HHGroup Quarter Report Analysis 30.09.2015 (WARNING!!)

HHG Quarter Report Analysis 30.09.2015 (WARNING!!)

Part 1

Part 2

Looking for the latest quarter, Sept 2015. The quarter revenue was dropped from RM26 million to RM18 million, which is a huge drop if compare to last past few quarters.

Besides this, please be remind that this quarter have a one off gain of RM2.4 million. If without this profit, the company is only making merely RM0.4 million, which mean there is huge 90% drop in profit in this quarter.

The management mentioned in their lastest quarter report that this is due to uncertainty of China's operation environment and mitigate the credit risk exposure by lowering the sales. This statement can be supported by increasing of "Trade and Receivables" in the above picture (Part 2).

This will put HHG in a risk that money is not able to collect back and turn into bad debt, which subsequently affect the cash flow of the company.

Now we look at the debt and cash level of the money. 

Short Terms Borrowing RM16 million

Long Terms Borrowing RM10 million

Cash on Hand RM8 million

Financial Cost around RM 1.6 million per year.

Base on current share price RM0.62, which translate to PE 13 to PE14

The PE looks quiet high for a small company like this. It is very risky to buy this stock at the moment as the chance of lost of money greater than making money.

Lastly, the ROE of this company is less than 5%.

Buy at your own risk!

What's Next?

• Mudajaya bags RM220.0m EPCC job for Rapid Ewein to sign S&P agreement on Dec 28
• Ewein to sign S&P agreement on Dec 28
• FCW sees lower earnings in FY16
• LTKM disposes land in Klang for RM26.0m
• Survey finds German consumer confidence rising
• No decision made on subsidy rationalisation for other products
• Natural gas prices to go up, residential users spared
• Malaysia’s reserves rise to three-month high as ringgit rebounds
• Special parliamentary session to decide on TPPA participation end-January 2016
• Japan govt: stimulus to add 0.6% point to GDP over next 3 yrs
• Japan government targets growth, fiscal reform in record budget spending plan
• S. Korea central bank says households' fiscal health has worsened
• India deficit to rise as states take on power companies' debt
• US economy grew at 2% rate over summer; a pickup is seen
• US existing home sales tank in November

Little Infor - Bonia

It is an investment holding company, which engages in the market retail and distribution of leatherwear footwear men's apparel and accessories.

It operates through the following segments: Retailing, Manufacturing, and Investment & Property Development.

The Retailing segment designs, promotes and markets apparels footwear accessories and leather goods. The Manufacturing segment engages in the manufacture and market of leather goods. The Investment & Property Development segment consists of investment holding and rental and development of commercial properties.

Other than expanding its own in house brands, the group has also been aggressively expanding its co owned brand … Braun Buffel.

In Sept 2015 Bonia’s subsidiaries BB Global Holdings Pte Ltd (BBGH) acquired intellectual property rights from Braum GmbH & Co KG (BBKG) in a deal worth EUR1.88 million (equivalent to RM9.21 million)

The clothing manufacturer reported a net profit of RM5.41 million or 0.67 sen a share for the fourth quarter financial year ended June 30, 2015 (4QFY15), a 39.3% drop from RM8.92 million or 1.11 sen a share a year ago.

Revenue for the period also dipped slightly to RM148.3 million, from RM165.86 million in 4QFY14.

To recap it had proposed one for one bonus issue and two for one share split went ex on July 21 2014. Both exercises will increase its outstanding number of shares.

Key risks for Bonia will be a regional slowdown in consumer spending and stiffer than expected competition.

As at 2014 institutional shareholdings in Bonia stand at 40% compared with an estimated 15% to 20%. For instance, Milingtonia Ltd holds a 11.2% stake in the group. Milingtonia is said to be linked with Creador Group, a long-term private equity firm. Albizia Capital Pte Ltd holds a 7.96% stake in the company.

The institutional shareholdings in Bonia are also more diverse compared with several years ago, considering that Permodalan Nasional Bhd (PNB) once held a dominant 32.99% stake in the retail group in June 2011. PNB has ceased to be a shareholder of Bonia, having divested its stake gradually to other institutional funds including Creador.

The group is open to strategic partnerships that can propel it further, beyond...Southeast Asia, such as China or even the Middle East eventually.

The Chiang family, through Bonia Holdings Sdn Bhd, Freeway Team Sdn Bhd, and family members, collectively own half of the group. Should the group find a suitable partner, the family may have to divest part of its stake.

Just Read ... Minho (Revaluation Play, Beneficiary From Strong USD)

It is established dated back to before the year 1977, when it started of as Syarikat Minho Kilning Sdn Bhd, providing klin drying services. To date (Aug 2015), the company had grown up into a fully integrated timber player, providing services such as ...

- Klin Drying and Chemical Preservative treatment;
- Manufacturing, exporting and dealing in moulded timber and it's related product;
- Export of processed timber products;
- Manufacturing and distribution of industrial paper bags;
- Trading in log supply and it's related products;
- Log harvesting;
- Property development and building construction;
- Manufacturing and dealing in furniture components and it's related product;
- Land leasing

However, with all the diversified services and product, Minho still derived it's major revenue from the timber trading and manufacturing of processed timber goods.

With the current (Aug 2015) local market outlook on massive completion of housing projects that will be handling over in 2015 to 2017, and the international market outlook with a stronger USD and the on going European Stimulus program, where can it leads to for Minho from Aug 2015?

While 2014 had been a challenging year, however, Minho still managed to scrap through the year with a total revenue of RM 238 million.

Minho business which deal in timber is very cyclical in nature. Various market factor and changing weather can easily put a blow into the financial result. However, Minho's experience in the timber sector definitely did pay out when the group grab hold of the opportunity in diversifying into land banking and subsequently into small property development.

Till date (Aug 2015), Minho is greatly boosted with a strong underlying asset of freehold land. Most of it's land is still clinging on the valuation dated back to 2009 and 2010. Minho currently (Aug 2015) is sitting on NTA of RM 2.93. However, there are still a good number of revaluation reserved in their belt of freehold land in prime commercial area of Klang, which is near to Port Klang.

Minho had been also paring down it's debt level gradually.

While most of the revenue came from the local market, revenue from the US is ranked no.2 while UK no.3. The US market will continue to remain stable, while Minho can start to tap into the European market with the current (Aug 2015) stimulus program.

A stronger USD against the MYR will also translate to a better forex gain for the group. A stronger contribution from the European market will be able to see Minho ending in a stronger bottom line in 2015.

Minho is an interesting company to be look out upon, largely due to it's strong underlying assets, with NTA bearing approx RM 3.00.

 

Just 'READ' - Pensonic (Revaluation Play) !!!

Its NTA currently (Sept 2015) stood at rm0.85. However the NTA is said to be understated due to its accounting policy to carry properties at cost model instead of revaluation model.

The company adopted "cost less depreciation model" to value its land and building. This has reflected an unfairly low valuation of the assets that it presently (Sept 2015) has. For example, the property that it isowning in Section 51A Petaling Jaya is carried at rm200 per square feet while the market value is around rm750-850 psf. Valuing it even on a conservative amount of rm600 psf, this would translate it into a gain of RM18million and if the high side of RM800 is taken, then the gain would reach RM25million - on this one property alone.

If were to revalue all … a rm25million of gain is translating into about NTA of RM0.20 per share. In the event if all properties are revalued to the current (Sept 2015) market value, we can see a substantial increase in its NTA and of course the present stock price (26 Sept 2015) is traded at discount below the more realistic NTA.

It returns to the black with a net profit of RM12.6million for the fourth quarter ended May 31,2015 (4QFY15), compared with a net loss of RM1.64million a year earlier, on higher export sales and property disposal gains.

Revenue increased to RM92.9million from RM89.65million.The increase in revenue was mainly contributed by the export market, as its local business was facing a slight drop in revenue, due to the Goods and Services Tax (GST) implementation.

Furthermore, the group has posted a profit before tax of RM12.9million, [as] compared to loss before tax of RM2.7million in the corresponding periodlast year. This gain were mainly came from recognition of financial gain on disposal of property RM8.4million.

For the full year, Pensonic registered higher net profit of RM17.58million, from RM2.87million a year earlier. Revenue increased to RM388.37million from RM373.73million.

Looking ahead, Pensonic anticipated intense competition, but will continue to explore new markets and product innovation.

At rm0.59 it is trading at a 12 month trailing PER of 4.42 times.

Padini

Industry observers opine the worst could be over as earnings for the company retail group’s fourth quarter ended June 30 2015 came in above market expectations.

Its management has indicatead that it is committed to a minumum 10 sen per share. Padini has a strong cash pile to continue rewarding shareholders. As at June 30 2015, the group was in a net cash position of rm98.13 million equivalent to 15 sen per share.
It is worth nothing that a large chunk of Padini’s shares are held by MD Yong via his private vehicle – the single largest shareholder with 43.7% stakes.

Where business operations are concerned, observers think Padini’s worse days could be over as margins stabilise and consumer sentiment recovers going forward. For FY2015, gross margins fell to 43% while net margins declined to 8.2%. In FY2014, Padini registered gross margins of 46% while net margins stood at 10.4%.

While SSSG expected to decline or even turn negative, observers opine it will be new stores that will generate sales growth.

Padini’s penetration into new markets could help to drive eanrings growth even if margins fail to recover. Besides that the group’s value for money Brands Outlet stores are benefiting from consumer down trading given current economic uncertainties.

It is possible that Brands Outlet will overtake that of Padini Concept Stores. Revenue from Brands Outlet came in on par with its higher end sister Padini Concept Stores while segmental profits overtook the latter in FY2015.

Looking ahead, a reovery in consumer sentiment will be positive for retailers like Padini.

SimeDarby

It saw its earnings weaken for its financial year ended June 2015 and how it will address its rm18 billion debt remains unclear.

It is committed to strengthening its balance sheet – which saw net gearing balloon to 58% from 38% after acquisition of New Britain Palm Oil Ltd in March 2015.

It would also consider M&A opportunities to expand its footprint.

It hopes to achieve its target of 30% to 35% gearing in the short to medium term. There has been market talk that the group is considering a rm6 billion rights issue to pare down its debts. However it is believed that a cash call may not be its best option as it would enlarge its share base and dilute earnings.

It is highly likely that until it deleverages sufficiently it might not do another acquisition, or do a combination of debt and equity to maintain gearing at current level (Aug 2015) or even bring down its debt.

In March 2015, Fitch Ratings downgraded its outlook to negative after imputing debts from the NBPOL buy. Its funds from operations) adjusted net leverage has risen to 2.5 times. The negative rating by Fitch is the biggest concern because that will impact its cost of borrowing.

Sime Darby’s borrowing cost is currently (Aug 2015) 3.4% per annum.

As at June 30, 2015, it had cash of rm3.65 billion, giving it a net debt of rm14.4 billion.

If CPO prices start to perk up or cash flow from its businesses starts to improve, then leverage is likely to moderate and they might not need to take on any major fundraising.

The group’s silver lining would be the added earnings from NBPOL, which has already begun contributions to the group.

NBPOL’s palm trees are about 19 years and have brought Sime Darby’s average trees profile down to 14 years. Given its fairly young age profile, it is in a fairly good position to weather low CPO prices.

In the meantime, apart from more borrowings or a rights issue, it is also considering unlocking value by divesting some non core assets. Monetizing assets such as land parcels and its 30% stake in Tesco is the best option for now (Aug 2015).

Sime Darby had sold off its 50% interest in Sime Darby Sunsuria Development Sdn Bhd for rm173.4 million and a 9.9% stake in E&O Bhd for a total of rm319 million.

It had put hold indefinitely the planned listing of its motor division.

FGV

The continuing slump in crude palm oil prices has made a dent in Felda profits over the past year. While the group is now trying to tie up a major deal – the acquisition of a 37% stake in PT Eagle High Plantations Tbk – its purchases over the past two years have so far failed to contribute significantly to its bottom line.

FGV has spent close to rm5 billion since 2013 in an effort to increase its landbank in order to rectify its ageing tree profile.

Despite to secure new parcels to boost its crop production as well as replenish its crops via a replanting exercise, its overall output has remained depressed over the past two years.

Acquiring the strategic stake in Eagle High is essential to FGV’s business aspirations. The deal would enable it to make significantly inroads into the vast Indonesian palm oil market while giving it some 400000ha of Greenfield landbank to work with. Over the next few years from Aug 2015, the group is hoping to lower the overall age profile of its palm tree to 8% years old from 15 years oil presently (Aug 2015).

However the weakening ringgit is proving to be a major inconvenience for FGV in its latest acquisition. This means that FGV’s purchase price has ballooned significantly as it is paying for the company using its ringgit denominated cash reserves.

Investors perceived the price as expensive back in June 2015. Now (Aug 2015) with the ringgit and CPO prices getting weaker, it has become an even pricier purchase.

In fact the sizeable sum may have been the reason why FGV could not transfer a USD174.5 million refundable deposit to Eagle High earlier, resulting in the higher acquisition cost for the group due to the ringgit’s sharp decline in Aug 2015.

It is believed that the deal should be repriced to reflect valuations.

Eagle Highs entire market cap of USD540 million is less than the USD745 million that FGV is paying for a 37% stake. If it goes ahead and pays the amount, there may be a substantial write down in the value of the asset in the future.

Assuming that a significant portion of consideration for the Eagle High transaction is taken from its existing cash pile of RM2.2 billion, it will need further capital in order to continue its capex drive for replanting its landbank.

Due to the worsening fundamentals of palm oil as well as the ongoing turmoil in the equities market FGV is facing an uncertain few months ahead (Aug 2015 onwards). It has to ramp up its monetization exercise in order to balance its books, especially if it intends to wrap up the Eagle High acquisition by end 2015.

On Aug 27 2015, the group announced the disposal of its Canadian downstream assets for rm608 million. The sale of the subsidiary will boost its cash pile as well as its downstream operations, which had been dragged down by the subsidiary losses.

Some say FGV’s falling profits and depleting cash pile will impede its ability to pay dividends. Historically the group has given away more than 60% of its annual net profits as dividends.

It was reported that FGV;s net tangible assets per share of rm1.33 could dip further due to the potential dilution arising from the Eagle High deal, which could affect its cash reserves and operational cash flow.

UZMA

The company is expecting resilient earnings growth for at least three more years from Aug 2105 albeit in the low crude oil price environment.

The group is in a safe spot because it is involved mainly in a business that caters for fields production.

The confidence stems from the group’s order book – which stands at rm2.7 billion and will keep the group busy until 2021 – and its ability to provide services to oil companies so that they can produce oil economically. There are no activities in exploration now (Aug 2015). The budget has been slashed and production has to continue and the products that UZMA has to offer support existing production.

UZMA is not only involved in exploration but also in the provision of services for already producing. On top of that it has recurring income from its chemical business.

Malaysia needs the production and it does not keep up with production, it would not have any money.

It sees a stronger second half 2015 for the group due to is risk service contract and D18 water injection facility which spill over into FY2016.

Its revenue growth projection is backed by its contract wins in 2015.

Its biggest challenge at the moment (Aug 2015) is margin squeeze.

MMSV

Through its subsidiaries, manufactures industrial automation systems, designs die sets, jigs and fixtures, and develops computer software.

MMSV has two subsidiaries: Micro Modular System Sdn Bhd, which is engaged in the manufacture of automated systems and machinery, and Evolusys Technologies (Malaysia) Sdn Bhd, which is engaged in the development of software.

Based on 1HFY15, MMSV distributes its products within the domestic market (26%) and to overseas market, including the United States (40%), Asia (33%), Australia (0.18%) and Europe (0.01%).

It is a net beneficiary from stronger USD against MYR. Circa 70% of its revenue is denominated in USD which provides natural hedge to its raw materials purchases at circa 20% of total production cost.

Based on it. FY14 annual report, every 5% of strengthening USD against MYR would translate into RM0.378m or 3.6% increase in its FY14 profit after tax. However, Chinese yuan devaluation may hurt MMSV’s export sales.

It has net cash of RM17.5m or approximately 10.7 sen per share, allowing the company more flexibility in regards to business decisions and potential investments

At rm0.575 per share, MMSV is trading at trailing 12 months P/E of 8x following sharp drop in share price. Excash P/E is only 6.5x.

Texchem

Its exit offer to the minority shareholders of its loss making Singapore listed unit, Texchem-Pack Holdings Ltd, means there may be near term pains as the group invests for future growth in the food and beverage scene.

Historically, TPack, the polymer engineering division, has been the main drag on group earnings. A 100% ownership of TPack after the completion of the exit offer means Texchem will be booking up to 100% of the former’s profits or losses from now (Aug 2015) on.

In FY2014, the polymer engineering unit reported pre tax losses of rm14.04 million, which largely negates the rm15.6 million in profits garnered by Texchem’s crown jewel, the restaurant. As a whole, the group’s net profit for FY2014 came in at rm1.18 million despite revenue growing 7.24% to rm1.02 billion.

Texchem expects TPack to be profitable in the financial year ending Dec 2016.

Texchem spent the last six years changing the division’s focus to catering for the medical and life sciences sectors from the electronics sector previously, after it slipped into the red post the 2008 financial crisis.

But pending a turnaround, whatever losses made TPack would be fully consolidated into Texchem’s books.

Texchem expects the TPack buyout to raise its 2014 net asset value per share to rm1.60. However gearing is expected to rise from 0.74 times to 0.85 times as the company will fund the exit offer with 90% borrowings and 10% cash.

Using end June 2015, Texchem had rm97.5 million cash and cash equivalents but is in a rm89.95 million net debt position after accounting for rm187.45 million loans and borrowings.

It remains to be seen if that ceiling would change as Texchem is still looking to grow its F&B business, including via M&As.

About NTPM

A tissue and personal care products manufacturer.

NTPM commands more than 55% share of Malaysia’s tissue market and is best known for its popular Premier and Royal Gold brands.

The Penang-based company also expanded into producing paper-related personal care products such as sanitary products, baby and adult diapers, and cotton products.

Nonetheless, tissue paper products remain its main revenue generator, contributing 70% of revenue and 83% of its operating income in FYApr15.

Geographically, NTPM derived 76% of its sales from the domestic market, 13% from Singapore, and 11% from other export markets in FY14.

For FY15, revenue increased marginally by 1% to RM547.5 million while net profit declined 21% to RM42.6 million, owing to higher material costs, production costs, interest expenses and a forex loss of RM3.0 million.

USD-denominated borrowings accounted 30% of its total borrowings. As at end-April 2015, gearing stood at 43%, up from 26% a year ago. This is probably attributed to its capex of RM93.1 million: some RM72 million allocated for paper segment and RM21 million for personal care segment.

Management has embarked on strategic cost management initiatives to contain rising overhead costs and improve operational efficiencies.

Moving forward, NTPM targets Indo-China as its next growth driver and set up a USD20 million manufacturing plant in Vietnam in 2014.

The stock currently trades at premium valuations, at a trailing 12-month P/E of 20.3 times and 2.4 times book.

'Like' - Luxchem

For 1H2015, sales increased 12.3% y-o-y to RM333.6 million while net profit surged 17.1% to RM11.4 million. Excluding employee share option (ESOS) expense of RM8.7 million, nor-malised net profit more than doubled to RM20.1 million, due to higher contribution from both trading and manufacturing segments.

As at end-June, it has net cash of RM26.3 million or 10.0 sen per share.

Luxchem mainly trades and distributes industrial chemicals and materials, as well as manufactures and trades unsaturated poly-ester resin (UPR) and related products. The company supplies over 400 types of industrial chemicals and materials, and is a market leader in domestic UPR market.

In 2014, Luxchem expanded its UPR manufacturing plant in Melaka, boosting its annual production capacity by 50% to 30,000 metric tonnes.

For 2014, sales jumped 15.0% to RM603.5 million while net profit increased 11.8% to RM22.0 million, thanks to higher profit generated by the manufacturing segment. Local market accounted for 75.8% of sales, with the balance from export, mainly to Vietnam, Indonesia, Thailand and Singapore.

Up to June 15 2015, Luxchem has granted a total of 33.4 million ESOS to eligible directors and employees, out of which 3.5 million options have been exercised. All the ESOS are in the money, whereby 32.0 million have an exercise price of 71 sen.

The stock is trading at a trailing 12-month P/E of 12.7 times and 1.76 times book.

'Like' - LCTH (Beneficairy Of Weak RM and Resins Prices)

manufacturer and sub assembler of precision plastics parts and components. Things are looking up for LCTH.

It is poised for continued strong earnings growth.

Unlike many companies with earnings derailed by the headwinds buffeting the economy, it is riding the spillover effects from Chinese manufacturers’ expansion into SEA, the tumbling ringgit and lower crude oil prices.

The formerly loss making company has been buoyed by turnaround efforts which have put it back in the black for the past three financial years.

For 1Q ended March 31, 2015, net profit rose threefold to rm3.79 million from rm1.11 million a year before, despite lower revenue of rm36.07 million.

It attributes higher earnings to its ongoing efforts to streamline and rightsize operations as well as focusing on higher margin projects. The increase in profit was also partly contributed by a foreign exchange gain of rm1.6 million recorded in the current quarter as a result of the strengthening of the USD against the ringgit.

The company’s principal export markets include Singapore, HK and China. Its products are used in the auto, medical, electrical and electronics as well as telecommunications industries. Clients include MNCs such as HP, IBM, Dyson and Bose Corp.

The move by Chinese manufacturers to shirt activities to SEA, including Malaysia, augurs well for the group as it is positioned to benefit from any business spillover. Essentially this development gives LCTH Corp the opportunity to supply its products to the growing contingen of Chinese companies in the region.

The company’s FY2015 result is expected to improve. This is because the plastics industry has been doing well due to lower crude oil prices. Resins the company’s raw materials – are a by a product of crude oil.

LCTH implemented its right sizing strategy in FY2013 following losses in FY2010 – Fy2012. The focus is on high margin projects, lean management and improvements to operational efficiency.

On the back of this strategy, LCTH reported net cash and cash equivalents of rm76.38 million with zero borrowings, for 1QFy2015.

The company also has a 50% dividend policy, but following losses recorded in FY2010, it has not paid dividends to shareholders.

It is expected to enjoy a higher profit margin due to lower crude oil prices. Usually for the plastics industry, raw materials such as resins constitute 70% to 80% of the product’s selling price.

In addition to lower raw material prices, the company will benefit from the weaker ringgit against the USD as it is export oriented.

LCTH Corp’s, a 70.64% subsidiary of Singapore listed Fu Yu Corp – one of Asia’s largest suppliers of high precision injection moulds and plastic injection moulded parts – could obtain support as well a essential technical know how from Fu Yua Corp.

In its 1QFY2015, export revenue constituted nearly 99.8% or tm26.03 million, of the quarter’s total revenue of rm26.07 million.

About 58% of its sales are denominated in foreign currencies in FY2014, with 51% of its costs denominated in the company’s functional currency, primarily the USD, Singapore dollar and the euro.

However any savings or surcharge in raw material costs will be passed to the end consumer. This is to ensure it remains competitive with its prices.

The change in raw material prices should have only a short term effect as the industry should have a monthly or quarterly price adjustment contract with clients.

Ekovest ... DUKE3 Realignment Runs Border Of Bdr Malaysia Dev.

It is in talks with 1MDB about the realignment of the DUKE3, which could run along the border of the 495 acre Bandar Malaysia development that 1MDB is undertaking.

The proposed adjustment to DUKE3’s alignment would see a 2km section of the 32km highway hug the border of Bandar Malaysia. DUKE3 will run between Klang Valley’s inner and middle ring roads and will link Setiawangsa to Federal Highway near Mid Valley Megamall.

There is already an MRT station (from MRT Line 2) and the high speed rail station planned for Bandar Malaysia. If 1MDB can bring in a highway to improve connectivity even further, it would be a nice boost for the development’s value.

As for Ekovest, the realignment could help the construction and highway concessionaire reduce the cost and social impact of DUKE3. Not only is the current (Aug 2015) approved alignment longer than the proposed alternative, it would also cut via privately held industrial land.

Such land acquisitions would prove costly since Ekovest cannot require partial lots p the company has to acquire an entire plot, even if the highway only crosses a small part of it.

With 1MDB, Ekovest may not need to acquire the land, since the former is wholly owned by the government. Note that the government assists highway concessionaires in land acquisitions, albeit with a predetermined cap. Hence it is in the government’s interest to ensure that Ekovest’s land acquisition costs are minimized.

In fact it is understood that both parties are leaning towards a model where Ekovest will be allowed to use the land to build the highway in exchange for infra work.

While the savings would be relatively small compared with DUKE3’s estimated cost of rm3.6 billion, for Ekovest, connecting its highway to Bandar Malaysia’s MRT and HSR stations would boost traffic which, in turn, would benefit the company.

Sources say that DUKE3 is already in the final stage of planning and the government is expected to award the concession by end of 2015 if there are no hiccups. Construction would take about 3 ½ years.

If Ekovest moves the alignment to Bandar Malaysia, the group would be counting on 1MDB to relocate the existing airbase in a timely manner.

The move is expected to cost 1MDB about rm2.7 billion. The cost would be defrayed by a rm1.1 billion relocation grant, but 1MDB will still have to fork out the balance – either from borrowings or proceeds of the Bandar Malaysia tender.

The 32km highway will be the largest project Ekovest has undertaken to Aug 2015. The group is presently operating the 18km DUKE and is about halfway via completing DUKE Phase 2.

Ekovest is 32.38% owned by Tan Sri Lim Kang Hoo.

'Like' >> 'Caution' - Vitrox (Risks Ahead) !!!

The automated vision inspection equipment maker is one of the beneficiaries of the stronger US dollar as it exports finished equipment to international clients.

70% to 80% of the firm’s sales are denominated in US dollars while only 30% of its cost is in US dollars. That makes them a net beneficiary of the weakening ringgit, which lost more than 12% against the greenback year-to-date (Aug 2015).

In 2014, Malaysia contributed slightly less than a third to its topline, followed by Taiwan which contributed a quarter and, China 16%, Mexico 10% and United States 8%.

Its customers include Cisco, Intel, GE, Flextronics, Osram, Fujitsu, Hitachi and Motorola.

In 2014, it bought a 22-acre industrial land for the company’s expansion for the next 10 years from Aug 2015. It has plans to expand its production facility on that land it bought for RM34mil.

Sitting on a cashpile of RM61mil as at end-March 2015, the money could be used to fund the expansion at Batu Kawan.

The cash is translated into 26 sen per share.

Vitrox produces globally competitive optical inspection equipment and its margins are much more superior compared to its peers.

At current (Aug 2015) capacity, the group is enjoying a net margin of 23% to 25%. From the financial year ended Dec 31, 2011 (FY11) to FY14, net profit margins range from 20% to 29%.

Its core businesses could be divided into the main divisions machine vision system, automated board inspection (ABI) and electronics communication system.

For the first quarter ended Mar 1 2015, ABI was the main growth driver.

As a group, net profit more than double to RM9.31mil from RM3.99mil a year earlier. That’s on the back of revenue which jumped 46% to RM33.26mil.

The group achieved another record year in FY14 as revenue surged 60% to RM170mil while earnings more than double to RM49mil compared to FY13.

It had allocated 14% of its revenue for research and development in FY13 and FY14.

Its free cash flow has improved tremendously from negative RM5.8mil in FY11 to RM28.9mil in FY14.

However, expects Vitrox’s upcoming second quarter 2015 results to be weaker year-on-year as it made record net profit of RM20mil for the second quarter 2014. On top of that, its pioneer status had expired in the first quarter 2015 and the earnings could be dragged down by tax expenses.

Vitrox is in the process of getting a new agreement from the Malaysian Investment Development Authority and expect an official update in the third quarter 2015.

At current price (05 Aug 2015), the stock is trading at forward price-to-earnings of 13.8 times. Regional peers are trading at an average of low teens while other local listed semiconductor players are trading at higher price-to-earnings because of the more stable income flow.

The company has a policy of paying out 20% of its net profit.

Looking ahead (Aug 2015 onwards), growth will come from the boom of Internet of things and growth of data centres.

Vitrox’s sales are one-off so it would need to replenish its orders to maintain earnings. This poses higher risks compared to semiconductor players that get recurring from producing parts for consumer gadgets.

Vitrox gets a bit of recurring income from servicing the machines but the size is not significant. The buyers usually change the machines in three to four years after the technology becomes obsolete.

Another potential risk to its earnings would be the tax exemptions it could get from the Government. They should be able to get the official letter in the third quarter 2015 but it will be another question if they were able to claw back the tax paid for the second quarter 2015.

In the event Vitrox could not recover the sum paid, its second quarter net income would be impacted as it would have to pay a corporate tax of 22%.

A slowdown in the semi-conductor sector would also affect sales a potential moderation in worldwide semiconductor manufacturing equipment spending going forward after two banner years of growth. On the other hand, new opportunities arise from new products with superior margins, new clients and higher sales.

Wintoni ... Joining The EPS Industry !!!

It will be the latest company to join the EPS industry following its proposed rm5.4 million acquisition of Perak based software company Syscomp Technology Sdn Bhd.

However it will need to quickly find its niche to avoid going head to head with established players. It can occupy a niche not already taken up by bigger players like GHLSys and MPay.

GHL, MPay and Wintoni are likely to occupy diff segments of the market and only in rare instances will they provide the same service.

In the deal it will acquire 60% stake in SysComp with the remaining equity to be held by existing shareholders.

The principal activities of SysComp are programming services, software development, internet consulting and the provision of ICT.

The purchase will be funded with internal sources.

Tey holds a 4.5% stake in the company and ED.

For the first quarter ended March 31 2015 it posted a net loss of rm461000 on the back of a revenue of rm3.32 million. It attributed the drop in revenue to the planning period for some of if its wireless mobile application projects and the saturation of its existing services.

For FY2014 ended Dec 31 the company was back in the black after four consecutive years of losses, having a net profit of rm4.4 million.

Xingquan: A China based manufacturer.

For 9MFy2015, net profit grew an outsized 51.2% year on year to CNY232.24 million on the back of a 14.2% increase in revenue to CNY1.03 billion mainly due to increased sales of shoe soles, higher average selling price of apparel and an unrealized forex gain of CNY40.11 million.

The company manufactures and sells show shoes to manufacturers. It also manufactures and sells shoes, apparels and accessories under its own brand.

For Fy2014, net profit jumped 32.75% to CNY176.64 million while revenue fell 24.7% to CNY1.23 billion mainly attributed to lower sales of shoes and apparel.

It trades at a trailing 12 month PER of 1.55 times and 0.19 times book.

Hovi

It posted a rm48.1 million and rm6 million for its 2QFY2015’s (second quarter ended Dec 2014) revenue and pre tax profit mainly due driven by higher sales and foreign exchange gain arising from the favorable USD against the USD.

This brings year to date (YTD) first half FY2015 revenue to rm97.1 million and pre tax profit to rm13.7 million.

Its prospects are predicated on new products launches, rising demand for pharmaceutical products and the increased registrations of new products in its export markets. Amplifying the positive outlook and prospects for Hovid are the growing world pharmaceutical market, underlying demographic and age trends coupled with a rise in chronic diseases which is supportive of long term industry growth.

Secondly in the next several years, which will be an exciting for generic drug makers as patented drugs worth USD133 billion in annual sales currently (May 2015) will expire, commonly referred to as the patent cliff.

This enables Hovid to launch the generic versions of these drugs and expand sales. In addition, growing healthcare spending in key markets – Malaysia and other lower middle income economies – will provide further growth prospects as healthcare bills in these countries are low by international standards and the rising affluence and improved access to healthcare services will fuel greater demand for drugs.

It is building a new plant to ease capacity constraints for its tablets and capsules. The first phase of the new plant is expected to be ready and operational by mid calendar year 2015 to produce tablets and capsules and boost capacity by 30%. The capsules and tablets make up approximately 65% of its revenue, syrups and softgels make up 15% and the balance is contributed by other products. The second phase of the new plant is slated for commercial population in 1HCY2016.

The total capex incurred of rm40 million to be spread over FY2015 till FY2017 and will be only a small dent in Hovid’s net cash of rm15.6 million as at Dec 31 2014. The first phase of expansion is expected to increase its capacity and revenue by 30% or approximately rm30 million.

'Like' - Matrix (Sri Sendayan Near 3rd HSR Station) !!!

It expects the recurring income from its d’Tempat Country Club and the Matrix Global Schools to contribute up to 10% of its bottom line in the next three to five years from April 2015.

The two properties, which have started operation in 2015 should already be breaking even by 2016.

It expects the company’s property projects in Bandar Sri Sendayan (BSS) here to flourish into a town centre similar to that of 1 Utama upon completion in seven to eight years. The town centre named Sendayan Icon Park is expected to mirror development in 1 Utama.

According to plan, it is worth that 3rd HSR station to be situated within the Labu and Kirby estates in Seremban ... Bandar Sri Sendayan is next to the Labu and Kirby.

The medical facility — which will be built in BSS — will be retained by the company to generate recurring income.

The company also dismissed concerns about the company being unable to maintain its high dividend payout ratio of 40% of its profits, a payout policy it instituted since its initial public offering in 2013.

Matrix Concepts’ approach in diversifying into recurring income assets will set the company apart from its peers amid the cooling property market.

It had proposed to acquire a 5.8-acre land cum approved residential development project in Puchong, Selangor, for RM95 million. Forty per cent of the cost will be settled using internal funds while the remainder will be bank borrowings.

Matrix Concepts’ net cash stood at RM96.94 million on Dec 31, 2014

In FY14, its net profit rose 20% to RM182.61 million from RM151.56 million in FY13.

Vendor IRDK Ventures Sdn Bhd has started preliminary earthworks and piling works for 318 high-rise condominium units and 28 four-storey link villas on the plot of land, which is located beside SetiaWalk.

Matrix Concepts wants to increase the density of the project to up its gross development value to more than RM500 million.

Uncertainties - GentingSP (Falling Rev, Profit and High Bad Debts) !

The developer and operator of the RWS gaming resort in Singapore.

Its flagship RWS will lost VIP volume share to its only rival in Singapore, MBS.

This is on the back of the dismal performance in the 4Q2014 when RWS recorded levels of bad debts in its VIP gambling operations. Genting SP reported a 30% year on year decline in net profit in the three months to Dec 31 2014.

However Genting SP did guide for lower RWS VIP volume as it is extending less credit to improve bad debt management.

RWS had recorded SGD82 million bad debts in 4Q. So it will cede VIP volume share to MBS in 1QFY2015.

China are said to be backbone of the gaming industry in this region. Chinese VIP gamblers account for about half of all Singapore gaming revenue.

Hence casinos in the region have seen a sharp drop in their gaming volume with the economic slowdown in China and the clampdown on corruption by its government. Chinese gamblers as a result have a hard time adjusting to these difficult times resulting in an increase in bad debts experienced by the casinos.

In the case of Genting SP, the problem is compounded when high rollers, or premium players as the company calls them, contribute a large portion of the company’s revenue, where many of them are actually allowed to gamble in its casino using credit that is extended by the company.

And if these premium players incur gambling losses, they are allowed to make good their losses by paying the company at a later date, thus creating numerous account receivables for the company.

Genting SP has more than SGD1.1 billion worth of receivables that were due by Dec 31 2014.

Falling revenue, profit, share price and high bad debts are daunting problems faced by GentingSP.

Tan Sri Lim Kok Thay had assured shareholders that not all bad debts will eventually written off as some of it can still be recovered.

For FY2014 ended 31 the company had provided for USD262 million in bad debts. This amount represents 13.3% of its VIP revenue in the same year.

RWS will also be more stringent when extending credit terms to high rollers.

RWS had secured syndicated senior secured credit facilities of SGD2.27 billion which will be used to refinance Resorts World at Sentosa’s existing facilities of SGD4.18 billion obtained in 2011.

The fund raising is aligned with expansion strategy as it seeks to diversify its portfolio of assets away from the Sentosa integrated resort with a planned 550 room hotel in the Jurong Lake district and additional integrated resort in Jeju in South Korea.

In May 2014 Genting SP set up subsidiaries in Japan. Japan is currently mulling legalizing casino gaming. These projects will require large pool of funds in order for the company to turn its ambitious into reality. If the company is raising capital right now (May 2015), it can only mean the firm’s expansion plans are still very much intact.

It is in net cash position with a total debt to equity of 17.6%. As of Dec 31 2014 it has total borrowings of SGD1.7 billion of which SGD518.7 million is due within a year.

Against these borrowings levels are Genting SP’s cash and cash equivalents of SGD3.69 billion excluding the company’s SGD1.3 billion worth of available for sale financial assets. Moreover Genting SP has been able to generate positive free cash flow amounting to an average SGD1.13 billion per year since 2010. 

PUC ...Venture Big Into Renewable Energy Biz !!!

It wants to go into the renewable energy business in a big way, after it was selected to be a FIT approval holder by the SEDA.

Its subsidiary received SEDA approval to develop and operate a solar photovoltaic plant with a 1MWp capacity to produce electricity to be supplied to TNB. TNB is finalizing a contract with PUC for a fixed price under feed in tariff rates for the power produced.

PUC hope to increase its energy production to 50MW which includes other types of renewable energy, such as biogas.

It is calling for bids to start commissioning the 1MWp production, and it is required to begin production by end of 2015. Therefore the earnings contribution is expected to start at end 2015.

Funding for its new renewable energy business … it is looking at options that could include bank borrowings, rights issue, private placement and strategic investments.

PUC is now involved in three separate business – media and advertising, IT and renewable energy. Solar energy is the new business which is expected to ensure a stable income stream for the group.

In Aug 2014, a company was set up to venture into e-content, ecommerce and emerchants. The new subsidiary will transform and lead the media and advertising business.


For FY2014 ended Dec 31, its posted a net profit rose seven times to rm9.85 million from rm1.2 million in FY2013 due mainly to consolidation of financial results after the completion of the acquisition of Red Media Asia Ltd and its subsidiaries. Revenue grew 153% to rm53.49 million.

It had completed a reverse acquisition of 100% equity interest in RMA for rm90 million, via the issue of 750 million new shares at rm0.12.

It expects deliver stable earnings results in FY2015 with its plan to reinvigorate its epayment business in 2015.

YongTai ... From Garment Mfg To Property Developer !!!

It is mainly involves in garment manufacturing. It is beginning to see light at the end of the tunnel.

Its textile manufacturing business has been loss making for years.

It ventured into property development in 2014. Its maiden development in Melaka a JV with PTS Properties Sdn Bhd to construct a 29 storey condo hotel with a GDV of rm129 million is fully sold and on track for its opening in June 2015.

For the cumulative six months ended Dec 31 2014 the company registered a net profit of rm745000 compared with a net loss of rm1.2 million in the previous corresponding period due to a profit of rm1.45 million from its property development division. By the end of its financial year ending June 30 2015 al rm8 million in profit from its Melaka JV is expected to be recognized in its books.

The company intends to focus on tourism related properties.

It had inked another JV project with PTS Properties to develop a hotel and serviced apartment known as Apple in Melaka. YongTai expects to reap a profit of rm50 million over the next three years from April 2015 which is set for completion in 2017.

The company is also in talks with several parties for projects in Melaka and KL

It will lookout for land.

Only 40% of its garment business which includes 15 retail outlets selling clothing under hime grown brand such as Effu and Emilio Valentino is profitable.

YongTai is looking to scale down its garment operation.

As at Dec 31 2014 the company had borrowings of rm19.12 million, six times more than its cash. This translates into a net gearing of 0.97 times.

As at Dec 31 2014 Yongtai had amount due to directors totaling rm6 million.

The company had accumulated losses of rm25.25 million.

It had proposed a rights issue with warrants and a private placement to raise rm63.32 million of which rm5 million will be used to pare down its borrowings. The rest will be used in its TheApple development in Melaka and future property projects.

Its largest shareholder is the Liew family’s vehicle, Liew Fat Lin Holdings Sdn Bhd, which has a 20.69% stake.

JCY ... Not All Doom & Gloom For HDD Industry !!

A proliferation of mobile devices may have led to softer demand for PCs and laptops, but it is not all doom and gloom for the HDD industry.

This is because HDDs are a cheaper alternative to the SSDs that cater for the ever growing need for content storage.

The drop in PCs is made up for by an increase in enterprise hard drives for near line storage. Near line storage is used by corporations, including data warehouses, as an inexpensive, scalable way to store large volume of data.

SSD is a good solution when it comes to accessing emails but SSD is still too costly when it comes to storage. That’s why it had a hybrid drive that only needs 6GB to 10GB for accessing emails and when you want to store something you can ship the information to hard drives.

The usage of PCs and laptops will continue to decline which would result in flat growth in the HDD market in 2015. There might even be a small decline but that decline would be in the PC segment and not in the enterprise market.

JCY which manufactures four main HDD mechanical components, namely base plates, top cover assembly, actuator pivot flex circuit assembly and anti disc, supplies to the largest computer HDD manufacturers in the world include Seagate and Western Digital. It produces about 25% of the world’s HDD base plates and commands 8% to 28% of the global market.

It bounced back from a net loss of rm61.61 million in its financial year ended Sept 30 2013 to register a net profit of rm120 million in FY2014. This was on the back of an increase in volume shipped and an improvement in the average selling price.

It has a dividend policy of distributing at least 50% of its earnings.

Due to the strong USD, it raked in a net profit of rm50.19 million in 1QFY2105 ended Dec 31 up 66% from rm30.25 million a year ago,

It will spend rm200 million to rm300 million on automating its plans over the next five years.

A stronger USD and low crude oil prices will benefit JCY in the near future.

JCY is talking to several parties for potential M&As.

As at Dec 31 2014 the group had cash and bank balances of rm320 million and total short term borrowings of rm111.56 million.

The catalysts in the HDD market include pent up demand from new gaming consoles, increased usage of surveillance cameras and equipment on aircraft that record engine performances.

AS a supplier, JCY would benefit if Hitachi Global Storage Tech and Western Digital merge in China.

Seagate’s rm1.05 billion investment in Penang is a good news for JCY because its plants are mainly in Malaysia.

Going forward, robust cloud storage growth is expected to spur HDD storage demand. Data storage requirements will continue to rise, driven by enterprise HDD storage demand.

'Like' - Salcon (Cash-Rich, Better Earnings In FY2015) ...

It is sitting pretty with a lot of cash in hand, a sizeable order book, valuable land bank and new growth opportunities from a broadband-type business.

The water and wastewater engineering company, which began diversifying into property development two years ago (2013), is touted as one of the few Malaysian companies to have made a significant amount of money by divesting a business in China.

In September 2013, Salcon announced the disposal of its entire interest in six companies involved in water and wastewater concessions in China to Hong Kong-listed Beijing Enterprises Water Group Ltd for 955 million yuan or RM518.3mil.

As a result of the divestment, Salcon has improved its balance sheet to a cash position of RM301.65mil as at financial year ended Dec 31, 2014. Its cash position could improve by another RM40mil after the sale of the final concession is completed.

The company’s debt, meanwhile, has declined from over RM300mil to RM99mil as most of its borrowings were tied to the concessions in China.

On how the company would use its cash, it would be for expansion into its newly established property development and investments in new income stream.

Even with the sale of its China assets. Salcon has a decent track record of water projects with a RM1.11bil order book as at December 2014. Out of this, RM696mil is still unbilled. Currently (April 2015), 96% of the company’s total order book comprises domestic jobs while the balance is overseas, mainly sewerage and water-related.

In the past, the group has participated in several major water infrastructure works, such as the 2,000 million litres per day (MLD) Sg. Selangor Phase 1 and 2 (SSP 1 & 2), sewerage treatment plants in Medini, Iskandar, and Sabah and water supply projects in Sri Lanka and Vietnam on a turnkey basis. Besides Sri Lanka and Vietnam, Salcon also has presence in Thailand and India.

It had secured the RM993.88mil Langat 2 Water Treatment Plant project with joint venture partners, MMC Corp Bhd and Ahmad Zaki Resources Bhd, in April 2014. Its portion of work estimated at RM358mil. Works on the project has started and the packages of site clearing and earthworks jobs have been awarded.

As Salcon is involved in the mechanical and engineering (M&E) portion of the project, contribution from this would kick in financial year 2015 onwards. Estimate that Salcon’s package of Langat 2 should yield at least a 10% pre-tax margin.

In Dec 2014, Salcon secured the Langat centralised sewage treatment plant worth RM470mil through a joint venture with Loh & Loh Construction Sdn Bhd.

Salcon is tendering for RM2.2bil worth of new projects in Malaysia and overseas and the success rate of converting bids into its order book was estimated at 25% to 30%.

Salcon is a new player in the property scene. Its first property project is located in Selayang called Selayang Res 280 that has an estimated gross development value (GDV) of RM155mil. The project features a 21-storey commercial building comprising 12 units of 2-storey shop office and 280 units of small office home office or SOHO. Since its official launch in Oct 2013, response has been encouraging with 72% of the total units sold. Construction of the project started since the fourth quarter of FY2013 and slated for completion in 2016.

Salcon is also seeking other mergers and acquisitions or partnerships in the property sector. For example, Salcon’s 50%-owned subsidiary, Nusantara Megajuta Sdn Bhd is looking to collaborate with Eco World Development Group Bhd to develop a township project located within Iskandar Malaysia, Johor.

The proposed 12.5-acre mix development project is expected to be launched in 2015. Earnings stream from this project in the next two to three years from April 2015 would offset Salcon’s lumpy construction and infra earnings.

There could be more opportunities for Salcon to undertake niche property projects with the fast-rising Eco World.

Salcon’s latest property venture is Belfield Crest in Jalan Belfield, Kuala Lumpur, which is also being undertaken via a joint venture. Salcon has a 70% stake in Prestasi Kemas Sdn Bhd that is developing the mixed-use development project. Jalan Belfield is situated within the Kampung Attap area which is being touted as the city’s new growth centre. Belfield will come up opposite the proposed Menara Warisan Merdeka undertaken by Permodalan Nasional Bhd.

With Salcon’s divestment out of China, it is expected to report better earnings in FY2015 due to the higher progress billings of its construction and property projects.

In the fourth quarter of FY2014, the company had posted a pre-tax profit of RM7.49mil following a turn-around of its construction division, which had been loss-making since FY13. For the full year, pre-profit came in at RM1.6mil as compared to a loss of RM30.75mil in 2013, while revenue was higher 22.7% year-on-year to RM201.9mil.

The bulk of Salcon’s revenue now (April 2015) comes from the construction division at 91%, but this will be lower once contributions from its property and technology segments gain traction. The new businesses would bring in better margins and more consistent cash flows.

Salcon’s major shareholder is Datuk Seri Dr Goh Eng Toon who is chairman. His interest is mainly held via his private vehicle, Naga Muhibah Sdn Bhd. The other substantial shareholders are deputy chairman, Tan Sri Tee Tiam Lee and Great Eastern Holdings Ltd.

'Like' - Knusford (Sultan Of johor and Tan Sri Lim as Major Sharehlders)

It is principally a trading company for building materials that also provides sales and rental of heavy machinery. The two segments accounted for roughly 80% of revenue with the remaining 20% coming from construction and property development.

The company’s major shareholders are the Sultan Of Johor and Tan Sri Lim Kang Hoo, who is a major shareholder in Ekovest and Iskandar Waterfront City Bhd.

It has a good earnings track record. Except for the distortion from an exceptionally high profit in 2011 (that was lifted by completion of the rm538 million coastal highway project in Iskandar Malaysia), earnings have been trending higher.

For 2014, revenue rose 37.8% to rm410 million buoyed by sand supply contract (for the Plentong area) and completion of the Kajang Perdana property development project. Despite its loss making construction division and a rm7.4 million receivables write off, net profit increased 20.2% to rm27.9 million.

It will benefit from on going construction works in Malaysia.

Earlier 2015, it formed a 45:55 joint venture with the construction arm of China’s state owned Greenland Group to bid for major building jobs and infra projects in Malaysia. The latter has two massive waterfront developments in JB, namely Danga Bay and Tebrau Bay.

It has a solid balance sheet with net cash of rm52.6 million or rm0.528 per share.

The stock is trading at a trailing 12 month PER of 6.6 times compared to its 20% profit growth during this period. Its book value stood at rm2.95. Excluding cash, its PER stands at a mere 4.7 times.

Boilerm ... Expensive Valuations

It is looking at new areas of expansion in the palm oil and agriculture-based industries.

Boilermech is a biomass boiler manufacturer, serving mainly the palm oil milling industry. The bulk or 90% of the company’s earnings comes from this sector.

Waste water from the palm oil industry is an increasingly hot topic, an area it can venture into.

It provides boiler technology and energy solutions to the palm oil industry focusing on their solid waste.

Chia is the son of Boilermech chairman, Dr Chia Song Kun who is more well known in the corporate circle as the founder of food and agriculture group, QL Resources Bhd. QL Resources is Boilermech’s major shareholder with a 40.7% stake. QL Resources had taken up this strategic stake prior to the stock’s listing on the ACE Market in 2011.

Boilermech’s other substantial shareholders are Leong Yew Cheong, the company’s managing director with a 15.1% stake and director Wong Wee Voo who has an interest of 8.4%.

While palm oil mill owners are Boilermech’s main customers, the company also designs and manufactures boilers for other agricultural-based processing industries, such as sugar milling and rubber-based manufacturing.

Another area it has ventured into that offers growth opportunities is independent power producers (IPPs). With more independent power producers coming on stream in the region that supply power using renewable energy, this is an area of growth for it to diversify its business mix.

Boilermech has cash totalling RM74.5mil as at end-March 2014.

At rm1.58 it is trading at a trailing 12 month price earnings ratio of 19.84 times and 6.58 times book.

As at June 2014 its order book is in excess of RM310mil and this will keep it busy for the next one and a half years from June 2014.

In terms of revenue, local sales contributes 48% while the bulk of export sales come from Indonesia which contribute 42% to revenue. The balance is derived from countries like Thailand, Philippines and Papua New Guinea, which are in the agricultural belt of the Asean region.

It is well-positioned in Indonesia.

NEXT For IFCA ... Other Catalysts Apart GST Upgrade !!

It has gained 1310% in the past one year as it is the major beneficiaries of the GST. It expects to sustain its strong growth momentum in 2015, driven by the launch of new cloud based solutions for SMEs and high growth from the China market.

Its official opines there is still huge potential for it to grow its recurring income as it launches its service as a Saas in June 2015. Saas allows smaller property companies to rent IFCA’s software.

SMEs can subscribe to its software services by paying a monthly subscription fee of rm4000 to rm5000 instead of forking out hundreds of thousands of ringgit upfront.

It is seeking to transfer to main market.

It posted a net profit of rm21.07 million for the financial year ended Dec 31 2014 from rm1.73 million in Fy2013 mainly due to the scalable nature of the software business. Revenue for FY2014 rose 71.59% to rm89.24 million from rm52 million.

It is Malaysia’s largest maker of cloud based software for property companies with around 80% market share of the domestic market. It serves major property developers including SP Setia, Mah Sing and EcoWorld.

With the implementation of the GST on April 1 2015, which forces smaller companies to computerize and upgrade their software believed it’s a very good time for IFCA to launch Saas.

The group will launch four Saas products in 2015, covering business accounting solutions for contracting business, standard operating procedures, marketing and contract management
IFCA will not restrict itself to the property industry but will expand its services in the ICT, construction and engineering sectors.

For 2015, IFCA is also banking on growth from its China market.

It expects the China market to grow significantly in 2015, leveraging on its reputation and proven products. It accounted for 30% of the group’s revenue in FY2014.

IFCA’s clients in China include big names like the Wanda and R&F groups and Country garden Holdings Co Ltd. Other regional clients include Japan’s Mitsui Fudosan Co Ltd and Singapore’s CapitalLand Ltd.

Its Fy2104 recorded good results were not solely from GST software upgrade jobs, which only contributed 20% to its revenue in Fy2014. Its new software and cloud based products targeted at bigger property players like SP Setia, EcoWorld and Sunway Bhd had helped boost its profitability.

Currently (April 2015) institutional investors hold about 20% stake in the company.

As at Jan 23 2015, Yong holds a direct interest of 0.51% and an indirect stake of 42.48% in IFCA.

Going forward, IFCA has its contribution from China and it will still benefit from the migration from the Windows platform to a mobile based platform to a mobile based platform. Saas and its plan to transfer to the Main Market are the potential catalyst.

GeShen ... Turnaround Post Acquisition !!

Geshen is primarily a plastic injection molding player.

At rm0.58 it is trading at 18 times FY2014 net profit of rm2.56 million.

It had taken steps to grow the group by diversifying into cosmetic & skin care business in 2010, and into manufacturing of fiber products since 2012 had since incur losses. Geshen has disposed these 2 loss-making subsidiaries.

There is a one-off pre-tax gain from disposal of subsidiaries amounting to RM1.194mil in Q4. After deducting this special gain, its plastic segment PBT should be RM7.539mil, and PAT should be RM5.9mil base on similar 21.8% tax rate.

If its plastic business can maintain its performance and reports similar RM5.9mil net profit in FY15, then its EPS will be 7.38sen. The projected PE ratio for FY15 will be 7.8 times.

But there is a big drop in revenue of FY14Q4 due to reduced order.

It had proposed to acquire its peer Polyplas.

Geshen will acquire 75% of Polyplas for RM33.8mil which will be paid by internal fund and issuance of 30 million RCPS at rm0.60 each which are convertible into ordinary shares within 5 years.

The RCPS will raise RM18mil and its holders are entitled to 5.5% dividend per annum.

Geshen has the option to acquire the remaining 25% of Polyplas in the future.

Compared to Geshen's stagnant revenue, Polyplas's revenue improved significantly by 39% year on year in its FY14 (ended Oct14).

Despite lower revenue by half in FY14, Polyplas manage to produce better net profit than Geshen due to its extreme high net profit margin of 18% in FY14 despite an effective tax rate of 22.6%.

Geshen mainly involved in plastic injection molding for Electrical & Electronics sector, primarily in audio-visual segment. Apart from E&E sector, Polyplas has capability and business in manufacturing products for medical sector.

Polyplas derives 55% of its revenue from export sales to Asia, Europe and US, while 85% of its raw materials/components are sourced locally in FY14.

Geshen's has largely Japanese customers but Polyplas has wider geographical presence.

Polyplas's main export country in FY14 is US, which makes up about 37% of its export followed by Europe (32%) and Asia (31%). By acquiring Polyplas will give Geshen a good global exposure straight away.

A recovering in US economy will boost Geshen revenue.

Geshen will acquire a 75% stake in Polyplas.

Post corporate exercise, Geshen's outstanding shares will remain at 80 million as long as no RCPS are converted into ordinary shares. Estimate that FY15 EPS for Geshen will be rm0.148. After all the RCPS are converted, Geshen's shares base will increase to 110 million. So diluted estimate EPS will be 10.7sen.

If Polyplas can achieve similar net profit of RM7.9mil in FY15 and Geshen’s 75% stake in Polyplas Gehsen will receive RM5.9mil. By adding a projecting a net profit of Geshen (RM5.9mil) and 75% profit of Polyplas (RM5.9mil), it will be RM11.8mil.

By imputing a conservative 8 times PER diluted EPS of rm0.107, Geshen could be worth rm0.86.

Going forward, it is a matter of time for Geshen to acquire the remaining 25% stakes in Polyplas if the latter remains profitable which in turn will boost Geshen’s profit to Geshen in the future.

Gehsen currently (April 2015) has net cash of RM10.8mil of which RM15.8mil cash is needed to acquire 75% of Polyplas.

Its shares liquidity is very low, merely 80 million paid-up shares in which only 25.96% are in public's hands and the top 30 shareholders have already taken up 91.6% of the company.

Earlier 2015 its public shareholding spread of 22.83% was not compliant with listing rule so its major shareholders have to dispose 2.5mil shares in Feb15 to lift the figure to 25.96%.

Plastic injection molding is a highly competitive industry with over 1,500 manufacturers in the country.

RGB ... TurnAround But Still Saddle With High Debts !!!

The increasing liberalization of the region’s gaming market will boost its performance of gaming machine supplier which posted an impressive set of results for the financial year ended Dec 31 2014.

It plans to explore new markets in SEA as well as India and Nepal, given their openness to this sector.

There is an increasing trend particularly in the Philippines and Cambodia as well as Myanmar, Laos and Timor Leste to liberalise.

For Philippines, it has carved out an entertainment city with four major integrated resorts. And RGB, representing reputable casino equipment brands, is well positioned to capitalize on the regions’ rising gaming liberalization.

It also plans to venture into Timor Leste and North Asia such as India and Nepal.

New machines for existing and new TSM’s and a few joint ventures will be rolled out in 2015. Plans are afoot to expand its production facilities by end 2015.

It is also expanding its technical and replacement parts services for both gaming machines and table games of all brands.

It will supply Bingo machines to various markets in the region.

A tie up with a business partner, which provides turnkey technical support and parts, is a possibility as it can help to enhances value for customers and the company. This could be in the form of a small stake in a gaming operation.

In FY2014, it reported a 178% jump in net profit to rm18.53 million from rm6.65 million in the previous year. Revenue grew 54% to rm214.65 million from rm140 million.

It attributed to higher sales of gaming machines and table game products in all its regional markets.

Its earnings growth will be underpinned by the performance of the group’s technical support and management division. The division has 38 gaming concessions which offer a higher earnings visibility.

At the same time, its earnings will be lifted by low hanging fruits such as interest savings and the shutdown of its Macau operations. It was gathered that its management is engaging bankers to restructure a legacy debt which carries high interest rate. Management has decided to pull out of Macau.

Prior to 2013, RGB had borrowings of more than RM200mil, mainly in the form of commercial papers (CPs) and medium-term notes (MTNs). The amount was pared down gradually, and in 2013 the CPS and MTNs was refinanced for RM73mil. Its latest accounts showed total borrowings stood at RM66.9mil.

To preserve cash flow it will enter into an agreement in which the vendor partner bears the capex to operate new concession halls, RGB aims to achieve organic growth from existing outlets, managing new concessions, entering Greenfield markets and the deployment of new games.

It has a comparatively defensive business model … in contrast, casino operations are exposed to the volatile VIP segment. Its TSM business is relatively resilient due to the high stickiness of slot machines, given the smaller bets compared with gaming tables.

It is this spared any effect from the weak regional gaming backdrop, due to the rapid deceleration of gaming revenue growth in Macau.

Apart from the usual slot machines it has teamed up with AB Leisure which has introduced Bingo machines to its Philippines outlets.

Over the next two years from April 2015, it aims to roll out 2000 Bingo machines which estimate will contribute rm2 million to its bottom line.

It has embarked on two main businesses …. The manufacture and distribution of slot machines under its SSM division and the management of slot machine concessions under its TSM division.

The TSM division was the main contributor to the group’s earnings in FY2014, making up 81.4% of the group’s earnings.

As at 3QFy2014, it had some 6000 machines operating in 38 outlets in the Philippines and Indochina. RGB signs a five year concession with the hall operator, with a renewal option for five years.

On the SSM division, it has targeted SSM sales from both replacement and new market for 2015 will be much more than in 2014.

About MMSV ... Turnaround Story !!!

It designs and manufactures industrial automation as well as precision die sets, jigs and fixtures for the LED and semiconductor production industries.

Its past financial performance has been erratic with losses in 2008, 2009 and 2012. However it appears to have turned the tide since 2013. The company attributes the turnaround to the switch in focus from producing semiconductor material test handlers to customized LED test equipment.

Revenue declined from rm25.7 million in 2010 to rm16.3 million in 2012 before recovering to rm26.7 million in 2013 due to increased orders for custom made machinery in the LED sector.

Growth momentum appears strong from 2014, with half revenue of rm16.5 million already making up 66.7% of the full year revenue in 2013. That translated to stronger net profit of rm4 million for 1HFY2014, amounting to 80% of 2013’s full year profit of rm5 million.

For 1HFY2014 revenue jumped 40% to rm16.5 million while net profit almost doubled from rm2.1 million to rm4.0 million. However it is also worth nothing that in the same period, trade receivables almost tripled to rm12.6 million outpacing a 1.5 times increase in trade payables to rm5.4 million.

At rm0.60 it is trading at 3.9 times its book value of 15.3 sen per share with trailing 12 month PER of 14 times. Its ROE and ROA were high at 32.9% and 32% respectively.

It is liked for its strong CAGR of 32% over FY2013 to FY2016, its net cash position and superior margins of above 24% and high ROE of above 28%.

Its cash on hand has been building since 2010 totaling rm10.1 million as at end 2QFY2014. This translates to rm0.062 per share. It has zero borrowings and is light on assets except for a 55000 ft factory in Penang.

With the company turning around, investors will be keen to see how it plans to grow the business and use its rising cash pile, to either reinvest or return excess cash to shareholders.

The company improving fundamentals seem to be the direct result of a major change in strategic direction initiated three years ago (2011). In 2011, it switched from semiconductors to automation solutions for the LED lighting industry from which it now (Nov 2014) derives about 80% of its revenue.

Products offer by the group include LED testers and automated handlers, which are essential components of the lighting industry.

The LED industry will be the key earnings driver for the company in the coming years from Jan 2015….

The hike in demand will force major LED makers to expand their production capacity which bodes well for automation solution providers such as MMSV. It is believed that Philips Lumileds Lighting Co and OSRAM Licht AG are MMSV’s clients.

It plans to focus on LED manufacturing process with a view to establishing a market in high power LED production.

The company has a diversified customer base with the domestic market accounting for 39% of sales in 2013 followed by the US (35%) and Asia (26%).

Despite that, the company is still exposed to the LED industry’s environment which can be both cyclical and dependent on economic growth.

SKPRes ... 2HFY2015 Earnings Will Accelerate.

Its aggressive expansion drive, including a new factory and acquisition of several plastic mould and product manufacturing units, will boost its coffers.

In addition, low oil prices and weaker ringgit will see bigger orders for the company’s plastic parts and devices because of greater demand for high end home appliance products.

It is expected to complete the acquisitions of several Technic Group’s units involved in design and fabrication, plastic injection and blow moulding, and assembly of plastic products, for a total of rm200 million by 1QFY2015. Its new assembly plant is scheduled to be completed by end March 2015.

The Technic untis produce plastic products for the automotive, electrical and electronics, industrial packaging and consumer packaging sector. With these acquisitions, SKP Res will become Malaysia’s largest integrated plastic component manufacturer.

The acquisitions will also provide SKPRes with a more diversified clientele instead of having to depend on solely on Dyson of the UK for the bulk of its business, besides widening its range of services.

It is also expected to benefit from the US economic recovery, which will have a positive impact on its FY2016 earnings.

Some are concerned about the group’s aggressive expansion drive but the company instead used its strong cash position for value creation. The acquisitions were done at reasonable prices and also did not deviate from its core business.

70% of the group Dyson’s products are sold to non EU markets. Furthermore, the economy recovery in the US should benefit SKP Res as 40% of Dyson’s products are going to the US market.

Its new capacity which is expected to be completed by 1QFY2015 will increase its production capacity over three years from Jan 2015. The new capacity will help cater to ramp up in demand for Dyson’s related products.

While orders to fill in the new capacity have yet to be confirmed, lower oil prices and weaker ringgit would attract Dyson to give more orders to SKP Res.

The new production capacity is to cater to Dyson’s new product. SKP Res is now producing two product ranges. In addition, do not discount SKP Res’ ability to secure new contracts.

Dyson, which produces home appliance products targeting the premium markets in developed countries, is SKPRes’ largest client, account for about 55% of its revenue. SKP’s other multinational corporation customers include Panasonic, Pioneer, Sony and HP.

The acquisition of the Technic’s unit is view positively as it allows the company to provide its customers with a larger range of value added services and cites STSM, a well known plastic mould market as an example. The acquisition also provide synergistic benefits.

It is also expected to benefit from economies of scale post acquisition and reduce its concentration risk on Dyson. Expects Dyson to account for only 35% of its total revenue from the current (Jan 2015) 55%.

This will indirectly reduce the group’s dependency on its largest customer. Apart from the single customer risk, revenue will be spread across a larger number of industries, including automotive, oil and gas, F&B and consumer products.

As the PER ratio of the target companies is lower than SKPRes’ implied PER, the acquisition will be earnings accretive to the group. The acquisitions will be satisfied by rm100 million cash and 172.4 million new shares at rm0.58 each.

Observers opine its strong net cash position and good track record in generating operating cash flow do not foresee significant hike in gearing. In the near term, it could potentially turn into a net debt position after the rm100 million cash acquisition and working capital requirement but this should only be short term and it could quickly pay back with its strong cash flow.

The acquisition is a related party transaction as the major shareholder Datuk Gan and family collectively own 70.5% and 68% in SKPREs and Technic Group. Post acquisition, Gan and his family will drop to 68.4%.

SKPRes’ net profit soared 95% to RM10.5 million for the third quarter ended Dec 31, 2014, from RM5.4 million in the year before.

Quarterly revenue jumped 71% to RM150.2 million, from RM87.8 million in the previous correpsonding quarter.

The year-on-year (y-o-y) improvement in profit to higher revenue from existing customers.

The increase in revenue was contributed by the strong demand for the plastic injection moulding segment, as well as value added services such as assemblies of plastic products and components for the electrical and electronics industry.

For the cumulative nine-month period, net profit climbed 41% y-o-y to RM30.7 million, from RM21.8 million; while revenue jumped 40% y-o-y to RM422.2 million, from RM302.2 million.

Going forward, SKP expects to remain profitable in its current financial year, supported by its strong orderbook and its expansion plan.

The board is optimistic that with the strong existing business base, coupled with the expansion plan which was announced on March 28, April 2, May 14 that the company will be incurring approximately RM34 million capital expenditures to increase its production capacity, the group would be moving towards another promising year for the financial year ending March 31, 2015.

Its 2HFY2015 earnings will accelerate on the back of higher utilization rate from production of higher utilization rate from the production of two new Dyson models which began in early Nov 2014.

It has a minimum payout policy of 50%.

'Like' - Pintaras ..

It is the only two listed piling and foundation specialists in Malaysia stands out for its consistent earnings growth, high margins and cash rich balance sheet.

Revenue almost doubled from rm105.7 million in FYJune 2010 to rm201.9 million in FY2014 while net profit rose from rm20.7 million to rm54.2 million over this period. Operating margin and net margin averaged some 33.34% and 25.35%.

Its earnings uptrend remains intact. In 1HFY2015, revenue grew a strong 51.5% year on year to rm138.3 million. Net profit expanded by a lesser 9.9% to rm26.7 million.

It was awarded a rm21.4 million contract to undertake the extension of diaphragm wall and bored pilling works for a proposed commercial and residential development at Icon City Phase 1. The contract is for period of 12 months from 21 Jan 2015.

Moving forward, the 1663km Pan Borneo highway and the 56km Klang Valley MRT Line 2, costing rm23 billion and rm27 billion are slated to commence construction in 2015. Pintaras would be one of the key beneficiaries given its solid track record in piling and foundation works.

Pintaras is liked for its exposure to the construction sector and attractive valuations. It is trading at 2.02 times book value whereas Econpile is trading at 2.94 times book value. Pintaras’ margins are higher.

Additionally Pintaeas has a history of rewarding shareholders with dividends. Payput average about 40% for the past three 3 years.

'Like' - Elsoft ...

It offers investors an exposure to the robust growth in mobile devices and the increasing use of LED in consumer products.

The Penang based technology player designs and develops automated test equipment for companies to inspect LEDs. LEDs are a component in PCB used mainly in the semiconductor, consumer products, optoelectronic and automotive industries.

It had completed its transfer to the Main Market. The MSC status company has also successfully renewed its pioneer status and will enjoy tax exemption for the next 10 years until 2025.

Its underlying business has been doing very well. Revenue grew at a CAGR of over 41.4% between 2010 and 2014 to rm45.14 million. Net profit grew by an outsized 50.4% annually over the same period to rm19.78 million.

Elsoft runs a lean ship, with just 61 staff, translating into a high productivity of rm740000 of revenue per employee.

Moving forward, it plans to expand its customer base and produce LED testing equipment for medical devices which it expects to boost revenue by 20%.

Meanwhile its associate company Lesoshoppe is seeking to list on ACE market, to fund the expansion of its trading equipment business in Thailand, Indonesia and the Philippines.

It has a strong balance sheet with double digit ROE and is in net cash position of rm32.3 million. This is supportive of its minimum 40% dividend payout policy.

It has been rewarding shareholders with more, paying 50 to 73% annual earnings in 2011 to 2013.

It is trading at a trailing 12 month trailing PER of 15.7 times.

About Sasbadi ..

Currently (March 2015) it derives more than 80% of its turnover from syllabus-based publications.

It is looking to complement its revenue stream for its financial year ending August 2015 (FY15) with its new products which were launched late Feb 2015.







It will focus on its dynamic learning division, and will include those that incorporate technological advancements with conventional learning methods, such as interactive bookmarks.


It will increase [revenue] growth from digital products in FY15.

Its new products include an electronic tablet designed especially for teacher training colleges.

In October 2014, Sasbadi acquired all the rights, title and interest in the New products to complement Sasbadi’s FY15 revenue publishing list of Penerbitan Multimedia Sdn Bhd (PMSB) relating to learning and educational materials, which included 240 titles on teacher training as well as the PMSB trademark for RM1 million.

The group is also anticipating revenue contribution from its licence and service agreement (LSA) with Indonesian company PT Penerbit Erlangga.

The LSA, inked in October 2014 between the group’s wholly-owned subsidiary Sasbadi Online Sdn Bhd and Penerbit Erlangga, will generate US$300,000 (RM 1.11 million) in one-off non-refundable income for Sasbadi Online in FY15. The LSA allows Penerbit Erlangga to use Sasbadi’s interactive online learning system i-Learn.

They (Penerbit Erlangga) are using [Sasbadi’s] i-Learn as a platform for their contents, which will be based on the Indonesian syllabus. Once they launch their products in March 2015 it will be entitled to 8% royalty from products sold using our i-Learn platform.

The group also ventured into the the Malaysian Higher School Certificate (STPM) market in 2013 when it signed an IP Rights Assignment Agreement for RM5.5 million with Pearson Malaysia Sdn Bhd, which gave it access to the publication of STPM material.

Sasbadi’s focus as an education solutions provider is to look at publishing activity as contents development rather than mere book publishing.

The group will be acquiring a Chinese-based syllabus publisher catering to Chinese medium schools in the country.

The group has set aside RM10.5 million out of its RM25.2 million initial public offering (IPO) proceeds for the acquisition of publishing businesses.

There are also plans to utilise RM1 million of its IPO proceeds for the establishment of two applied learning centres to provide training and education to young children.

Sasbadi reported a net profit of RM12.25 million on the back of RM79.51 million revenue for its FY ended August 2014. Its net profit in FY14 was 3.94% lower than a year earlier, mainly due to RM1.33 million listing expenses incurred.

For its first quarter ended November 2014 (1QFY15), Sasbadi reported a net profit of RM1.65 million on revenue of RM16.32 million.

With these new developments, Sasbadi hopes to have a more even revenue contribution for the four quarters, thus eliminating the seasonality of its business.

Next for EcoWorld

Its first quarter of financial year 2015 results were broadly in line with expectations even .

Observers expect upcoming quarters to be much stronger, driven by strong unbilled sales which stand at rm3.06 billion currently (March 2015).

It sold rm440 million worth of properties in 1QFY2015.

It is targeting to sell rm3 billion worth of properties in FY2015 and rm4 billion in Fy2016.

In Feb 2015, it completed the acquisition of land bank from EcoWorld Sdn Bhd for rm3.8 billion

It had completed its rights issue in March 2015. The only outstanding component of the restructuring exercise now (March 2015) is the 20$ private placement which should be completed in 2QFY2015.

With the restructuring finally almost completed, its management can fully focus on operational issues and drive the company to greater heights.

Next for Sunway

It should play catch up given that it is embarking on a value unlocking plan to list its construction arm, the Sunway Construction Group.

Although property and property relayed earnings made up 58% of financial year 2014 net earnings, Sunway now (March 2015) has a different angles as it offers investors an alternative for exposure to the construction sector.

The construction segment contributed about rm120 million or 20% of profit after tax and minority interest in FY2014, an earnings base that is almost equivalent to that of WCT Holdings Bhd.

SCG is one of the largest construction companies in Malaysia and by revenue size, it will be the largest listed pure play construction company upon listing.

Its construction order book currently (March 2015) stands at rm3 billion or which 53% comprises external jobs, 37% in house works and 10% precast contracts.

It also has exposure to the MRT1 and LRT jobs, which are among the key infra developments that the government has decided to maintain in the revised Budget 2015.

With these exposures, Sunway is in a better position to bid for more MRT2 jobs going forward.

Airasia ... Despite Low Oil Prices, Why Price Still UnderPerform?

A new airline called Flymojo will be launched.

Mixed reports are indicating that Flymojo will either be a “value” airline or a “full service” airline, targeting the intra Asean market.

Flymojo signed a letter of intent with Bombardier to purchase 20 CS100 aircraft with an option for another 20. No timeline for the firming up of orders or delivery schedule was revealed.

It is understood that Flymojo is expected to be launched in October 2015 and commence flights in 1Q16.

The CS100 aircraft is a slightly smaller aircraft compared to the A320 that Airasia, and B738s that Malindo and Malaysia Airlines are operating.

Maximum seating on a single class configuration goes up to 125 seats versus the A320’s 180 seats, while flight range is a bit shorter at 2,950 nautical miles versus the A320’s 3,300 nautical miles.

Unlike Malindo Air, which is based in KLIA/Subang, Flymojo is using Senai (which entails much smaller connectivity and feeder traffic from long-haul) as its main hub and Kota Kinabalu as a secondary hub (which gives access to North East Asian traffic).

Industry observer do not expect the share price to perform despite (from 18 March 2015) low oil prices due to the oversupply of airlines in Malaysia.

While the airline is marketing itself as a premium airline, Malaysian aviation is already oversupplied and it will inevitably compete with AirAsia. As a result of this negative surprise, industry observers no longer expect AirAsia’s share price to perform despite low oil prices.

However some do not see Flymojo being in direct competition with Airasia which operates mainly out of KLIA, except perhaps for the highly profitable KUL-BKI route.

After complete delivery of all 20 aircraft (likely to be spread over three to four years), estimate Flymojo to account for just 19% of Airasia Malaysia’s current capacity.

Separately, foreign shareholding at Airasia has retreated from the previous high of 60% (in December 2014) to 58% (at end-Feb 2015).

KNM ... All Just Seems So Good !!!

It has proposed to acquire ABL Group, which owns a combined 72% stake in Impress Ethanol and 49% stake in Impress Farming, for US$24 million (RM89.04 million). The acquisition will enable KNM to participate in the Thai renewable energy sector which required constructing and operating a bio-ethanol plant. This will provide recurring income for KNM in the long term.

Net gearing is only 0.27 times and this is expected to improve further after the completion of KNM’s one-for-five rights issue in April 2015. To note, the proposed rights issue will be fully underwritten by its major shareholders and investment banks, which provides room for expansion.

This venture is viewed positively as this will help the company transform from project-based earnings to more recurring income.
Together with the UK Peterborough biomass project, expect to see significant contribution of income from the recurring renewable energy division in the future.

The proposed construction of a bio-ethanol plant is in line with Thailand’s alternative energy devel-opment plan (AEDP 2012-2021) to target 25% of renewable energy in total energy consumption by 2021 with nine million litres per day of ethanol from about 2.6 million litres per day in 2013.

The main feedstock for bio-ethanol is sugarcane and cassava. There are currently 21 bio-ethanol plants in Thailand with a capacity of 4.8 million litres per day.

The declining global oil price should not markedly affect its business given its focus on the down-stream. With the Petroliam Nasional Bhd RAPID project proceeding, expect to see continuous contract news flow. KNM has a good chance to secure subcontractor jobs from some refinery packages in the near term.

Its management reassured that the EnergyPark Peterborough project remains on track with some ground and minor construction works started. It expects to commence contribution in financial year 2017 (FY17).

Its catalysts include the announcement of more Rapid contract wins, financial closing of EnergyPark Peterborough and stronger quarterly earnings due to lower finance cost.

The risks are fluctuations in oil prices, project execution ability and delay in the award of contracts.

HaiO ... Net Cash rm0.535/share, 50% Dividend Payout Policy

Although weaker consumer spending and the falling ringgit will affect earnings, HaiO should be able to maintain higher than market average yields on the back of its strong balance sheet. It is also trading at comparatively undemanding valuations.

The company sells a wide range of Traditional Chinese Medicines – it has exclusive rights to import over 200 Chinese medicated tonic, tea and precious herbs products from China – and healthcare products mainly via MLM as well as wholesale and retail. MLM accounted for roughly 60% of revenue in FYApril2014.

Outlook for the local MLM industry is expected to be challenging in view of rising cost of living and weaker consumer sentiment, which will result in lower spending. Cost of imported products will also increase with the weaker ringgit. For 1HFy2015, Haio’s revenue and net profit declined by 10.6% and 30.6% year on year to rm107.5 million and rm13.4 million respectively.

Moving forward, HaiO intends to launch more affordable small ticket items to boost sales, carry out more sales and promotion activities, and recruit new members to expand its market reach.

Positively HaiO has a solid balance sheet. It has marginal borrowings and net cash of rm104.3 million or equivalent to about rm0.535 per share.

The company has a minimum 50% dividend payout policy.

It has been buying back its shares since 2003 – treasury shares now (March 2015) stand at about 3.5% of total shares issued.

It is trading at a trailing 12 month PER of 13.4 times and 1.88 times book value. By comparison Amway and Zhulian are trading at historical PER of around 19 to 20 times.

Its net margin and ROE for FY2014 were 15.9% and 16.3% respectively.