MS Group Holdings Limited

MS Group (group) is a Hong Kong listed company engaged in the manufacture of plastic bottles and cups for infants and toddlers, and plastic sports bottles.

It operates via two segments a) Production for original equipment manufacturers (OEM) for overseas markets (85% of total sales) - primarily in the USA (two customers account for 91% of OEM sales); and b) Production under its own brand ‘Yo Yo Monkey’ for the China market (15% of sales).

It has suffered a reduction in orders due to Covid-19 as retail shopping was curtailed. It has also suffered from US tariffs on its products (this can get exacerbated with further tariffs).

The company generated fairly steady sales peaking at $262m in 2019 and declining to $236m (ttm). Ebitda margins have compressed over the years though it has turned upwards in the last twelve months (to 13.2%) due to the drop in plastic resin (raw material) prices and labour/production cost control measures. Net income (ttm) was $14m.

The company listed its shares in 2018 raising $49m at $1.34/share. This has left a large net cash balance of $96m on the balance sheet. Cash is expected to be utilized to expand production and product development capability, diversify beyond the US, and expand its own brand business.

Net current assets (a proxy for liquidation value) were $127m and net tangible assets printed at $167m. The equity was selling at $118m ($0.59/share) or just over 8x earnings.

Management haven’t paid a dividend or repurchased shares since listing.

This appears to us to be a reasonably priced stock with low risk of loss and a reasonable earnings yield. It isn’t the most attractive bargain available but there is good potential upside in earnings with the intelligent utilization of excess cash.

TTM: Trailing twelve months

$ represents Hong Kong $