Can CWG achieve past levels of growth by cutting their cost of goods?

I just read the annual report of $CWG / 9423 (CWG HOLDINGS BERHAD) , the company which was established in 1959. CWG has grown its business from trading in the early years to one of the oldest and largest fully integrated stationery manufacturers in Malaysia. CWG has embarked on the manufacture of ready-to-use stationery and fine art products including spiral notebooks, artist pads, hardcover books, files, paper bags, gift wraps, and publishing of children's books. In fact, their products are already exported to about 58 countries (5 different regions). About their product quality, they have upgraded to the ISO 9001: 2015 edition quality certification and they said they will continue to improve their high standard of quality management system. Other than that, CWG has obtained the Forest Stewardship Council (“FSC”) Chain of Custody Certification since 2010, meaning that their products are being harvested and produced in a responsible manner for environmental sustainability.

All Malaysians certainly will know about CAMPAP. It is CWG’s premium brand. Under CAMPAP, there are some subsidiaries that have their own specialty like A-Series with its quality paper material with elegant designs, Ecoforest with its affordable price, Write-On which specialize in the range of product among the students, etc. As I mentioned earlier, CAMPAP itself has been accepted throughout 5 different regions which are Asia, Europe, Oceania, Africa, and America regions.

About their financial performance, the latest financial quarter ended 30 June 2023, the group generated revenue of RM28.19 million as compared to the preceding year's corresponding quarter of RM20.67 million. The management said this increase in revenue of 36% was mainly due to higher demand in export markets. On a yearly basis, the group also has strong performance with pre-tax profits of RM7.86 million, representing an increase of almost 2.4 times for the financial year ended 30 June 2023 as compared to RM2.31 million for the financial year ended 30 June 2022. The favorable performance in FY2023 was attributable to the improved revenue of RM92.62 million which was largely driven by higher sales orders from customers both in domestic and overseas markets.

Observing the comparison of total liabilities and total assets in their balance sheet, it reveals a current ratio of 5.25x for two consecutive years in 2022 and 2023. This demonstrates that the company possesses a high liquidity level, allowing investors to believe that the company has the ability to easily meet its short-term obligations. Not only that, the company also has had a net cash positive position for the past 5 years indicates that the company has strong liquidity and the potential to overcome short-term financial challenges

The question that comes to mind is, with strong financial performance over the past 2 years and a solid financial position, can CWG return to its peak like in the past where the net income reached RM7 million, representing a 16.67% increase in 2024 compared to the current year? As observed, the increase in revenue for this year seems quite promising. However, on the cost side, the company continues to experience spikes, especially with the rising prices of wood pulp, the primary raw material for the company. Therefore, can the company minimize the cost of goods to maximize profits in the coming year? Besides the increase in raw material costs, what other aspects could affect the reduction in maximizing net profit for the company? Let’s see