Thursday, July 15, 2010

A Look At Zhulian

Do you follow Zhulian?

Zhulian does costume jewellery and it is also a multi level marketing group. ( Zhulian website: )

But if you don't follow, you would fail to realise that this has been one jewel of an investment. :D

Anyway, Zhulian reported its earnings last night. There are two issues why Zhulian is interesting. One of course is based on Hai-O's profit warning last month:
Hai-O Warns Of Challenging Next Year. Since Zhulian is also into the multi level marketing business (although the products are clearly different), it is interesting to see how Zhulian has fared. The other issue is based on a small chat with a long lost Kopster buddy back in 2007, just after Zhulian was listed.

Anyway here are Zhulian's numbers...

1. Track Record.

Last night earnings have been added into the ttm (trailing twelve months) figures.

Listed in April 2007. So this company is still 'relatively new' but as you can see from the numbers above, the numbers are pretty much solid. And based on the TTM numbers, Zhulian is looking set to record another impressive year of growth.

ps: if one had followed Zhulian from the start, one would realise that Zhulian 2007 numbers were rather below expectation. This was because Zhulian, during its listing process, announced in its IPO projection that it would make some 63 million but it failed slightly short and only delivered some 58.297 million. ( ps: yes, that's nothing much in this but just to state it as it is. )

As you can see, Zhulian started off as a solid all cash company. Let me paste an old article from Business Times dated April 2007. Article still can be seen at this link: here

  • Zhulian to spend RM26m on new plant

    April 4 2007

    ZHULIAN Corp Bhd, a direct selling and multi-level marketing company will spend RM26 million to build a third factory in Bayan Lepas, Penang.

    The money will come from the
    RM33 million Zhulian raised in its pre-initial public offering (IPO) rights issue.

    To be completed within the first quarter of 2008, managing director Danny Teoh said the new factory is part of the company's expansion plan aimed at increasing its production by fourfold.

    Currently about 84 per cent of the company's products are manufactured at the existing plants in Penang.

    The company produces 1.2 million pieces of costume jewellery and 180 million sachets of nutritional products and food and beverages per annum.

    "The new Penang factory is to cater to the production of new nutritional supplements," Teoh said when launching Zhulian's IPO prospectus in Kuala Lumpur yesterday.

    Zhulian's IPO involves an offer for sale by Teoh Beng Seng, Teoh Meng Keat, Ng Suan Choo, P'ng Swee Guab and the Malaysian Technology Venture Two Sdn Bhd.

    They are offering for sale 123.34 million shares in the company at RM1.23 per share.

    Of the shares offered, 87.84 million will be allocated for Bumiputera investors; 17.25 million for eligible directors, employees and business associates and 17.25 million for the public.

    The offerors will raise about RM150.48 million from the sale. They will also bear all listing expenses including underwriting commission, placement fee and brokerage amounting to RM3.7 million.

    Scheduled to be listed on Bursa Malaysia's main board on April 27, Zhulian is set to be the largest listing on the exchange in 2007 so far, based on its offer size.

    With a total paid-up share capital of 345 million shares, the market capitalisation of Zhulian will be at RM424.4 million upon listing.

    Looking at the promising outlook of the direct selling industry,
    Teoh said the company targets a 10 per cent net profit growth to RM63.87 million for the financial year ending November 2007 from RM57.9 million recorded in its last fiscal year.

    This will be achieved on the back of a 12 per cent revenue growth to RM253.32 million against RM225.3 million before.

    "We are confident of meeting the forecast, where the local market will contribute 67 per cent to revenue, Thailand, 29 per cent and the rest from Indonesia and Singapore," he said.

    Zhulian is involved mainly in the manufacturing and direct selling of costume jewellery, nutritional products, food and beverages, water purification systems, mattress pads and pillows, and other consumer products.

    Its products are also exported to Thailand, Indonesia and Singapore.

    Within the next two to three years, the company targets to penetrate new regional markets in Taiwan and Hong Kong.

Ah... one would note that despite all the nice profit growth, the cash hasn't really increase much since listing. ( Will come back on this later)

Anyway, here is a close up look of Zhulian's quarterly earnings on a q-q basis.

Ah.. last night quarterly earnings, Zhulian only said it made some 18.013 million.

This is quite a huge drop if compared on a q-q comparison with what it made the previous quarter. And the margins had dropped quite a bit. Tough times ahead? Or is it still way too early to make a judgement?

Company said the following:
  • The revenue for the current quarter under review of RM77.920 million was lower than the immediate preceding quarter revenue of RM86.327 million, mainly due to drop in overseas demand. The current quarter profit before tax of RM20.589 million has decreased as compared to the immediate preceding quarter profit before tax of RM31.524 million, in line with the drop in revenue.

Rather slightly lacking in information, yes?

And I find it disappointing that there's no segmental information provided. I would certainly like to know more since Zhulian's manufacture and direct sells many various products. For example, I would like to know how their costume jewellery is doing compared to its consumer products. (ps: that's my preference hor. I hope you understand what this means.). Company explained by saying...

  • The Group is principally engaged in the manufacturing and sale of costume jewellery and consumer products on a direct sales basis. Business segment information has therefore not been prepared as the Group’s revenue, operation profit, assets employed, capital expenditure, depreciation and amortisation and non-cash expenses are mainly confined to one business segment

Now back to cash.

Zhulian pays dividends. Is it a lot? Well for example, in the year 2009, it made the following dividend payments to its shareholders.

  1. Jan 2009: Interim Dividend
  2. April 2009: Interim Dividend
  3. July 2009: Second interim dividend
  4. Oct 2009: Interim Dividend

I rather not 'count' it out loud... best one sees own self. (ps: I am not here to promote this stock. :P )

Anyway that's about it.... in regards to Zhulian's earnings.

Now the thing I want to talk about is... Zhulian's OTHER investment. Yeah, Kopster pointed the following issue out (HT to him. :D )

Right after listing in April 2007, Zhulian made the following announcement INVESTMENT IN UNIT TRUSTS in Jul 2007.

  • Zhulian Corporation Berhad wishes to announce that the Company has on 26 July 2007 invested a total sum of RM23 million in various Unit Trusts.

    The rationale of the investment is to obtain better returns for the Company as compared to Fixed Deposit and the Board of Directors is of the opinion that the transaction is in the best interest of the Company taken into consideration the existing bank interest rate available in the market.

    The purchase consideration was satisfied by cash. The source of funds for financing the investment was derived from internal generated funds. The investment will not materially affect the Group's earnings per share, net assets per share, gearing, share capital and the substantial shareholders' shareholdings of the Company.

    None of the Directors of the Group or any of its major shareholders or persons connected with a Director or substantial shareholder of the Group has any interest, direct or indirect in the above investment.

    As the investment is entered into with licensed unit trust management companies with proven performance track record, the Board of Directors is of the view that the investment risk is minimal and they expect the investment to contribute positively to the future earnings of the Group.

    The investment has not departed from the Commission's Policies and Guidelines on Issue/Offer of Securities and no approval of shareholders or government authorities is required.

Yeah... everyone wanted to obtain better return as compared to Fixed Deposits. ( I wonder if they realise that there's always a risk involved when they venture into OTHER investments. Yeah... sometimes... losses is possible! )

Kopster said... "RM23m is a lot of money.Why invest it in one shot?Why not do dollar cost averaging?.... The cash at bank, part of it comes from the IPO exercise, right? Presumably the RM23m isn't from IPO proceeds. Cos surely investors didn't invest in Zhulian for its expertise to select the right unit trust to invest in."

Let's look how Zhulian had fared with such an investment since then.

So initial cost is 23 million.

Oct 2007: Quarterly rpt on consolidated results for the financial period ended 31/8/2007 page 9, market value of their unit trust 21.739 million! (Buka pagar, straight buy 23 million worth of Unit Trusts. Now only worth 21.739 million! Nice start! :P )

Jan 2008: Quarterly rpt on consolidated results for the financial period ended 30/11/2007

6 months after their 23 million investment into Unit Trusts.

Total addition 29.481 million. Total disposals 22.080 million. Holy COW!

Ahem... what did the company said during their INVESTMENT IN UNIT TRUSTS? Quote"As the investment is entered into with licensed unit trust management companies with proven performance track record..... and... investment risk is minimal".

How to make money like this when their 'licensed unit trust management companies' make such 'investing decisions for Zhulian? ( I wonder who these companies are!)

April 2008: Quarterly rpt on consolidated results for the financial period ended 29/2/2008 Added another 73 thousand. Total investment now is 7.474. Market value 6.613 million.

July 2008: Quarterly rpt on consolidated results for the financial period ended 31/5/2008. Added more. Total investment now is 7.601 million. Market value 6.433 million.

Fast forward present day (err.. to continue to highlight every single quarter would be extremely tedious. :P ).... the following was taken from last night's quarterly earnings announcement.

Ahem. How? Was it a wise move for Zhulian to invest in Unit Trusts? :P

ps: this is not a stock tip or whatsoever. Seriously, I do not if the stock would go up or down or even crab ways. Remember I am not a Sotong.


asdf1234 said...

Hi Moolah,

A look at the FY09 results show that Zhulian derives ~40% of its revenue from Thailand.

With the recent political unrest and curfews in Thailand, one can only ass-u-me that this probably has taken its toll on the MLM community as they would be too afraid to go out and market stuff.

Of course this is just an ass-u-mption.


Moolah said...

Hi asdf1234,

Thanks for pointing that out. :D

Moolah said...

Ah.. an article on the performance of Unit trusts recently.

Unit trusts rocked in 1H2010

Around 36% of unit trust funds offered here ended the first half in the red, with an average 1.1% loss in a period in which the MSCI World Index fell more than 10% and the MSCI Emerging Markets Index lost 6.1%. The “safe haven” among equities turned out to be in the home ground, with Equity Malaysia eking out a 3.6% average gain for period. Indeed, the top-performing funds were dominated by equity Malaysia funds. Other funds that stayed in the black were from the more conservative asset classes of bonds, money market and protected.

Funds invested in European equity and real estate were the worst hit, as concerns over the economies of Greece, Spain and Portugal rage on. Both categories averaged losses of more than 20% in the six-month period. Meanwhile, commodities, beset by worries over global growth and China’s economy, slumped the most in almost a decade as oil dropped 4.7%. Gold, bucking the trend, climbed 13% in the first half.

Overall, fund managers are entering the second half in a cautious mood as markets grapple with the issue of growth, governments’ austerity moves and volatility arising from the European sovereign debt crisis and monetary policy. Robbin Khoo, CEO of InterPac Asset Management Sdn Bhd, said: “Overall, we do not foresee much activity in the equity market until near the end of the year. Selective stocks are still providing the momentum for the domestic market, and we continue to see value in some of the mid- and big-cap stocks.”

He said two of InterPacific’s funds did well in the first half due to a restructuring of the fund portfolios, the raising of risk exposure and stock selection.

A Reuters poll showed that fund managers remain cautious, taking equity exposure to its lowest level in well over 1½ years. A survey of 48 leading investment houses in the US, continental Europe, Britain and Japan showed average equity holdings in a mixed asset fund falling to 51.8% in June, from 52.3% in May.

According to the Reuters report, however, the data — including the moves into high-yield bonds — also suggested that investors have not caved in to fears of a double-dip recession as managers retained a modest overweight in equities and an underweight on both bonds and cash.

This article appeared in The Edge Financial Daily, July 15, 2010.

antyong said...

Hi Moolah,

I hold some Zhulian stocks. I feel Zhulian's management should explain in more detail the significant drop in revenue and profit instead of issuing a one-liner.

The investment in unit trust is quite minor compared to its annual dividend payment of over 40 million and its cash balance of over 120 million. I would have love a management that refrains from dabbling in quote securities and return all excess cash to shareholders but such management is hard to find (please advice if you know of any).

Zhulian has been a very profitable investment for me. Will unload have my holdings now ..... :>

Moolah said...

antyong: Yes I do agree with as I am NOT too pleased with how Zhulian's reports its quarterly earnings. It's lacking and I am sure many would want to know more.

Of course Zhulian's investment in Unit Trusts is rather smallish compared to its pile of cash but I do feel it needs to be stated and more so, on how they initially began their investment with an incredible purchase of 23 million worth of Unit Trusts back in 2007.

And yes, there are so many listed companies who have this nasty habit of dabbling in OTHER investments. My preference is simple. I rather NOT see them do it. If ever there is excess money, the company should just return it back to the shareholders.

ps: Ah... sorry.. I can not do any recommendations. I am lousy. ;)

Moolah said...

ps: I have no idea if Zhulian would go up or down or sideways.

Serious. :D

So it's rather pointless that you tell me that you will unload your holdings. ;)