Wednesday, 29 June 2016

Engtex - A Pipe of Bargain

Engtex Group Berhad (Engtex - 5056) could see bargaining value emerging at the current market price. Albeit the volatile market sentiment that had been plaguing the global market, Engtex had remained resilient, hovering strongly at the range of RM 1.15.

Local water related infrastructure player are awaiting for more governmental projects in order to see the industry picking up. However, much of the project had been hindered with delays and pull back due to water restructuring exercise between Selangor and the federal government. While most of the water restructuring exercise is completed, the last hurdle remain at the acquisition of water asset from SPLASH (Syarikat Pengeluar Air Selangor Sdn Bhd) due to disagreement in valuation. However, despite the bogging issue, Air Selangor's CEO, En Suhaimi Kamaralzaman is optimistic in resolving this before end of 2016.

While waiting for the issue to be resolved, what are the competitive advantages in Engtex that would keep them afloat until the arrival of prized contract ?

Diversified production

Comparing with other water related infrastructure player in the industry, Engtex provide a wider range of mild steel cement line pipes, ranging from as small as 100mm to 2200mm. Large diameter mild steel pipe will be used for raw water pipes line, transferring water from reservoirs to water treatment plants, while medium and smaller pipes will be used to distribute water from the water treatment plant to the consumers.

While Jaks, YLI and Hiaptek are the closest competitor to Engtex, however, they are not a complete competitor in terms of products offered. Jaks Resources manufacture large diameter mild steel pipes which is used for water transfer between reservoir to water treatment plant while YLI and Hiaptek manufacture smaller diameter mild steel pipe.

Most of the smaller diameter pipes in Peninsula Malaysia is made of asbestos cement, and is more than 30 year old. It is also one of the prime reason for rising NRW (none revenue water) issue due to pipe burst and leakages.

Until the the hurdle in SPLASH is settled, the water pipe maker might not be seeing contract dishing out to replace the smaller diameter mild steel pipes, a contract in which will see approx 6,300 km of pipes to be replaced.

While this might be not too good a news for Engtex, YLI and Hiaptek, Engtex participation in large diameter pipe supplies towards the construction of reservoir will be able to offset loss of revenue from that segment, such as Langat 2 Water Treatment Plant.

Recovering Steel Prices Boost Margin

One of the core reason for Engtex in it's stronger EPS for 1Q FYE 2016 is attributable to better margin from recovering steel prices. For 1Q FYE 2016, most of the revenue is contributed from wholesale and manufacturing division.

Steel plate, beams as well as wire continue to see demand due to imposition of anti steel dumping taxes on china steel imports.

The massive completion of property projects at Klang Valley also boost demands on valves, fittings and joints as well as other steel construction material such as mesh wire and steel bars.

 Technical Outlook

Engtex is very resilient despite the recent volatility in the equity market. Key line support remain at RM 1.10, while RM 1.15 remain as key consolidation price. Resistant will be looking at RM 1.20, and 1.25.

Engtex and Jaks weathered fairly better due to involvement in large diameter pipe. YLI, which produces smaller diameter mild steel pipe will depend on pipe replacement contract once the restructuring exercise is fully completed.

Engtex price chart

Jaks price chart

YLI price chart


Engtex at the current price is a value buy. It's diversified steel products from pipes to valves and construction material cushioned the group through uncertainty in business as well as volatile market outlook.

Underpinned with a better margin due to higher steel prices, increase demand due to anti dumping tax on china imports, growing back log in addressing Selangor water pipe replacement as well as contingency water treatment plant to be built will be the core underlying reason to see the industry picking up in the coming days.

Bone's TP : RM 1.30

Tuesday, 21 June 2016

Aemulus - Rising Empire

Aemulus Holdings Berhad (Aemulus - 0181) is a growing automated test equipment player. Prior to it's IPO debut back then at 15th September 2015, Aemulus saw a peak of RM 0.60 during November 2016.

Albeit Aemulus having carved a niche market in the radio frequency (RF) test system, the share price had took severe beating in the market from volatile sentiment as well as under performing financial result. The share price succumbed to a lowly RM 0.28 during the 2H of 2016.

While the current market had been tough with margin squeeze and budget cut, how would this be a turnaround benefit for Aemulus ?

Resurgent of cost effective new contract

Increase competitiveness in the market had forced manufacturer to seek for cheaper alternatives, and this will be no exception for the semiconductor industry, especially in the test market. However, the application of electronics toward the lifestyle and living hood of the human being will continue to see an increase, and this will be the core underlying demand that will fuel the future evolution of this industry.

At the current market sentiment, the manufacturing process of a matured product will seek for cheaper alternative that can provide similar function.

While this changing landscape can be a bomb to some, it is also a boon to some. For this case, Aemulus is standing in a position that could be seeing a good score of boon in the coming days.

A practical example from the changing landscape had saw JHM as a core beneficial in the automobile LED headlamps manufacturing process.

JHM had been a major beneficiaries in securing new contracts from automobile manufacturer in the US and Europe. The effect had saw JHM ripping upwards despite the volatile equity market. Just 1 back, JHM is just trading at a lowly RM 0.15, and now JHM is trending at the range of RM 1.00.

Big Suffer, Small Flower

It is almost a common practice for big player of certain industry to sell expensive service due to their track record, resourceful man power as well as large base of support. Smaller industry player will have to fight for lower margin in order to entice for more project to "prove themselves worthy". However, the current market will see more opportunity knocking to the smaller player with the tightened cost.

Some of the market leader in the semiconductor industry like Gtronic, MPI and Inari had saw massive retreat in their share price. Of all the 3, Gtronic is the worst punished after seeing share price diving more than 50% from the peak of RM 6.90.

The retreat in share price will certainly put a reflection on stakeholder such as supplier, manufacturer, dealer, reducing their stake with changes in the supply chain.

The plunge of share price doesn't necessary reflect a drop in the demand of test service in the semiconductor industry. Human will continue to rely more on electronics, and testing services will continue to be in demand as they are crucial in the semiconductor industry.

One of the noticeable beneficiaries will be Pentamaster Corporation Berhad (Penta - 7160)

This changing landscape will not see Aemulus being left out as well.

Technical reading could had suggested that Aemulus hit base and resurrected away from the downtrend line with a fairly strong rebound that is supported with significant volume. Consolidation effort at the range of RM 0.35 had formed ascending triangle, suggesting a further break up in the coming days.

Business wise, Aemulus had started penetrating into new market such as Japan and Taiwan. Aemulus had also courted with Avago last year with it's Amoeba 4600 tester machine for enterprise chip storage.

According to familiar sources, Aemulus is in favorable condition for new deal to be secured in 2H 2016, which includes new supply contract to Avago for it's enterprise chip storage. Contract business with Avago is one of the core criteria that had lifted on Inari unceasing bull run from RM 0.40 at 2013 to RM 4.9 in December 2015 before seeing bonus issue.

Under the lead of CEO, Ng Sang Beng, can Aemulus become a replication of Inari in 2016 ?

Bone's TP : RM 0.45

Thursday, 16 June 2016

Fibon - Walking on Dragon's Steps

Fibon Berhad (Fibon - 0149) is mainly involved in the manufacturing and trading of electrical insulators, electrical enclosure as well as meter boards. The group also provided private financing scheme as well as factoring services.

With Fibon HQ located at Johor,  much of Fibon revenue is derived from Singapore, Malaysia and Australia. With much untapped international market, there is a huge space for future growth in place for Fibon, especially in the emerging market segment.

Being involved in the sales and manufacturing of electrical insulators, enclosures as well as meter boards, where will this lead Fibon in the coming days?

Electricity Demand is Growing

According to market research firm NRG Expert, the demand of electricity is growing, hence demand for cables, insulators, transmission towers will also be growing with it. The increase in the global energy demand are encouraging the demand for electrical insulator for power transmission and distribution application. The electrical insulator market is projected to grow at a CAGR of 6.5% in between 2014 to 2019.

On the local outlook, the massive development in Johor, ranging from property to massive industrial development continue to push the demand in building related components, such as cabling, piping, insulation and wiring.

With Fibon stationed at Johor, it will stand to benefit from all these massive development. Continuation of infrastructure upgrade in Singapore will also continue to benefit Fibon.

A Potential Gem in Future

Fibon can be closely compared to peers such as Ulicorp and Superlon, due to it's product and service offering are part of the building essential components. While Ulicorp is involved in cabling, Superlong is involved in heat insulation.

Both the companies are resilient during the recent equity shake up.

Albeit Fibon still at the lower price region, there are similarities of Fibon with Superlon and Ulicorp. The similarities are :
- Company are in net cash position
- Company practices giving annual dividend
- Business related to the component for building completion

With Fibon still laying relatively on the lower side of the identified trading range of RM 0.50 to RM 0.60, the current price will deem attractive to buy in position for Fibon. Fibon will be looking to announced it's upcoming quarter result in July 2016. Currently, Fibon net cash value stand at RM 0.28 per share.

Fibon revenue had saw improvement compared to the previous quarter. The total rolling 3 quarter EPS had also displayed stronger compared to the previous financial year.

We expect to see Fibon revenue improving further due to growing demand from infrastructure and residential development in Johor as well as Singapore. At just 98 million share issue, Fibon can be an interesting company in the coming 2 years when stronger revenue kick in. By growing revenue close to RM 50 million for a financial year, Fibon can possible see EPS tackling around 7 to 8 cents in the future.

Short term should be able to see Fibon trending towards RM 0.60.