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Monday, October 19, 2015

'Like' - KMLoong

To cushion against the volatility of CPO prices, some plantation companies have diversified into the more stable milling business. One such company is Kim Loong.
 
The Johor-based company trades at a relatively undemanding P/E of 13.3 times and 1.6 times book (16 Oct 2015). It has net cash of RM248.1 million or 79.7 sen per share, which translates to 28.4% of its RM874.6 million valuation (16 Oct 2015).

Because of its stable milling business, Kim Loong is able to consistently pay dividends. Since FY2011, its payout ratio has ranged from 50-70% of net profits. The company paid a special dividend of 10 sen per share in August 2015, bringing total dividends to 23 sen in the past 12 months.

Kim Loong owns 14,901ha of planted oil palm land in Johor, Sabah and Sarawak. 91.1% of its trees are mature and should provide stable fresh fruit bunch (FFB) output moving forward. Its three mills processed 1.2 million tonnes of FFB in FY-Jan2015 — 3.9 times what the company’s estates produced. The mills also boast an above-average oil extraction rate of 22.4%.

For 1HFY2016, Kim Loong’s profit before tax (PBT) from its upstream activities slumped 41.7% y-o-y to RM24.4 million on the back of lower FFB prices. However, PBT from milling was steady at RM27.1 million compared to RM27.3 million in the previous year.

This highlights the defensive nature of Kim Loong’s business model. In addition, it should also benefit if the rally in CPO prices (Sept – Oct 2015) is sustainable.

Moving forward, Kim Loong plans to develop 2,067ha of land into oil palm plantation in Sarawak pending approval from the state. Construction of a fourth mill should be completed by 2017, which will boost its milling capacity by 300,000 tonnes a year.


Friday, October 16, 2015

Trader Corner - For PENTA's 'Fans'

At rm0.78, PENTA is trading at undemanding valuations of trailing 11.3x PER (12.9% below peers’ 13x) and 1.6x P/B (43.1% discounts against peers’ 2.8x).

A break above rm0.80 could see prices enroute to rm0.845 followed by rm0.915. Support at rm0.76, rm0.73 followed by rm0.72.

An established automated equipment manufacturer with diversify exposures in various sectors.

To recap, over the last 5 years, PENTA has developed new automation solutions and products for industries other than the semiconductors, such as medical gloves, F&B, LED, logistics , automotive and RFID. The effort had reduced PENTA’s dependence on semiconductor industry from over 80% prior to 2013 to below 50% targeted for 2016.

PENTA is also a beneficiary of the strong US$ (vs. RM) as approximately 80% of its revenue is denoted in US$ against 20% of its raw materials costs denominated in US$.

PENTA’s 3Q15 results are likely to be released before mid-Nov 2015.

Overall, PENTA remains positive on business outlook.

Its earnings’ drivers are as follow …
1. Despite experiencing some softness in semiconductor sector in 2H15, management expects semiconductor segment to make a comeback in FY16 given newer and shorter product life cycle as some products are undergoing prototyping and qualification phase now and production to start in 2016/2017.
2. Management expects increased packaging and handling equipment orders from major healthcare companies.
3. Food handler for the aviation and airport industry.
4. Automated Testing system (to test air flow, temperature, noise) for a major consumer company for its hairdryer products.
5. To manufacture 40-50 units pa for the pharmaceutical/medical industry

On 28 Sep 2015, PENTA acquired a property project management company which currently (Oct 2015) engaged in a mixed development project in Kota Bharu with guaranteed fee of RM10m. Upon the completion of the proposed acquisition, PENTA is expected to benefit from Origo’s platform to s howcase its Smart Home and Building Solutions’ offerings , given the huge potentials from growing IoT concepts (home automation/surveillance, security, energy, lighting etc).

The proposed acquisition is valued enhancing and synergistic with the benefit arising from its interoperability among solutions from different brands by using its own proprietary software (i.e low CAPEX) coupled with the expectations of increased contribution from recurring income based on long term operation and maintenance contracts.

Upon leveraging on Origo’s experience, Management expects to expand its Smart Home and Building Solutions to other enterprise/corporate segments such as malls, hospital, factories, etc with the aim of obtaining about RM20-30m contract in FY16 with target GP margin of 15%.

Currently, PENTA is in discussion stage with another development in KL. Management expects Smart Home and Building Solutions to contribute approximately 20% to o verall group’s revenue starting 2017-2018.

Total costs for its Batu Kawan’s expansion (to be funded through a combination of internally generated funds and bank borrowings) are approximately RM20m (Land: RM5m and plant construction: RM15). The plant will be completed in 2017, and will enhance the current floor space from 110k sq ft in Penang to another 100k sq ft in Batu Kawan, catering for the ceramic oven and proprietary products.

At rm0.78, PENTA is trading at undemanding valuations of trailing 11.3x PER (12.9% below peers’ 13x) and 1.6x P/B (43.1% discounts against peers’ 2.8x).

A break above rm0.80 could see prices enroute to rm0.845 followed by rm0.915. Support at rm0.76, rm0.73 followed by rm0.72.

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