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.