Jaycorp Berhad

[RaymondMoay]

1) What are your figures for the net cash position? In their most recent annual report they gave cash and cash equivalents as MYR $34,515,000 and total liabilities as MYR $56,691,000, which doesn't put it at a net cash position. 

2) Cyclical plays are as much about the market as the company. Furniture business took a huge turn very quickly, can you explain this? And when can recovery be expected? 

I personally can't find anything about the second (and more important) question. There isn't any news about a sudden collapse in wood furniture prices or such. The only useful thing I can add to your analysis is competitor Homeritz would be a better stock if this is a cyclical play. You always want a financially strong company in a cyclical and Homeritz has the least debt.

Hi Kaimin, thank you for your comments! Regarding your questions:

(1) My apologies as I used the term Net Cash wrongly. I meant to use a negative net debt position, which should say that the company in the near term is safe from bankruptcy. I apologise for my amateur mistake. Still new!    I have updated accordingly.

(2) The reason I did not research more on the cyclicality of the business is because the company didn't look like a bargain at all when I did a rough quantitative analysis. To factor in cyclicality quickly as a rough gauge, I used a high discount rate (I know it's heavy on assumptions) just to check out the value. If the company was valuable I'd be certain to research on its cyclicality.

Anyhow, Jaycorp's business is very complex. Cyclical factors are numerous and is not only caused by supply side factors (rising wood prices/raw material prices which happened recently, 15% spike in FY16/17, annual report), but are also affected by macroeconomic factors: currency risks (company hedges to protect against this) which is thus tied to business cycles in various countries that the company does business in (North America, Asian countries). A proper research on the cyclical nature of the business will require a proper study into all these economies, which could possibly be useful if the company was in a state of obvious undervaluation, which it isn't.

If the company was undervalued, an example of a cyclical study could be the housing market. As more people move houses, more furniture is needed etc. This activity could be done in the major countries that the company deals with. E.g. Malaysia's housing supply has always lagged housing demand for the past few years. Bank Negara estimated average Malaysians can afford houses priced RM250,000 and below. But 78.7% of new launches in the first half of 2017 were priced beyond RM 250,000. This imbalance creates pent up demand for housing, which is slowly being unleashed with the rise of affordable housing or the possible fall in property prices due to supply and demand factors. Obviously this is not the only factor affecting the demand for furnitures, but it is one that is obvious and probable. More research can be done.

Homeritz is an interesting stock, thanks for the heads up! When I get back to studying furniture stocks I'll look more into it and do more research on the furniture industry.