Seng Fong rides on better performance

Seng Fong Holdings Bhd has resumed its upturn having succumbed to profit taking in recent weeks. The rubber processing company’s current upward momentum may continue in the near term.

Shares in Seng Fong rose to their highest in two weeks, after it posted record annual profit. Seng Fong rose as much as 5% or six sen to RM1.25, its highest since July 30, 2024.

Earnings growth will be driven by a gradual increase in capacity and margin expansion via integration of biomass system and smart equipment. The company mainly processes raw rubber into intermediate blocks to be sold to manufacturers such as tyre makers. It has more than doubled so far this year, thanks to rising volume and average product prices.

The company derives the bulk of its earnings in US dollars from export sales. Rubber prices have risen, with the SMR 20 grade climbing about 12% so far this year to 781.50 sen per kilogramme, data from the Malaysian Rubber Board showed.

Seng Fong is expected to make a net profit of RM72.2 million, in the financial year ending June 30, 2025 (FY2025). Net profit for FY2024 more than doubled to RM57.3 million, a new high since the company's listing in 2022, from RM22.6 million or 3.13 sen per share in FY2023. Earnings growth is likely to be backed by its gradual increase in annual capacity to 200,000 metric tons in FY2025 and 210,000 metric tons in FY2026.

Additionally, full utilisation of the biomass system and the integration of smart equipment into operations are expected to contribute to margin expansion through overhead and manpower costs savings. The company also credited the biomass system that helped lower diesel costs.

Seng Fong’s factories added a second working shift, which raised its production hours to 18 hours a day from 12 hours a day. Total annual production rose to 190,000 metric tons in FY2024 from 166,000 metric tons in FY2023.

The company is currently trading at a PE ratio of 15.2x, which is higher than most peers. The company had been consistently profitable in the past 2 financial years.

Net profit decreased from RM38.0mil in FY22 to RM22.6mil in FY23. The decline in net profit was due to poorer margin. The company’s operating cash flows had been negative. However, its net debt decreased from FY22.

Investors are likely to take positions in view of the possible rise in its financial position in the near term.