Friday, 30 September 2016

Bright - Brighter Go

Bright Packaging Industry Berhad (Bright - 9938) had once shot into the lime light at the hostile change of ownership which saw the emergence of Dato Ricky Wong through Wong SK Holdings Sdn Bhd as a substantial shareholder for Bright with 22.7% stake on October 2013. After the ruckus in Bright, Wong SK Holdings Sdn Bhd again offer to take over TechFast in 2014 at 26 cents.

Subsequently, Wong SK Holdings Sdn Bhd continue to increase stake in Bright, which is now at the critical border of MGO, which is 33%.

According to the latest filling on the shareholding of Wong SK Holdings Sdn Bhd, it is at the borderline level of 32.936%. Which means, Wong SK Holdings Sdn Bhd just need to purchase from the open market a mere 105,128 units of share in order to trigger the MGO.


What is actually so interesting in Bright that makes Dato Ricky Wong edging nearer and nearer towards a MGO of this listed vehicle?

While an easy answer will be "Value", but what kind of values are the retailer seeing, and what kind of hidden values that the retailer could had missed ?

For most of the mass retailer in the market, the fastest way is to access is cash level, and determine the net cash position. For this case, Bright is holding on a RM 35.616 million of net cash. For a share base of 164.264 million, that is equivalent to 21.68 cents per share.


But for an experienced investor, there are more to that on just the net cash value. These value are easily missed out by retailers that are not familiar with corporate finance, hence hidden value.

Firstly, the company have a share premium of RM 15.584 million. While this amount cannot be access directly by means of dividend, but it can give Bright a potential "bonus issue" of 1 bonus share to 6 existing mother share, enlarging the share base by 27,377,333 share based on par value of RM 0.50, which can utilize RM 13.688 million. (Bonus of  1 to 6 is based on Par value of RM 0.50)

Secondly, the share is carrying a par value of RM 0.50 per share. It is possible for the company to do a par value reduction and capital repayment back to shareholder if agreed by majority of the shareholder. Take an example for a reduction towards par value of RM 0.10, that will unlock 40 cents of shareholder equity that can be repay back to the shareholder.

To take all this into account, if Bright is to do a capital reduction and repayment of 40 cents, and uses RM 30 million to pay special dividend, that would worth a total cash of RM 0.58 per share (RM 0.40 from capital repayment and RM 0.18 from dividend).

Subsequently with the lower par value of RM 0.10, then the company can undertake a bonus issue of 2 bonus share for 3 ordinary share (instead of 1 to 6 with RM 0.50 par value) which will make it more enticing for further speculation and boost liquidity of the share.

At the current price of RM 0.36, that really looks like a crazy offer, where you are paying RM 0.36 with potential of getting RM 0.58 in capital repayment and dividend, and also a chance for a bonus issue exercise. The NTA of Bright is RM 0.73 per share.


To put this into technical mean, Bright had broken 2 resistant line, one which is horizontal resistant of RM 0.34, and a long term down trend resistant line as well. It is a good indicator to see that the counter is gaining positive uptrend momentum, for this case, we will see the potential corporate exercise of MGO is the best fuel to boost the stock price higher.


To take this further, the pioneer vehicle of Dato Ricky Wong, which is Asia Media (Amedia), had went through some corporate exercise and is banging it's way upwards in the market again, sending a signal to the market that Dato Ricky Wong is "in the office and at work now".

While Bright had contracted with Zao Philip Morris Izhora from Russia for a USD 15 million aluminium foil supply, the business had saw challenging environment such as fluctuation of currency and commodity prices. With the potential cash pile in Bright and a ambitious Dato Ricky Wong, who knows if Bright will be a vehicle for some new business venture for him again after Amedia?

For this reason, the chances are bright for Wong SK Holdings Sdn Bhd to head for a MGO in the coming days. In fact, familiar sources are looking to see the MGO putting a potential price range of RM 0.50 to RM 0.60. If the offer is RM 0.60, why not ?

Bone's TP : RM 0.60

Monday, 26 September 2016

LionFib - The Better Lion

Lion Forest Industries Berhad (LionFib - 8486) is the trading and distribution arm for the Lion Group, especially in the building and construction material and steel bars. It also involves in tradings of auto lubricants and oils under brand name of Hi-Rev.

The Lion Group made a good fortune from steel industry during the better days back at 2010. However, things started to fall apart when competition got intense with steel import from neighboring countries such as China, putting a dent in the profit margin. The last couple of years saw steel products imported from China are even cheaper than the production cost of some steel manufacturer. The Lion Group took a tougher beating when Megasteel which manufacture hot rolled steel ceased operation due to financial issue.

Among the packs of Lion, the better ones are Lion Industries Corporation Berhad (Lionind - 4235) and Lion Forest Industries Berhad. While Lionind produces long steel bars and wire rods that are used in construction, it is LionFib that is in charge of the distribution of the long steel bars, wire rods and other building construction material.

MITI to impose anti dumping steel tax on long steel bar

According to the latest official notice into the investigation with regard to steel concrete reinforcing bar products imported into Malaysia, the investigation authority had found out that there was an increase in imports during the period 1 October 2012 to 30 September 2015 which had caused serious injury to the domestic industry, and result in decline of market share, domestic sales, profitability, negative cash flow and reduction in employment and wages.

As of such, the provision to safe guard the domestic industry will be in the form of a safeguard duty of 13.42% imposed on imports of long steel bar, with the final outcome to be made within 26 to 28 September 2016.

Annjoo

LionInd 

Masteel

Ssteel

Amidst the challenging economy, government had played their part in ensuring the survival of domestic steel player with the imposition of safe guard tax on all imports of long steel bar. This new development had been celebrated by steel manufacturer that are involves in production of long steel bar.

Link to official notice :


Fundamental Outlook

During the Q4 of FYE 2016, Lionfib continue to show great losses, which is contributed from impairment of long term receivables from associate company.

Despite the company having a profitable operation, the impairment of more than RM 300 million of receivables from associate company had hammered a huge blow into financial result of Lionfib. The impairment exercise had saw the share price taking a severe beating as well.

However, on the bright part, now the company is looking to start afresh again, where investor do no need to worry on any future impairment on receivables at least for the next 3 years.

At the current cash level of RM 104 million with a borrowing of RM 22.3 million, that still leave LionFib with a net cash of RM 81.7 million, or approximately 35 cents of cash per share. At the current market price of RM 0.53, that would be buying into a share with 66% of the value in the form of cash.

The current NTA of the company is RM 2.26 per share.

With the imposition of the safeguard tax towards long steel bar that is used in reinforce concrete in building and construction, it will be believe that LionFib will be able to perform better at least for the next 200 days. A net cash position and no foreseeable large impairment would definitely put LionFib in an interesting position for any investor that are willing to take position of the current situation for a turnaround.

Technical Outlook


The technical price chart also outline on the positive changes in the company by rebounding above the technical support line of RM 0.50, and broken above the downtrend line. If compared to company such as Masteel, Annjoo, Ssteel and Lionind, it is notable that LionFib does have a larger space of capital appreciation.


Conclusion

LionFib's share price had reflected on the damage from the impairment exercise. However, the current price could resemble a good opportunity for investor to pitch in the potential turnaround at an attractive pricing, considering a net cash level of RM 0.35, NTA of RM 2.26 per share and government effort in stepping up to protect the local steel industry. With technical chart pointing a potential rebound, it will anyhow be a worthwhile risk to be taken.


Bone's TP : RM 0.70

Thursday, 22 September 2016

KSSC - Of Steel and Water

K. Seng Seng Corporation Berhad (KSSC - 5192) a Selangor based steel manufacturer, focuses in stainless steel water pipes, steel sheets and other polishing consumables. The company supplies to various industry, such as marine industry, oil and gas, construction as well as automotive industry. Given the latest stint in the steel industry that had saw various steel manufacturer pushing up in a bullish manner, KSSC could be possibly be one of the last remainder in the bullish steel run.

While some are thinking when will this bullish steel sentiment is going to end, some analyst could predict that it will not end so soon, reason given is due to the impact from the implementation of anti dumping tax on CRC steel to protect the local steel industry from foreign player, the current cessation of HRC production from Megasteel and robust infrastructure demand and construction boom in the local arena. The sentiment could be lasting until at least the the 2nd half of 2017, where most company will start to report on the financial year end.





Based on the price chart of the above 4 steel manufacturer, it is notable that the steel sentiment continue to run strong, given the strong interest in those company. While most of the company had accelerated much in their capital appreciation, this could provide a great stage for KSSC which had just started it's journey.


Given the chart out look, KSSC had just broken up on primary resistant line of RM 0.45.  This could be a convincing start for the company that had been lacking of share movement activity for almost 1 year.

With the booming steel sentiment not looking to back down anytime soon, there shouldn't be much of a problem for KSSC to trade at the range of RM 0.60.

KSSC to expand in house

It had been noted that KSSC had been holding back on reinvestment due to the uncertainty of the steel industry in the past few years. Albeit the tough environment, the company had been operating in a profit and pays an annual dividend without fail for the past 4 years.

Now, with the government implementing anti dumping tax to protect the local steel manufacturer, KSSC will expand it's operation with their existing land in Seri Kembangan, which is good for operation integration and synergy.

With demand chalking in from the vacuum left by China's import and cheaper HRC material import, the steel industry in Malaysia now can enjoy a better margin.

Fundamental Outlook


The Q2 FYE 2016 financial had saw an earning of 1.15 cents per share. However, the management is positive on seeing better revenue from demand in automotive and construction sector as well as water steel pipe replacement work in Selangor to address the issue of non revenue water.

The group also expect a better contribution from it's engineering work segment. While there are no profit forecast from the management, familiar sources that link with KSSC are estimating a better Q3 and Q4, which could chalk up a a total revenue of more than RM 70 million for the 2 remaining quarters, of which huge revenue are from the water pipe replacement exercise from Selangor.

Conclusion
KSSC is a potential rising star, given it's exposure to the water pipe replacement exercise in Selangor. With the current better steel margin, this will be a double joy for KSSC. Trading at 60% of the NTA value RM 0.77, and with a good record of dividend paying for the past few years, KSSC could be a good bet as the last rising steel player.

Bone's TP : RM 0.60