A Brief Analysis on $HARISON / 5008 (HARRISONS HOLDINGS (MALAYSIA) BERHAD)

1. Background
- The primary source of income is generated through the marketing, sales, warehousing, and distribution of various products, including consumer goods, building materials, engineering products, fine wines, agricultural and industrial chemicals. Additionally, the company is involved in the operation of shipping and logistics services, travel agencies, and retailing.
- These business operations are conducted in the following manner:
a) In East Malaysia, Harrisons Sabah Sdn. Bhd. and Harrisons Sarawak Sdn. Bhd. are engaged in marketing, sales, warehousing, and distribution activities, covering fast-moving consumer goods, building materials, engineering products, and agricultural chemicals. They also operate shipping and travel agencies in this region.
b) In Peninsular Malaysia, Harrisons Peninsular Sdn. Bhd. and Harrisons Marketing & Services Sdn. Bhd. handle marketing, sales, warehousing, and distribution tasks for building materials, industrial and agricultural chemicals. They are also involved in the import and distribution of fine wines and provide freight forwarding and shipping services. Harrisons currently represents over 400 principals and distributes approximately 13,000 product items to more than 15,000 accounts across Malaysia. The company maintains a comprehensive network of 27 branches and 47 strategically located warehouses throughout Malaysia, including 13 in Peninsular Malaysia, 9 in Sabah, and 5 in Sarawak. This extensive operation is supported by a workforce of over 1,700 employees.
c) In Singapore, Harrisons' subsidiaries, The Famous Amos Chocolate Chip Cookie Singapore Pte. Ltd., engage in both wholesale and retail activities for the Famous Amos Cookies, while Watts Harrisons Sdn. Bhd. specializes in the wholesale distribution of Komonoya brand products with standardized pricing.

2. Revenue Distribution
- 80% from FMCG
- 14% from Building Materials and Engineering Products
- 3% from Industrial and Agricultural Chemical Products
- 2% from Retailing
- 1% from Other Businesses

3. 2QFY23’s Results
- In the current quarter, revenue experienced a growth of RM11.5 million, marking a 2.05% increase compared to the same period last year. This rise can be attributed primarily to increased sales in our key Fast-Moving Consumer Products and cement within our Building Materials Division.
- Profit before tax for the current quarter saw a significant improvement, totalling RM3.7 million or a 16.30% increase compared to the previous corresponding quarter. This positive financial performance can be attributed to several factors:
a. Stronger sales, which increased by 2.05% in the current quarter.
b. Gross margins also saw a slight increase, rising from 11.04% in the previous corresponding quarter to 11.18%, mainly due to lower costs of sales in the current quarter.
c. Selling and distribution costs decreased by RM3.7 million in the current quarter compared to the previous corresponding quarter. This reduction was driven by the reversal of an allowance related to slow-moving inventories, amounting to RM4.6 million in the current quarter.
d. Additionally, interest income increased by RM124,000, a result of the 0.25% increase in the Overnight Policy Rate (OPR) during the current quarter.

4. Past 5 years Financial Performance
- Revenue witnessed a growth from RM1,651.43 million to RM2,174.12 million, with a compounded annual growth rate (CAGR) of 6%.
- The company's Profit After Tax (PAT) also experienced significant growth, rising from RM22.07 million to RM67.98 million, reflecting a CAGR of 25%.
- Notably, the company achieved a double-digit Return on Equity (ROE) of 16.19% in 2022, showcasing an increase from 7.06% in 2018.
- Furthermore, in 2023, the dividend yield reached a record high, reaching 5.9%.

5. Valuation
- We use year 2022 financial result to do estimation for the next 5 years share price of the company.
- We assume that:
a. Year: 2022
b. Price: RM8.50
c. Ave. EPS Growth (5-years): 27%
d. 2022 EPS: RM0.9747
e. Ave. P/E (5-years): 18.1
f. Ave. Dividend (5-years): 3%
g. Estimated Growth: 10%/year
- After we done the calculation, we estimate that the value of the company is RM9.07. The value seems undervalued but not attractive.

6. Conclusion
a. Strength
- Wide Distribution Network
- Moat: Low Profit Margin
- Doesn’t affected by PANDEMIC or INTEREST RATE HIKE
- Revenue and PAT grow every years
- Profit Margin Increase
- Consistent Dividend Paid out

b. Concern
- Whether the grow sustain or not
- High Share Price
- Even though the calculation shows the value of company is RM9.07 but only if the company can have a consistent 10% grow for 5 years. What if the company only have 5% grow instead of 10%?
- Therefore, it is better to buy at discount, after 25% discount on value, the share price is RM6.82
- But I personally prefer share price below BV, as at 2022, the BV of the company is RM6.13/share. As such I prefer buy below RM6.13 so that the stock price has more space to increase.


Further and more in-depth analysis will be conducted afterwards.