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.
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.
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.
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 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.
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.
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.
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%.
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.
Disclaimer:
Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.
