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Tuesday, March 24, 2015

'Like' - LiiHen (Furniture Mfg, Trades At Low PER)


The wood based furniture manufacturers has fared very well due to a confluence of factors including the weakening of the ringgit that favors exporters. Having caught the upcycle early, there is more upside to the sector, with the recovery in the USD still in the nascent stage.
 
LiiHen is still trading at 1.2 times book value and a single PER of only 8.2 times.

The company is backed by solid underlying fundamentals – it sitting on net cash, pays consistent and fairly generous dividends double digit ROE.

In its latest 2014 results, sales totaled rm398 million driven by a 30% sales increase from the US – LiiHen’s single largest market, which accounted for 80% of sales. Sales to its second largest market, Asia, grew 20.7% year on year while demand from the remaining markets remained steady.

Net profit was up on outsized 58.7% year on year to rm28.2 million on 2014, lifted un part by one off insurance claims amounting to rm7.2 million, which more than offset asset write offs.

The company also gained from the depreciation of the ringgit. Total foreign exchange gains more than doubled to rm5.3 million in 2014.

In Jan 2015, LiiHen recognized a revaluation surplus totaling rm35 million, boosting net assets per share by approximately rm0.58 million. Most of the revalued land and buildings are manufacturing plants located in Johor.

The company is sting net cash of rm36.1 million.

It has consistently paid dividends, with payout ratio ranging from 30% to 50% of net profit.

Wednesday, March 18, 2015

KLCI ... Bullish Breakout 1790, Bearish Breakout 1774


The KLCI remained bearish below the short term 30 day MA. However the index had managed to support above the 1780 point support level despite falling below this a few times in the past week.

Momentum Oscillators remained below their mid levels as the index was directionless, which indicates that the bears are still in the Bollinger Bands indicator are still expanding with the index trading near the bottom band. However the RSI and Momentum Oscillator indicators moved sideways and this indicates a weak bearish momentum. The index has to break above the immediate resistance level 1790 points to turn bullish.

There is a high chance for the index to rebound above the immediate resistance level. If the index can break above 1790 points, then we may see a rally to the next resistance level at 1820 points. Furthermore, the local market is oversold compared with the regional markets and hence a rebound is likely. However, the index may still weighted down by falling oil prices and a weak ringgit.

A breakout below of the immediate support level at 1774 points could point the index lower, and the next support level can only be found at 1680 points.


Menwhile it was reported that foreign holdings of local stocks have been reduced substantially, as a weaker ringgit and falling crude oil prices spurred a net outflow of RM4.57bil year-to-date (13 March 2015). To compare, the entire net outflow from the local bourse in 2014 was RM6.93bil.

Foreign investors dumped RM1.16bil worth of stocks (09 – 13 March 2015). Observers do not expect the heavy foreign selling last week to persist. It is believed the worst phase of foreign fund attrition is in the past. Due to shrinking foreign participation, which fell to less than RM1bil on 13 March 2015, expect foreign selldown to ebb away.

On the other hand, local funds supported the equity market last week and bought up RM1.13bil worth of shares. To-date (13 March 2015), local institutions have bought RM4.85bil from the stock market compared with RM8.18bil in 2014.

Foreign selling of Malaysian equities should not be too much of a concern as foreign investors only hold about 20% of local stocks compared with 43% in Malaysian Government Securities (MGS). The worry is more on Malaysians taking money out of Malaysia. However, the high saving rate and young population would continue to support the country’s growth fundamentally.

Easing monetary policy appeared to be a regional trend and that Bank Negara might take stimulating measures should loan growth decline further.

Wednesday, March 11, 2015

Yinson ... 'Wish For' Like SKPetro

It was fnally awarded the contract for the chartering, operation and maintenance of a FPSO facility at the Off shore Cape Three Points Block located in the Tano Basin, approximately 60km off the coast of Ghana, by Italian oil major Eni SpA.The Sankofa and Gye Nyame discoveries hold in place resources of about 1.2 trillion cu ft of non-associated gas and about 150 million barrels of recoverable oil.

The charter will have a value of US$2.5 billion (RM9.07 billion) over a period of 15 years and options worth US$717 million for another five years. It is expected to hit first oil in the third quarter ended Oct 31, 2018, forecast.

This is the first FPSO award since its acquisition of Fred Olsen Production in 2013, and costs circa US$1 billion.

The FPSO for the job is currently (Jan 2015) undergoing steel replacements and will be converted to fit the needs of the field at a cost of USD1 billion. It will commence operation in Ghana in Sept 2017 and will start contributing to the group from financial year ending Jan 31 2018.

Due to its prudent accounting policy, Yinson will not recognise any contributions during the conversion period of about 2.5 years. However, management guides that the FPSO is expected to contribute to the bottom line significantly upon the commencement of production (first full year contribution of about RM150 million accretion to bottom line).
 
The recovery of non-associated gas, which is yet to be awarded, is a further upside for Yinson.
 
Yinson will see a positive cash flow from the contract after six to seven years.
 
With the new FPSO contract, its order book has ballooned to about USD5.8 billion.

Meanwhile after his resignation from the board of SKpetro, there is now speculation that Tan Sri Mokhzani could be looking at raising is interests in Yinson. However he said he had no plans at the moment.
Mokhzani via Kencana Capital Sdn Bhd owns an 18.56% stake in Yinson as at June 27 2014.

Kencana Capital is Yinson’s second largest shareholder, after the offshore services provider’s chairman Lim Han Weng’s personal direct stake of 22.04%. Lim’s spouse, Bath Lim Lian, owns 8.82%.
Mokhzani sees value in Yinson. Sources say he may want another 4% to 5% worth possibly rm100 million to push it closer to 25% via direct transaction and not from the open market.

As at Dec 9 2014, Mokhzani had a 0.16% direct stake in SKPetro and was deemed interested in another 10.38% stake via Kencana Capital and Khasera Baru Sdn Bhd, another of his private vehicles.

Yeow had a 0.39% stakeor 23.18 million shares in SKPetro.

Mokhzani also said that he has no plans to dispose of his 10.54% stake in SKPetro.

Tuesday, March 10, 2015

SCC ... Dividend Yield Stocks, Net CAsh rm0.35/Share

SCC ... Dividend Yield Stocks, Net CAsh rm0.35/Share

 
It may appeal to yield seeking investors. Dividends increased from rm0.05 per share in 2010 to rm0.10 per share in 2012-2013, translating into a higher than market average net yield of 6.7%.

Although earnings have been somewhat flattish over the past few years prior to March 2015, the company has a solid balance sheet with net cash of rm15.0 million or rm0.35 per share. Its trading business – SCC is mainly involved in the distribution of non antibiotic animal health products and food service equipment and supplies such as rapid cooking ovens, pressure flyers and popcorn ingredients – is asset light. Thus dividends should be sustainable.

Sales increased from rm35.6 million in 2011 to rm38.7 million in 2013 but pre tax profit declined from rm7.2 million to rm6.9 million. Net profit margin was decent, at 13.1 – 14.6% during the same period. With no borrowings ROE was high, averaging 15.9% from 2011 to 2.13.

For 2014 sales increased 5.9% year on year to rm41.0 million while pre tax profit surged 30.9% to rm9.0 million mainly due to higher sales of food service equipment and supplies.

SCC started distributing animal health products in 1974. Its main suppliers are US based Anitox Corp, a global leader in the control of pathogens and other unwanted microbes and South Korea Hyun Young International Corp. The company concentrates on clean feed solutions as well as other non antibiotic animal feed additives.

The food service equipment segment began in 1978 after the company’s founders ventured into the fast food industry. Some of SCC’s poultry farm customers also followed the same path, thereby boosting demand for its food service equipment. The unit accommodated for 58.7% of sales in 2013 with the balance coming from animal health products.

It is trading at a trailing 12 month PER of 9.7 times and PER of 1.89 times.

Monday, March 9, 2015

TeoSeng ... Highest Profit Margins Among Peers.


An integrated chicken egg player is producing a three million eggs a day which is among the largest in Malaysia, and has set an ambitious growth target. It aims to spend RM200mil to grow its capacity by 67% to five million eggs a day in the next four to five years from March 2015.
 
Teo Seng, joinly controlled by the Lau family of Leong Hup and the family of managing director Nam Yok San, has been reporting healthy numbers.

It is one of the few poultry players not to have suffered a full-year loss since its listing in 2008. It also enjoys among the highest profit margins in the industry. It achieved a 12.8% net profit margin for the financial year ended Dec 31, 2014, among the highest of all poultry players for that year.

As an integrated player, Teo Seng has its own in-house feedmill to cater to its needs.

It also has a geographical advantage because its farms in Johor are close to Singapore where most of the exports go to.

The company exports 25% to 30% of its production.

While some 90% of its income is derived from selling eggs, it also produces egg trays and animal health products.

It also has low debt levels, with a gearing ratio of a mere 0.5 times, compared with many competitors with high debt levels. Teo Seng’s low gearing, coupled with its free cash flows enable the company to easily fund its expansion plans. Teo Seng has a cash balance of close to RM40mil as of Dec 31, 2014.

Teo Seng has a dividend policy of paying out between 25% and 30% of profits.

Late 2014, Teo Seng embarked on another rewarding exercise for shareholders – giving free bonus shares and warrants.

For FY2014, Teo Seng enjoyed a year-on-year 107% jump in its earnings to RM48.62mil from RM23.42mil.

The company presently (06 March 2015) trades at an undemanding historical price earnings ratio of 10 times.

Thursday, March 5, 2015

SCGM ... Why Share Price Up?

The protracted slump in crude oil prices and the weakened ringgit against the USD are proving to be boon for local plastics manufacturers – the former is an essential raw material in the production of polyethylene resin, and the latter provides obvious foreign exchange gains for export oriented players.
 
SCGM is one company that is expecting a windfall from these two developments.
 
It exports up to 47% of its products.

It is anticipating record profits in its 4QFY2014 ending April 30 2015.

Falling crude oil prices have resulted in cheaper product-ion of polyethylene.

SCGM generally use SGD and USD for its dealings. The weakness of the ringgit is good for SCGM as it sees extra benefits in terms of forex gains.
 
Low oil prices resulted in a 30% drop in the price of polyethylene. This will result in short term improvement on the margins of plastics manufacturers.
 
Apart from SCGM, other downstream players like Daibochi and Packaging Industry are least likely to be affected as their clients are mostly food and beverages companies.
 
The demand of plastics packaging is expected to grow in tandem with population growth and urbanization.
 
It will be setting up a factory in Japan soon. It is also considering India and Australia.
 
For TGuan it is not experiencing the positive effects of the forex yet. The appreciation of the USD is generally good for it as 75% to 80% of its sales is in USD. However in Dec 2014 it had some carried over hedged USD position against the ringgit.The positive effects of the weaker ringgit will only be reflected in its 2Q results after the unwinding of the hedging effects.
 
 
 

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