LKL International (0182)

LKL International (0182)
Sector: Healthcare

Company Background:
1) Largest manufacturer of medical/healthcare beds, peripheral and accessories in Malaysia.
2) Customers: Hospitals & Medical centres.
3) Revenue contributed by business segment (2017 VS 2016)
.   a) Manufacturing of Medical & Healthcare beds (28% VS 40%)
.   b) Manufacturing of Peripherals and Accessories (50% VS 41%)
.   c) Trading of Peripherals and Accessories (22% VS 19%)
4) Revenue contributed by geographical segment
.   a) Based on 3Q18 report – Local sales (66.8%) VS export sales (33.2%)
.   b) Export sales is mainly in Asia countries.
.   c) LKL sold to more than 30 countries since 2000
.   d) LKL successfully registered their operations with US FDA in May 2017, which allows LKL to start penetrate into US market, & also improve credibility of their products.

Financial highlights base on 3Q18 (latest):
1) Revenue (3Q18 VS 2Q18) increased from RM7.166mil to RM10.246 mil, however cost of sales also increased from RM 4.135mil to RM 6.086 mil. This is due to rising of raw material prices.
2) Profit before tax (3Q18 VS 2Q18) increased from RM 287K to RM 1.064mil. This is due to the group has secured few large orders of medical beds from overseas customer. However the group said that their operating cost is high this quarter associated with the Group’s new subsidiary.
3) LKL looks forward to strengthen the performance of distributing Nihon Kohden high value medical devices. (more information under Growth factor (1))
4) Group expected the performance to be challenging.

Shareholding:
1) LKL was co-founded by Mr Lim Kon Lian (Husband) & Mok Mei Lan (Wife).
2) Board of directors & their children (Elaine Lim Sin Yee & Lim Pak Hong) holds 73.9% of the total shares.
3) Another non-executive director Tan Chuan Hock holds 6.71% of the shares.
4) Their independent non-executive chairman – Tan Sri Datuk Adzmi Bin Abdul Wahab only holds 0.07% of the shares.

Growth factors:
1) LKL starts to distribute “Nihon Kohden” brand of products in 1Q18 for a minimum period of 3 years through its subsidiaries’ JV – TMI Medik Group Sdn. Bhd. (TMG). Nihon Kohden is Japan's leading maker of EEG, patient monitors, AED, and medical electronic equipment.
2) In 4Q17, LKL completed acquisition of 11,135 SQ freehold land which is located adjacent to their current manufacturing plant in Seri Kembangan, Selangor. The factory is currently undertaking renovation works, targeted to complete in 2Q18 which will increase storage capacity & accommodate new machine installations in future.
3) In 3Q17, LKL Installed new fully automated Computer Numeric Control (CNC) punching machine (TruPunch 2000) which is intended to increase operational efficiency and reduce dependency on manual labour. Expected to be operational in 2Q18. (benefits 3a & 3b)

Risks:
1) Forex Risks – SGD & USD.
    Company will consider to hedge if the factors become substantial
2) Raw material risks – electrical components and hydraulic parts
    Company might face losses if it is unable to pass on higher costs to customers.
3) Intense competition – keener competition from other industry players (foreign brands) which may negatively impact on margins
    Company continues to invest in R&D, automation & new manufacturing technology.

Notes:
1) According to a friend of mine who is in this industry, LKL products' pricing is at lower range in the market hence it is more popular for private sector while Government sector is more competitive. (This is also a reason that LKL’s margin is low).
2) High raw material cost is negatively impacting on LKL's margins.
3) No catalyst at this moment.

Technical analysis:
The chart has yet to bottomed, suggest to wait for a trend reversal signal.

DISCLAIMER: This is not a call buy or call sell recommendation, this post is intended for learning and educational purposes only, please trade at your own risk.

Link: https://www.youtube.com/watch?v=RZO5JnJbB7w