd (EKE) had entered into a sale and purchase agreement to dispose of the land and the group expects to have a gain of approximately RM8 million,” the article said.
It also mentioned that the gain from the disposal was to be used as working capital for the group’s business activities.
But despite numerous talks of expansions and partnerships, the group’s revenue remains small throughout the years, which is in need for improvement.
According to an article by Simply Wall St, Eng Kah’s revenue shrunk by 3.5% in the last five years, which is not good news for investors.
“We don’t think that Eng Kah’s modest trailing 12-month profit has the market’s full attention at the moment. We think revenue is probably a better guide,” the article said.
“As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues,” it added.
Due to this, the article pointed out that the company’s stocks might not seem that attractive to investors since not many would risk investing in companies that are ‘losing money and not growing revenue’.
“While the losses are slowing, we doubt many shareholders are happy with the stock,” the article said.
In its second quarter ended June 30, 2020 (2Q20), Eng Kah’s revenue had a slight decline to RM11.2 mil from its previous RM12.1 mil, with its net profit dropping to RM898,000 from 2Q19’s RM1.25 mil.
As of 5pm yesterday, Eng Kah Corporation Bhd’s share price rose 2.27% to 90 sen, with a market capitalisation of RM63.68 mil. – Oct 16, 2020
