Results Report (Grand-Flo) -

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4Q FYE DEC 2012 RESULTS REPORT 1 March 2013

Name of PLC: Grand-Flo Solution Berhad Target Price: RM 0.33

Business Summary : Specialise in the provision of comprehensive Enterprise Data Collection and Collation

System (EDCCS) Solutions

Major Shareholders : Grand-Flo Corporation Sdn Bhd, (21.4%)

HeiTech Padu Berhad, (20.1%)

(as at 30 April 2012)

PLC Website : http://www.grand-flo.com Recommendation: Buy

IR Contact : Yap Li Li, Executive Director

Email : [email protected]

Market Capitalisation: RM75.1m

Current Pri ce : RM 0.22

Market / Sector: Main Board /Technology

Stock Code: 0056

Analyst : L im Boon Ngee

Tel : +603 2163 3200; Email : [email protected]

Key Stock Statistics FY10 FY11 FY12 FY13F

EPS (sen) 2.5 2.9 2.5 3.1

P/E (x) 8.6 7.5 8.9 7.1

Dividend/Share (sen) 0.5 0.6 0.7 0.9

NTA/Share (sen) 9.1 12.4 15.6 15.8

Book Value/Share (sen) 9.1 12.4 15.6 15.8

Issued Capital (m shares) 145.1 159.5 319.6 319.6

52-weeks Share Price Range (RM) 0.20 - 0.26

Per Share Data FY10 FY11 FY12 FY13F

Year-end 31 Dec

Book Value (sen) 9.1 12.4 15.6 15.8

Opt Cash Flow (sen) 0.8 1.6 3.1 2.8

Earnings (sen) 2.5 2.9 2.5 3.1

Dividend (sen) 1.0 1.2 0.7 0.9

Payout Ratio (%) 19.6 20.2 28.4 27.6

P/E (x) 8.6 7.5 8.9 7.1

P/Cash Flow (x) 28.5 13.7 7.2 7.8

P/Book Value (x) 2.4 1.8 1.4 1.4

Dividend Yield (%) 4.5 5.4 3.2 3.9

ROE (%) 16.8 16.6 11.4 13.0

Net Gearing (%) 16.5 8.5 11.2 6.8

P&L Analysis (RMm) FY10 FY11 FY12 FY13F

Year-end 31 Dec

Revenue 68.6 74.7 87.6 96.4

Operating Profit 8.0 9.1 6.9 9.5

Net Interest Expense (0.7) (0.6) (0.6) (0.7)

Associate 1.2 1.5 2.6 2.0

Pre-tax profit 8.5 10.1 8.8 10.8

Effective Tax Rate (%) (9.8) (6.6) (10.5) (9.0)

Net Profit 7.4 9.4 7.9 9.8

Operating Margin (%) 11.6 12.2 7.9 9.9

Pre-tax margin 12.4 13.5 10.1 11.2

Net margin 10.8 12.6 9.0 10.2

Share Price Chart

1. 4QFY12 Results Highlight / Review

Year-ended 31 Dec 4QFY12 4QFY11 Chg

RMm RMm %

Revenue 23.3 19.9 16.7

Operating Profit 1.5 1.2 25.9

Interest Expense (0.2) (0.2) 14.3Pre-tax Profit 2.4 2.2 8.0

Net Profit 2.0 2.3 (11.9)

Operating Margin (%) 6.3 5.8

Pre-tax Margin (%) 10.4 11.3

Net-Margin (%) 8.7 11.5

Grand-Flo Solution (GF)’s recorded 4QFY12

revenue growth of 16.7% to RM23.3m compared

to RM19.9m in 4QFY11, driven by domestic

demand for Enterprise Data Collection and

Collation System (EDCCS).

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The group pre-tax profit increased 8.0% y-o-y to RM2.4m from RM2.2m in 4QFY11, mainly attributed to

higher sales of EDCCS devices in Malaysia, but on a lower margin during the quarter under review.

4QFY12 net profit was -11.9% lower compared to the same period last year due to tax credit in 4QFY11.

During the quarter under review, GF’s overseas associate company delivered a satisfactory performance,having recorded profit contribution of RM1.1m in 4QFY12 compared to RM1.2m in 4QFY11.

FY12 results comparison

Year-ended 31 Dec FY12 FY11 Chg

RMm RMm %

Revenue 87.6 74.7 17.3

Operating Profit 6.9 9.1 (23.9)

Net Interest Income (0.7) (0.6) 12.7

Pre-tax Profit 8.8 10.1 (12.2)

Net Profit 7.9 9.4 (16.0)

Operating Margin (%) 7.9 12.2

Pre-tax Margin (%) 10.1 13.5

Net-Margin (%) 9.0 12.6

For the full year FY12, the group revenue rose 17.3% y-o-y to RM87.6m from RM74.7m recorded in FY11on the back of steady domestic demand for its EDCCS products. Pre-tax profit declined -12.2% y-o-y to

RM8.8m as compared to RM10.1m recorded in the FY11 on lower profit margins. The lower pre-tax profit

was also affected by one-off transfer of listing expenses from the ACE Market to the Main Market of Bursa

Malaysia amounted to RM0.8m. Stripping out the transfer of listing expenses, pre-tax profit would have

been RM9.6m, which is -4.9% y-o-y lower compared to the same period last year.

Consequently, net profit margin declined to 9.0% from 12.6% in FY11, with profit margins eroded by lowmargin sales and higher raw material costs in both the EDCCS and label business.

Review of segmental results

Segmental breakdown Change *Change Change

(RM million) 4Q12 4Q11 y-o-y % 3Q12 q-o-q % FY12 FY11 y-o-y %

Turnover

- EDCCS 18.1 13.6 33.7% 17.0 6.6% 64.8 50.1 29.4%

- Labels 5.1 6.4 -19.3% 5.5 -6.1% 22.8 24.6 -7.2%

Total 23.3 19.9 16.7% 22.5 3.5% 87.6 74.7 17.3%

Pre-tax profi t

- EDCCS 2.2 1.5 43.8% 0.8 160.0% 6.4 8.3 -22.9%

- Labels 0.3 0.7 -64.8% 0.7 -64.9% 2.4 1.7 39.8%

Total 2.4 2.2 8.2% 1.6 54.5% 8.8 10.1 -12.2%

Net profi t

- EDCCS 1.8 2.1 -15.3% 0.8 124.9% 5.9 7.9 -24.5%

- Labels 0.2 0.2 -33.3% 0.6 -64.4% 2.0 1.5 28.4%

Total 2.0 2.3 -11.8% 1.4 42.4% 7.9 9.4 -15.9%

Pre-tax margin 10.4% 11.2% 7.0% 10.1% 13.5%

* Refers to 4Q12/3Q12

EDCCS in Malaysia continues to be the main contributor, accounting for 87.2% of group’s revenue, whilst

the remaining 12.8% was from the labels business.



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Revenue contribution from its EDCCS business increased 33.7% y-o-y to RM18.1m in 4QFY12 from

RM13.6m in 4QFY11, buoyed by healthy demand from the domestics market in the quarter under review.

Its labels business, however, experienced lower demand which resulted in -19.3% declines in revenue to

RM5.1m from RM6.4m in 4QFY11.

2. Company Background

GF is a fully integrated provider of comprehensive Enterprise Data Collection and Collation System

(EDCCS) Solutions using mainly bar coding (current), and radio frequency (RF) (future) technologies. It

services a wide range of sectors, including healthcare, warehousing, retail chains, manufacturing, but the

key industries underpinning growth are logistics and the fast moving consumer goods (FMCG) sectors. GFhave offices in Malaysia, Singapore, Thailand, Vietnam and China and a presence in Indonesia and the

Philipines via value-added resellers. Group revenue comprises of sale of EDCCS products and software,

sale of barcode labels, as well as system maintenance.

3. Recent Developments

On 27 February 2013, Simat Technologies Public Company Limited (Simat), Grand-Flo’s associatecompany in Thailand, proposed a private placement of up to 16.0m new shares amounting to THB126.9m.

The proposed private placement will result in the dilution of Grand-Flo’s shareholding in Simat from

33.17% to 30.26%.

On 27 February 2013, GF announced that Simat has been awarded the Internet Service License type 3 by

the Broadcasting and Telecommunications Commission of Thailand for a period of 10 years from 19

December 2012 to 18 December 2022. GF also announced the completion of the fiber network project in 2

Thai provinces, namely Chiangmai and Nakornratchasima.

To recap, Simat have invested RM52m in building the Fiber Cable Network System, which was planned to

be leased to CAT Telecom Public Company Limited (CAT). The agreement with CAT was eventually

terminated due to a breach in the terms of the contract by CAT. Consequently, Simat has sign MOU with

TOT Public Company Limited (TOT) for a joint marketing partnership to increase the potential of the HI-

SPEED internet services using the completed fibre network. TOT is the Thai-state owned

telecommunications company, with a large customer base and entrenched market position in the

telecommunication business in Thailand. Simat and TOT are expected to commence provision of the

internet services in the 2 provinces upon completion of testing by TOT in April 2013.

4. Earnings Outlook

Near term, we expect profit margin could still be affected by higher operating costs. Nonetheless, demand

for EDCCS and label business in Malaysia remains healthy, driven by higher recurring earnings from

maintenance contracts, as well as prospects in securing new projects and new customers. Based on the

secured sales orders pending delivery and projects in the pipeline, GF’s should able to deliver better result

in FY13.

GF’s 33.2% associate company, Simat in Thailand, has shown improvement to group earningscontribution. Recently Simat has been awarded the Internet Service License type 3 by the

Broadcasting and Telecommunications Commission of Thailand for a period of 10 years to provide internet

services in 2 Thai provinces, namely Chiangmai and Nakornratchasima.

5. Valuation and Recommendation

Overall, we expect GF to deliver steady growth going forward. Demand for GF’s services and solutions

should remain steady. Although demand for labels business has been slightly affected by the global

economic uncertainty, especially in the US and Euro Zone, the group is confident that this could be offset

by higher demand for its EDCCS products from new and existing customers from the domestic market.

At the current price level, GF is trading at a prospective FY13 P/E of 7.1x based on our EPS forecast of 3.1

sen. We are maintaining our BUY recommendation on the stock, with a price target of RM0.33 based on a

target P/E of 10.7x for FY13.



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Disclosures/Disclaimer

Investment ratings:Buy (generally >10% upside over the next 12 months)

Hold (generally negative 10% downside to positive 10% upside over the next 12 months)

Sell (generally >10% downside over the next 12 months)

This report has been prepared by Netresearch-Asia Sdn Bhd for purposes of CMDF-Bursa Research Scheme

(“CBRS”) III, administered by Bursa Malaysia Berhad (“Administrator”) and has been compensated to undertake

the scheme. Netresearch-Asia Sdn Bhd has produced this report independent of any influence from the

Administrator or the subject company. For more information about CBRS and other research reports, please visit

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