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Samurai 2K Aerosol Ltd’s Shares Are Up More Than 15% This Month: What’s Behind The Euphoria?

Samurai 2K Aerosol Ltd (SGX: 1C3) is an aerosol coating specialist with a focus on the automotive refinishing and refurbishing industry. Some of its brands include Samurai 2K, Samurai and Kurobushi. The firm went public on 16 January 2017 at an offer price of S$0.20.

Yesterday, the company’s shares closed at S$1.12, before the firm requested for a trading halt. Month-to-date, the shares have zoomed up 16.1%. What could be the reason for the price surge?

Well, there could be many reasons for the share price of a firm to go up, but the main reason would be that the firm’s business fundamentals have improved.

As for Samurai 2K Aerosol, earlier in the month, it posted a 330.5% year-on-year increase in net profit for the half-year ended 30 September 2017 (1H2018). The bottom line increase came on the back of a 101.6% revenue growth.

The following is a quick rundown on the financial figures from the latest period:

1. Revenue grew from RM17.1 million in 1H2017 to RM34.5 million in 1H2018.

2. Gross profit rose 95.7% year-on-year to RM15.5 million.

3. Profit attributable to shareholders more than quadrupled from RM1.5 million in 1H2017 to RM6.4 million in 1H2018.

4. As of 30 September 2017, Samurai 2K Aerosol had RM20.8 million in cash and bank balances, and RM9.2 million in total borrowings. This translates to a net cash position of RM11.6 million. Six months ago, it had a lower net cash position of RM10.1 million.

5. The firm generated a free cash flow of RM1.5 million in 1H2018. In comparison, it had a negative free cash flow of RM1.8 million one year ago.

All its geographical segments – Indonesia, Malaysia and Others (Thailand, Vietnam and Philippines) – posted revenue improvements mainly due to increases in sales volumes. The firm said that the higher volumes achieved were due to “enhanced marketing initiatives taken such as advertisements on social media, exhibition, demonstration and training activities for potential end-users”.

Looking ahead, Mr Ong Yoke En, the firm’s executive director and chief executive officer, said:

“In addition to the untapped area in our current markets, we have identified the United States of America (“USA”) as our next engine of growth. According to the statistics from the United States Department of Transportation, USA has approximately 254 million registered vehicles on the road in 20151. This is clearly a huge market not to be ignored. We have incorporated a wholly-owned subsidiary in USA and have just participated in the prestigious Specialty Equipment Market Association Show 2017 in the last week.”

Furthermore, last month, Samurai 2K Aerosol signed a memorandum of understanding with a distributor for sole and exclusive distributorship of its products in Cambodia, marking its foray into the country.

The firm is selling at 26.5 times its annualised 1H2018’s earnings per share of 6.44 RM sen.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.