Yee Lee share price on uptrend 2015 Cooking Oil UNDER-researched consumer company, Yee Lee Corp Bhd, has been gaining traction with its share price climbing 34% year-to-date. The stock has jumped 48% since mid-December last year. Director Chok Yin Fatt says the group will continue to focus on its three core segments namely manufacturing, trading and plantation to drive growth. "With our established distribution networks, we are constantly looking for prospective distributorships to increase our products range,” he says in an e-mail interview withStarBizWeek. In January, the company announced it had terminated its agreement with Red Bull Asia FZE to distribute the energy drink in a tall and slim blue-silver can with effect from April 30. To be noted, there are two different packagings of Red Bull in the market. The other type of Red Bull, in a shorter, wider golden can or bottle, is produced in Thailand. That bottle or can is currently marketed by F&N Beverages Marketing Sdn Bhd in Malaysia and its market share is more sizeable than that of the slimmer can. To put things into prospective, In 2010, Red Bull Malaysia estimated the energy drink distributed by F&N contributed some RM130mil to F&N’s beverage sales per annum. Revenue from F&N Holdings’ ready-to-drink segment for its financial year ended September 30, 2011 was RM1.84bil. Market talk is that a new distributorship for Yee Lee is under way following the termination of the agreement with Red Bull Asia FZE. Chok, however, dismisses such talk but says that the company is always looking for new or existing product brands with market growth potential that comes with a reasonable profit margin. For its financial year ended Dec 31, 2014 (FY14), Yee Lee’s net profit fell 19.5% to RM27.01mil but revenue rose 4.88% to RM690.45mil. Yee Lee attributes the fall in its net profit to the lower contribution from its two biggest arms. Revenue from its trading division is the highest among all segments at RM464.08mil followed by manufacturing at RM223.7mil. However, due to the lower margins for the trading division, its manufacturing arm contributes the highest to its bottom-line at RM17.9mil compared with RM7.79mil for the trading division. To drive growth, it aims to invest RM35mil compared with RM20mil previously. Its plantations will utilise RM16mil of the planned capital expenditure, RM10mil will be for the palm oil mill, RM7mil for its aerosol cans and RM2mil for trading. Under its trading division, it distributes its own cooking oil brands like Red Eagle, Vesawitand Neuvida. That division also distributes bottled drinking water from its sister company Spritzer Bhd. The margin squeeze for the trading division last year was partially caused by the higher advertising and promotion expenses for promoting its in-house brands but Chok expects the expenditure to reduce progressively going forward once consumers accept the brands. Besides distributing in-house brands, it also has the distributorship for other agency brands like Campbell, Old Town, Red Bull and Kimberly. This type of distributorship usually excludes key accounts such as supermarkets and hypermarkets. As for the manufacturing segment, the company produces cooking oil, palm-based products, aerosol cans and corrugated carton boxes. Last year, its manufacturing arm recorded a lower profit primarily due to lower fresh fruit bunches (FFB) processed and lower sales of aerosol cans and palm kernels. "The division’s bottom-line was also affected by lower freight on board olein margin over crude palm oil price and high relocating and set up costs for shifting the aerosol can factory in Vietnam to the newly completed factory,” the company says. Due to the lower FFB processed, the operations of its palm oil mill incurred a loss despite an improvement in the oil extraction rate. Chok says the company has secured new FFB supplies from two estates, which will increase total FFB supplies by 4%. Meanwhile, the RM10mil capex for its oil palm mill is expected to improve the extraction rate and reduce operating costs, hence turning around the oil palm mill division this year. "With the lower petrol price, the manufacturing (division) will save on fuel costs for its boiler consumption,” he notes, although savings will be marginal. Moving upstream to its plantation segment, Chok says the RM16mil allocation for its plantations is deferred from last year as the company has just obtained the Environmental Impact Assessment approval. "We are developing our 2,500 acres in Ranau, Sabah into oil palm plantations,” he says. Currently, the company has about 800 acres of palm oil plantations in Peninsular Malaysia, which is fully planted with trees that have an average age of 23 years. It has also identified 158 acres for replanting in stages. Its plantation division turned profitable last year after it recorded losses in FY13, mainly boosted by tea sales and better profit margins. On its prospects, Chok expects the company’s costs to increase slightly with the implementation of the goods and services tax (GST) as not all input taxes are claimable, hence affecting its bottom-line marginally. Consumer sentiment upon of the implementation of GST, he says, may have a bigger impact on sales as people are likely to tighten their belts before adjusting to the new tax. On the flipside, consumers’ savings from transportation costs as a result of lower petrol prices could mitigate the impact of GST. The stock was last traded at RM1.88 per share.