Navigating Stock Surges: Decoding PAOS's Performance

On November 10, 2023 (Friday), preceding the 3-day continuous holidays for the Deepavali celebration, a particular stock experienced a sudden surge, soaring from RM0.325 to RM0.515 (All-time high), yet it closed at RM0.43. This marked a notable 32.31% increase within a single day. The surge in the share price was accompanied by substantial trading volume. Intriguingly, there was no official announcement from the company, prompting questions among investors about the driving forces behind such a significant surge. The company, $PAOS / 5022 (PAOS HOLDINGS BERHAD), might be unfamiliar to new investors but could be recognized by those with a more extended history in the stock market. To gain insights into the business, an exploration of their annual report was deemed necessary.

1. Background

PAOS operates across three business segments: manufacturing, trading, and integrated hotel operations and property investment. - Noteworthy manufacturing activities include contract manufacturing of bar soap and toll manufacturing of products from palm oil and specialty fats. Trading involves specialty fats produced from palm oil and marine gas oil. PAOS owns manufacturing facilities in Shah Alam and Banting, Selangor, along with properties like Kompleks Selangor and The 5 Elements Hotel.

2. 5-Year Financial Highlights

- Highest revenue in 2023 since 2019, reaching RM683.95m, with a 5-year CAGR of 15.92%.
- A turnaround in profit before tax, achieving RM0.62m, yet a loss after tax of RM0.05m in 2023.
- Decline in shareholders' equity from RM96.80m to RM88.16m since 2019.
- Total assets slightly increased to RM132.86m over five years.
- Continuous increase in borrowings to RM0.71m, maintaining a net cash position.

3. Shareholders as of 30th August 2023

- 3 major shareholders hold 71.15% of the company's issued shares.
- Tan Sri Lim Tong Yong, the largest shareholder with 46.19%, was once the CEO of Pantai Holdings, a well-known figure in the 2000s.
- $HAPSENG / 3034 (HAP SENG CONSOLIDATED BERHAD), a conglomerate involved in various businesses, is the second-largest shareholder.

4. Latest Financial Highlight – as at August 2023 (Q1FY2024)

- Revenue surged from RM154.98m to RM252.84m (63.14% YoY) due to increased fuel oil volume and higher hotel occupancy.
- Turned a profit before tax of RM0.26m compared to a YoY loss of RM0.83m.
- Recorded a profit of RM0.09 after tax compared to a loss of RM0.88m in Q1FY2023.
- Total assets increased to RM179.16m, with receivables, deposits, and prepayments rising by 72.93%.
- Total liabilities stood at RM90.91m, with an increase in payable and accruals by 105%.
- Despite increasing receivables, the company maintained a net cash position with a free cash flow of RM1.33m.

5. Segment Performance – Q1FY2024

- Trading segment, the largest contributor, saw revenue increase by 73.27% to RM244.22m, driven by higher fuel oil volume.
- Manufacturing segment, the second largest contributor, experienced a revenue decrease of 44.42% to RM7.12m due to lower soap chip prices and volume.
- Hotel operation and property investment segment witnessed a 22.95% revenue increase to RM1.5m, with a decrease in losses due to increased hotel occupancy.

6. Conclusion

In conclusion, while the company recorded a profit in the current quarter, its overall 5-year performance reveals persistent losses. The company is not one of the beneficials from Budget 2024, and the share price surge lacks a clear catalyst. Waiting for official announcements is advisable to comprehend the factors behind the share price increase.