Thursday, 20 October 2016

Denko - Towards Explosive Growth

Denko Industrial Corporation Berhad (Denko - 8176) had made headline in 2015 when the group had decided to acquire PT Winsheng Plastic and Tooling Industry in Indonesia to expand it's manufacturing capacity in plastic mould injection. Prior to the acquiring of PT Winsheng Plastic and Tooling, the group had yet to record strong stream of revenue from the wholly owned subsidiary. However, related sources are looking forward to see Denko starting to recognize revenue from it's Indonesian arm in the 2H of 2016.

Supplier for Dyson's product

Aside from providing plastic injection mould services for electronic and electrical brand such as JVC Kenwood, Pioneer, Fujitsu, Olympus, Schneider Electric, one of it's core customer is Dyson. Dyson is well known for it's wind based solution electrical product from blade-less fan, air blade technology hand dryer, and with the latest being Dyson handy hair dryer.

The hair dryer that had a similar resemblance of the blade-less fan is the latest product from Dyson, where it is small, light but yet powerful if compared to it's own range of competitor.

Familiar sources are looking to see Denko seeing contribution of revenue from this product from Dyson, not withstanding future Dyson product in the pipeline which is currently under development.

Aside from Dyson, Denko also strives to benefit from other plastic mould injection products.


Based on the price chart of Denko, the share could had saturated after a 9 months consolidation. As the share had detected some fresh buying movement prior to the nearing of the next quarter release of financial result, Denko is looking in favor in trading towards 40 cents region in the coming days.

With the weaker ringgit for here to stay, Malaysia will become an ideal location for contract based manufacturing and plastic fabrication. In fact, competitor like EG had spent RM 30 million for a new plant in Sungai Petani to cater for more demand. As for Denko, the weaker ringgit is a bonus for as there was large increase in demand for Malaysian manufactured products. Through Denko principal operating subsidiary Winsheng Plastic and Tooling industry, it is an indirect exporter by supplying plastic parts to it's multinational customers who are the exporters.

Aside from making investment into complex machinery, the group also invested into human resources to provide a one stop solution for clients, from CAD designing until assembly.

At the current market capitalization of RM 38.6 million with 104.468 million shares, it is expected that once it's Indonesia unit start to achieve operation of scale, it will greatly contribute to the EPS of the group. At the current share base, it will be easy for Denko to achieve a stronger EPS for FYE 2017 when operating in full capacity, which can potentially see an EPS of 5 to 6 cents per annum.

Bone's TP : RM 0.45

Monday, 17 October 2016

Suria - Budget 2017 Fireworks

Suria Capital Holdings Berhad (Suria - 6521) is a Sabah based company that had multiple business from port operation, logistic and bunkering service, civil infrastructure contract and engineering service, ferry terminal operation, property development and investment. However, Suria core business will be port operation, as Suria is in charge of 8 ports in Sabah, namely, Sapangar Bay Container Port, Sapangar Bay Oil Terminal, Kota Kinabalu Port, Kudat Port, Sandakan Port, Tawau Port, Lahad Datu Port and Kunak Port.

With the challenging business environment in the global front, volatile currency, business had been hard for logistic company such as South Korean Hanjin Shipping that had succumbed to the ill market. As for the case of Suria, in order to remain it's competitiveness in the port operation in the region, the choice will be in the upgrading of infrastructure and facilities in the region.

A prime beneficiaries for coming Budget 2017

On of the most appealing factor to take note on Suria is due to the coming Budget 2017 announcement which will indefinitely benefit the group in an overall manner. For the past couple of budget, it is noted that there isn't much major infrastructure announcement in Sabah, unlike the infrastructure development in Peninsula Malaysia such as the KVMRT, LRT, numerous highway, as well as the Pan Borneo Highway for the Sarawak section.

For the coming Budget 2017, Sabah is finally looking to see major infrastructure upgrade that will connect all port in Sabah through railway line. Sabah Ports Sdn Bhd that operates 8 ports in Sabah is the wholly owned subsidiary for Suria. It is a plan for Suria to turn ports into a one-stop for BIMP-EAGA region. (Brunei, Indonesia, Malaysia, Philippines, East Asean Growth Area). According to familiar sources related in the development of this area, it is been informed that the planning is already at it's very advance stage now, and it's only waiting for the Federal Government to include this mega infrastructure project into the upcoming Budget 2017. The whole development could be looking to see no less than RM 5 billion in an overall manner. However, the project will be looking to be separated into a few packages.

Suria a potential Project Delivery Partner

Beside then port operation, Suria have a division for engineering and construction. While this division had not generate much revenue as of lately, we see that Suria will be one of the Project Delivery Partner in this railway construction that will connect all 8 ports together.

Back then in Year 2008, Suria has won a RM 8.5 million job from KTM to build additional signalized railway crossing on the rehabilitation of the Sabah Railway project from Tanjung Aru to Tenom.

Another potential candidate that will probably be teaming up in Suria will most probably be Gabungan AQRS Berhad (Gbgaqrs - 5226) based on the their track record in KVMRT 1. To recap, GbgAqrs alongside with SBCCorp had entered into a joint venture agreement with Suria to development a total of 23.25 acres in One Jesselton Waterfront project, in which the project had recently obtain the sub division of the master land title. GgbAqrs is joint venture portion is 7 acre, which carries a total GDV of RM 1.8 billion. It is also worth to take note that the major shareholder of GbgAqrs, which is Ganjaran Gembira Sdn Bhd had been actively mopping up share in the open market for the past 5 months.

Fundamental Outlook

The lower revenue on this quarter when compared to the previous year corresponding quarter is due to a 1 off recognition of revenue from property development. The 2nd quarter revenue is reflecting revenue mostly from port operation. However, with the breaking ground of development and construction on One Jesselton Project, the whole project is expected to contributed to Suria earning for the next coming 8 years.

Aside from this, the railway construction will also contribute to Suria earning significantly should Suria emerge as one of the Project Delivery Partner.

With a healthy cash position, Suria current market price of RM 2.10 is only reflecting 61% of it's total NTA of RM 3.43 per share, making Suria an interesting look out given it's coming prospect and growth in revenue in the coming quarters.

Technical Outlook

On a long term outlook, Suria is likely to be seen as trading in a gradual long term downtrend. However, Suria is looking to put a good challenge upwards given the coming positive outlook on the company. With the supported development, it is very likely that Suria can make it's way up to the upper band of the trend.

However, on the near term outlook, it is noted that Suria had consolidated well at the price range of RM 2.00 before the stock started to move recently. The move which would coincide with the coming Budget 2017 announcement, putting Suria as one of the potential beneficiaries.

Given that Sabah had not received any huge budget for infrastructure project for the past few budget announcement, this would probably be the last budget that is to be announced by the BN lead government before Malaysia enter into general election next year. Suria is foreseeable to see strong growth for the next couple of years from property development and construction in One Jesselton Project as well as the potential candidate as PDP for the railway construction to link all 8 ports in Sabah under the Sabah Port Authority. With the better facilities and infrastructure at place, it will also reinvent the image of Sabah port in the regional area, boosting volume.

Still guessing on who will benefit on Budget 2017 ? Look no further than Suria, choice will be at your hand now.

Bone's TP : RM 2.50

Wednesday, 12 October 2016

Hexza - Stronger Footing

Hexza Corporation Berhad (Hexza - 3298) is a low profile company that deals in the manufacturing of chemical products. Sitting in a handy amount of cash pile, the group had been actively in search on investment with recurring income. The latest investment is a buy and lease back of a 8MW fuel oil generation system in Myammar that will provide the group with a 10 years of recurring income that can reap a handsome USD 9.6 million over the tenure.

The global business environment had been very challenging, with fluctuating demand and volatile raw material cost. That being said, the investment environment had become even harder with investor looking for safe haven financial instrument, or asset that can provide a steady recurring income through dividend. With the central banker from economy powerhouse such as ECB and Japan playing with negative interest rate, this had send investor scrambling for asset that can provide foreseeable recurring yield, such as the REIT market.

REIT are quite resilient in nature in a volatile market because of their asset class that generate recurring income through dividend for investor. However, REIT are generally heavily financed with bank borrowings, hence will be very sensitive with the interest rate.

However, to opt towards another vehicle that pay dividend and having a healthy cash position could be none other than Hexza.

The dividend payment for the past 3 years are
2013 - 5 cents
2014 - 4 cents
2015 - 4.5 cents
2016 - 4.5 cents (to be approved in coming AGM)

Current cash level at RM 51.42 million. With another RM 12.34 million of asset that is held for sale, that will beef up cash level back to RM 63.76 million, resemble RM 0.318 of cash per share. Currently, Hexza do not have any liability or debts with financial institution.

Hexza is disposing non performing asset that are incurring losses, and streamline operation and lower down the cost of production. With the latest restructuring and asset disposal, the manufacturing arm is turning in with approximately 10% in gross profit.

In addition, the financial leaseback agreement will also continue to contribute recurring income of RM 4 million for 10 years.

With the healthy cash level and profitable operation in Hexza, it is foreseeable that Hexza will be able to continue it's dividend payment policy for the next 3 to 4 years to come at the range of 4 to 5 cents.

With the cash pile, it is inevitable that Hexza will continue to look for good investment. However, the group will also be looking into restarting it's property development back in Ipoh should opportunity arises.

Other than that, the group will continue to streamline it's chemical manufacturing operation.

Technical Outlook
On the technical outlook, Hexza is looking on challenging a horizontal resistant line at RM 0.95. Supported with a good up trend that is back with fundamental such as healthy cash level, profitable business and dividend policy, the company is looking good to break above RM 0.95 in the coming days.

To summarize, Hexza will be a considered as a good equity that had the characteristic of weathering volatile economy sentiment. With a foreseeable dividend of at least 4.5 cents for the next 3 years, at the price of RM 1.00, this company will still be able to provide a yield of 4.5% to it's shareholder. At RM 1.10, the company is still yielding slightly above 4%.

Bone's TP : RM 1.10