Is SKB Shutters an investment opportunity?

Value Investing Case Study 87-1: From roller shutters to industry leader: Why SKB Shutters Corporation deserves a closer look.   

The name of SKB Shutters Corporation Berhad (SKB or the Group) might not scream headlines. But it has been making bold moves behind the scenes. 

SKB is transforming from a traditional manufacturer into a modern solutions provider. It has pioneered high-performance roller shutters and introduced flood-resistant innovations. 

The Group today is different from what it was a decade ago. Its post-2021 performance showcased double-digit revenue growth and improving margins. It has also embarked on building a new state-of-the-art manufacturing facility.

Could this be the undervalued investment opportunity you have been waiting for? 

Join me as I carry out a fundamental analysis and valuation of SKB. I will show that SKB might be the sleeper stock that savvy investors should not overlook.

Should you go and buy it? Well, read my Disclaimer. 

Contents

• Background

• Operating performance

• Financial position

• Valuation

• Conclusion

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This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you. Learn more.

Background

SKB was established in 1957 as a manufacturer of roller shutters. The company expanded its scope over the decades and was listed on Bursa Malaysia on March 28, 2001. Initially focused on roller shutters, SKB has diversified its product range to include:

• Fire-rated and high-security steel doors.

• Storage and handling systems tailored for logistics and industrial sectors.

• Niche innovations like powerless flood shutters and extreme weather-resistant shutters.

The Group is a leading player in the manufacturing of roller shutters, steel doors, and storage systems today, and it envisions becoming the largest in Southeast Asia. 

The business direction has also shifted towards providing comprehensive solutions rather than being a manufacturer-supplier. This includes ESG-compliant initiatives, automation integration, and region-specific products to cater to markets like earthquake-prone areas and high-security industries.

The Group did not provide a breakdown of its revenue by products. It only reported revenue by geography. As can be seen from the left part of Chart 1, Malaysia accounted for not only the majority of the revenue but also most of the growth. In 2015 Malaysia accounted for about 62% of the revenue. This grew to 81% in 2024.

Note that SKB has June as its financial year-end. As such, unless stated otherwise, the years in this article refer to the financial year. 

Chart 1: Revenue by Geographies and Performance Index

Market characteristics

SKB operates in a niche sector, serving the growing needs of companies in construction, logistics, and industrial infrastructure. The industry is characterized by moderate competition, where differentiation is achieved through innovation, compliance with safety standards, and cost efficiency.

This is a mature market with a single-digit growth rate.

“The global Roller Shutter market size was valued at USD 57.24 billion in 2023 and is anticipated to register a CAGR of over 4.6% between 2024 and 2032.” Global Market Insights

“The global roller shutter door market size was USD 11.95 Billion in 2023 and is projected to reach USD 18.54 Billion by 2032, expanding at a CAGR of 5% during 2024–2032.” DataIntelo

Operating performance

Over the past decade, SKB revenue grew at 9.5 % CAGR. But as can be seen from Chart 1, the major growth came post-2021.

According to the company, the double-digit growth rate in 2021 was “primarily attributed to the enforcement of new building requirements by the Malaysian government. Specifically, the mandatory deployment of Insulated Fire Shutters (IFS) for compartment walls created a favorable demand for this product. SKB had invested six years in developing IFS and successfully met local regulatory requirements, allowing the company to capitalize on this market need.”

The double-digit growth rate continued in 2023 before slowing down to single-digit in 2024. 

• The 2023 performance was due to backlog orders as well as a rebound in the construction sector.

• The slowdown in 2024 was due to the weaker economy as well as more high-value high-margin products which cater to a smaller market. 

While revenue ramped up in 2021, the ramp-up in profit started earlier in 2021. Refer to the right part of Chart 1. These were due to improving margins and lower costs. These can be seen in the left part of Chart 2. The better margins and lower costs are also reflected in the improving contribution margin as shown in the right part of Chart 2.

Chart 2: Margins and Operating Profit

Note to Op Model. I broke down the operating profits into fixed costs and variable costs.

• Fixed cost = SGA, Depreciation & Amortization and Others.
• Variable cost = Cost of Sales that excluded Depreciation & Amortization.
• Contribution = Revenue – Variable Cost.
• Contribution margin = Contribution/Revenue.

The improving profits led to improving returns. From 2015 to 2024:

• ROIC went from about near zero % to 10% in 2024 with an average of 5% over the past decade.

• ROE increased from about negative 1 % to 12% in 2024 with the past decade average of 5%.

While there were improving returns, the low average returns relative to the current cost of funds implied that the company did not create any shareholders’ value over the past decade. 

Looking at Charts 1 and 2, you can see that the performance of the Group post-2021 is different from that of pre-2021. It would appear that the new products, market diversification, and better margins have positioned the company for better performance.

One of the key factors seems to be the improving efficiency as reflected in the gross profitability trend post-2021. Refer to the right part of Chart 1. 

I wanted to see whether these improving margins and gross profitability were reflected by better operating and capital efficiencies. Chart 3 shows the trends of several operating and capital efficiency metrics.

• Operating efficiency. Post-2021, except for the operating expense ratio, the other 3 metrics improved.

• Capital efficiency. Post-2021, there were balanced results as the better asset turnover and Free Cash Flow were offset by the Reinvestment margin and cash conversion ratio.

You can get a sense of the higher expense ratio from the right part of Chart 2. The fixed costs over the past 2 years were higher than those in the previous years.

I would conclude that while there was better operating efficiency, there is still work to be done for capital efficiency. 

Chart 3: Efficiency

Peer comparison

There are no other Bursa companies with the specialized nature of SKB's product offerings. As such I focused on Bursa companies that serve similar customer markets as SKB. These are companies catering to the construction and infrastructure industries;

• Ajiya (AJIYA): Specializes in the manufacturing and supply of building materials, including safety glass and metal roofing systems.

• Astino (ASTINO): Engages in the production of metal roofing sheets, structural products, and other building-related materials. 

• Chin Hin Group (CHINHIN): Involved in the distribution of building materials and provision of construction-related services. Chin Hin supplies a range of products, including ready-mixed concrete and precast concrete elements.

You can see that SKB is the smallest player in terms of 2023 revenue. But it had the best revenue growth rate. 

Table 1: Peer revenue

I looked at the trends of 4 metrics to get a sense of how well SKB performed compared to its peers. Refer to Charts 4 and 5. 

You can see that post-2021, SKB delivered the best return on capital, EBIT margin, and levered free cash flow margin. It also had the best EPS growth trend. 

Chart 4: Bursa Peer Return on Capital and EBIT Margin

Chart 5: Bursa Peer Levered Free Cash Flow Margin and EPS

Case Notes SKB is a good example of why it is important to understand the nature of a company’s growth rather than just doing a simple trend projection. Some of the pitfalls with a simple trend projection are: It assumes that historical trends will continue unchanged, ignoring external influences such as market dynamics and regulatory changes. It cannot adapt to structural changes within the company, such as shifts in product lines. Relying solely on past data may provide a skewed perspective if a company has experienced non-recurring events, such as one-time gains or losses. As you can see, there are many issues to consider when looking at growth. You need to carry out a fundamental analysis to flesh out the nuances. This requires expertise and time.  Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format. You can see the position of SKB as of 13 Jan 2025 in the Fundamental Mapper chart below. Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies   PS: The Fundamental Mapper gives you a first-cut picture. For a company in the  GEM quadrant, it is not an obvious investment choice. In my detailed valuation of SKB, I have shown that there were fundamental changes and the future will be better than the past. This will ensure that it will be able to deliver better earnings than those estimated from a simple trend projection. In the context of the Fundamental Mapper, I would expect SKB to move to the Goldmine quadrant in the coming future if the stock price remains unchanged.

Case Notes

SKB is a good example of why it is important to understand the nature of a company’s growth rather than just doing a simple trend projection. Some of the pitfalls with a simple trend projection are:

• It assumes that historical trends will continue unchanged, ignoring external influences such as market dynamics and regulatory changes.

• It cannot adapt to structural changes within the company, such as shifts in product lines.

• Relying solely on past data may provide a skewed perspective if a company has experienced non-recurring events, such as one-time gains or losses.

As you can see, there are many issues to consider when looking at growth. You need to carry out a fundamental analysis to flesh out the nuances. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of SKB as of 13 Jan 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

 

PS: The Fundamental Mapper gives you a first-cut picture. For a company in the  GEM quadrant, it is not an obvious investment choice. In my detailed valuation of SKB, I have shown that there were fundamental changes and the future will be better than the past. This will ensure that it will be able to deliver better earnings than those estimated from a simple trend projection. In the context of the Fundamental Mapper, I would expect SKB to move to the Goldmine quadrant in the coming future if the stock price remains unchanged.

Case Notes

SKB is a good example of why it is important to understand the nature of a company’s growth rather than just doing a simple trend projection. Some of the pitfalls with a simple trend projection are:

• It assumes that historical trends will continue unchanged, ignoring external influences such as market dynamics and regulatory changes.

• It cannot adapt to structural changes within the company, such as shifts in product lines.

• Relying solely on past data may provide a skewed perspective if a company has experienced non-recurring events, such as one-time gains or losses.

As you can see, there are many issues to consider when looking at growth. You need to carry out a fundamental analysis to flesh out the nuances. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of SKB as of 13 Jan 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

 

PS: The Fundamental Mapper gives you a first-cut picture. For a company in the  GEM quadrant, it is not an obvious investment choice. In my detailed valuation of SKB, I have shown that there were fundamental changes and the future will be better than the past. This will ensure that it will be able to deliver better earnings than those estimated from a simple trend projection. In the context of the Fundamental Mapper, I would expect SKB to move to the Goldmine quadrant in the coming future if the stock price remains unchanged.

Case Notes

SKB is a good example of why it is important to understand the nature of a company’s growth rather than just doing a simple trend projection. Some of the pitfalls with a simple trend projection are:

• It assumes that historical trends will continue unchanged, ignoring external influences such as market dynamics and regulatory changes.

• It cannot adapt to structural changes within the company, such as shifts in product lines.

• Relying solely on past data may provide a skewed perspective if a company has experienced non-recurring events, such as one-time gains or losses.

As you can see, there are many issues to consider when looking at growth. You need to carry out a fundamental analysis to flesh out the nuances. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of SKB as of 13 Jan 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

 

PS: The Fundamental Mapper gives you a first-cut picture. For a company in the  GEM quadrant, it is not an obvious investment choice. In my detailed valuation of SKB, I have shown that there were fundamental changes and the future will be better than the past. This will ensure that it will be able to deliver better earnings than those estimated from a simple trend projection. In the context of the Fundamental Mapper, I would expect SKB to move to the Goldmine quadrant in the coming future if the stock price remains unchanged.

Financial position

I would rate SKB's financial position as sound. While it has some negative points, there are not impactful to offset the strong points. The strong points included:

• As of Sep 2024, it had RM 52 million cash. This is equal to 20 % of its total assets. 

• As of Sep 2024, it had a 58% debt-equity ratio. This has come down from its 2017 high of 83 %.

• Over the past decade, there was only one year when it failed to generate positive cash flow from operations annually. During the past decade, it generated RM 88 million in cash flow from operations compared to the total PAT of RM 51 million. This is a good cash conversion ratio.

• It had a reasonable capital allocation plan. Refer to Table 2. The cash flow from operations was more than sufficient to cover its CAPEX. But I would have thought that some of the excess could have been returned to shareholders.

Table 2: Sources and Uses of Funds 2015 to 2024

The main concern I have is the high Reinvestment rate. Over the past 10 years, this averaged a Reinvestment rate of 50%. I defined the Reinvestment rate as Reinvestment/NOPAT. 

Reinvestment = CAPEX & Acquisitions – Depreciation & Amortization + increase in Net Working Capital. 

I suspect that this high rate was because of the new factory. The Group had acquired 9.8 acres of land in 2023 for RM 36 million for building a new manufacturing facility in 2023.

In the longer run, when this new plant is completed, I expect the Reinvestment rate to come down. So it is not as dire as the first impression. 

Valuation

I based my valuation of SKB on the following picture.

SKB is not in a double-digit growth sector. As such, I assumed that:

• Revenue would grow at the long-term GDP growth rate of 4%. 

• The Sep 2024 LTM revenue as the base revenue.

I took the 2022 to 2024 average contribution margin as the base margin. This would improve by 10% in Year 6.

The base Reinvestment rate would follow the 2022 to 2024 average but would reduce proportionately to reach that given by the fundamental growth equation in Year 6.

The base fixed cost would be the average 2023 to 2024 values.

On such a basis, I obtained an intrinsic value of RM 1.06 per share compared to its market price of RM 0.89 per share (17 Jan 2025). There is only a 19% margin of safety.

I would not consider my assumptions an aggressive one based on the picture shown in Chart 6. 

• You can see that the projected Free Cash Flow lies on the projected historical trend line. 

• The terminal revenue is 26% higher than the LTM Sep 2024 revenue due to the 4% revenue growth rate. In comparison, the LTM 2024 revenue is about 10% higher than the FYE 2024 revenue.

My valuation model resulted in the following averages:

• 11 % ROIC in the terminal year compared to the 2023/24 average of 10%.

• 22 % EBIT margin in the terminal year compared to the past 2 years average 19 %.

Chart 6: Projection

Valuation model

I valued SKB based on a multi-stage valuation model as shown in Table 3. 

The basic equations used in the model are:

Free Cash Flow to the Firm or FCFF = EBIT(1 – t) – Reinvestment.

EBIT = Revenue X Contribution margin – Fixed cost. The earning was based on the business model shown in the right part of Chart 2.

Reinvestment was derived from the Reinvestment margin.

Table 3: Sample calculation 

Notes

a. No growth

b. Pegged to growth rate

c. Assumed proportionate improvement

d. Assumed growth at a terminal rate

e. Revenue X Margin and after accounting for Fixed costs

f. Proportionate improvement to reach a Reinvestment rate given by the fundamental growth equation in the terminal year

g. b X f

h. FCFF for each year = e - g

j. Refer to WACC table

k. NPV for each year = (h X j)

l. Terminal for the year discounted at terminal growth rate

m. 5 years NPV + terminal value

n. Inclusive of any excess TCE. Non-operating assets, MI and Debt

o. Based on the number of shares

The cost of funds was based on a Google search for “SKBShut WACC”. Refer to Table 4.

Table 4: Estimating the cost of funds

Risks and limitations

I have not taken an aggressive approach in my valuation of SKB. Such an approach would have assumed that there would be double-digit revenue rate growth in the next few years.

For example, if assumed that the Year 1 revenue would grow at 10% reducing proportionately to 4% in the terminal year, the intrinsic value increases to RM 1.51 per share.

Secondly, I have taken a conservative approach to improving operating and capital efficiency. For example, my terminal year contribution margin was 38% compared to the 40% achieved in 2024. 

Table 5 provides another perspective of my conservative approach. 

Table 5: Other valuation metrics

Conclusion

SKB has undergone significant transformations over the past decade. While its pre-2021 performance is nothing to shout about, I would consider it fundamentally sound post-2021.

• Revenue has shown significant growth post-2021. This was driven by the enforcement of new building regulations and recovery in the construction sector.

• Contribution margins and operating margins have improved. These reflect greater cost efficiencies and a focus on higher-margin products.

• It is financially sound.

• ROE and ROIC have improved.

Its focused strategies and investments, such as the construction of a new manufacturing plant, position it for future growth.

But my valuation shows a moderate margin of safety and as such I will probably sit this one out. But if you are more risk-tolerant and see it as a growth story with the capacity to enhance shareholder value as it continues to innovate, you may accept the margin of safety. 

Investment thesis

Post-2021, SKB has demonstrated robust revenue growth. This was driven by regulatory tailwinds, innovative product launches, and expansion into export markets. With improving profitability margins, operational efficiencies, and a solid financial position, SKB is well-positioned for sustainable growth. 

Strategic investments in a new manufacturing plant further strengthen its long-term prospects. SKB presents a compelling investment opportunity as a niche player in the growing construction and industrial infrastructure sectors. 

While not a value trap, whether you view it as a value investment opportunity will depend on your margin of safety. 

Case Notes An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions.  It defines your reasoning. A clear thesis encourages disciplined decision-making. It helps assess risks. It provides a benchmark to evaluate whether the investment is performing as expected. An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

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If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play.

PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play. 

Disclaimer & Disclosure

I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you.

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