Thursday, 25 June 2015

Engtex - Water of Life

Engtex Group Berhad (Engtex -5056) is embarked is journey as a hardware retail shop located in Jalan Ipoh back then during the 1980s. Riding on the huge and rapid development in Malaysia, Engtex had made tremendous progress from a hardware retail shop to a diversified multi million integrated wholesale and distribution center with it's own warehousing and distribution network system across the globe. Today, Engtex had set it foot on being a one stop solution provider for pipes, valves, and fittings in Malaysia.

While Engtex had been doing great in it's current operation, the group had started to seek for a diversified stream of revenue by embarking into the real estate and hospitality. How could this make a change in Engtex coming future?

Engtex had been trading at the range of RM 1.00 to RM 1.10 for the past 6 months. This could be due to the local weaker market sentiment from a strings of foreign selling. However, the consolidation period had been seen with catchy accumulation from the directors, as well as company share buy back at the range of RM 1.00.

On a technical outlook, Engtex could be on it's path to an uptrend after seeing a slew of accumulation in the month of May, with MA20 crossing MA50 with the price sustaining at the higher level. A good convincing break above the psychological resistant of RM 1.10 could mark a good uptrend for Engtex to a new journey towards RM 1.25. The Bollinger Band had indicated a long good squeeze since early of January 2015, and a break above the current upper band at RM 1.12 should be a good indicator to signal for a strong uptrend in the coming days.

Engtex - When Water Matters

Engtex had been seen as one of the major beneficiary from the restructuring of water concession in Selangor. However, the prolonged deal which had been politicized had resulted in mounting criticism from the public and even to the ruler of Selangor. The matter need to be resolved as Selangor could be at a stake of running in water supply problem come 2017 because of the delayed implementation of the projects.

With Puncak, KPS, Jaks and Salcon showing a strong signs of volume spikes, the long awaited restructuring could be finally going to see a conclusion as mounting pressure continue to pile up the lawmakers into putting the benefits of the public first.

According to close sources, the water restructuring exercise will be looking to see a conclusion on the 3rd Quarter of 2015.

Engtex will be one of the major beneficiaries from the completion of the water restructuring exercise, in which the Selangor State and Federal Government are currently wrestling on locked horns. The old and aging asbestos cement pipe replacement exercise that sees 6,000 km in the Klang Valley, and more than 40,000km in the whole Malaysia is a tremendous strong growing opportunity for Engtex.

More than Just a Water Deal

Engtex started off with the distribution of hardware supplies. Currently, the group had became a leading pipe and valve manufacturer in Malaysia, with global distribution network. However, the group had started to tap into new stream of income with is more than just a matter of water - real estate development and hospitality.

While Engtex is still a new comer in the property scene, it had started in a rather smaller scale for a good exposure of experience with launches in Selayang and Kepong. With the experience, the group will continue to develop their new land bank in stages.

One of their interesting land bank will be the freehold land at Mukim Cheras, which the group had just bought last year at the price of RM 16.6 million.

Engtex will also be starting to see it's hospitality division bringing in revenue soon with the completion of their hotel at Bandar Sri Damansara, Lebuh Pasar Kuala Lumpur and Selayang. The trio will be slated to see completion at the 2H of 2015, with a total capacity of 337 lettable rooms.

The group will also be looking to add approximate 415 rooms in their profile from the freehold land in Jalan Ampang which is located at Kuala Lumpur, and Sungai Karang, Kuatan.

The hospitality division will be believed to contribute a consistent stream of revenue to the group in the future.

Fundamental Outlook

Engtex revenue had been increasing gradually for the past 5 years. From a total revenue of RM 680.1 million at year 2010, Engtex revenue had soared up to RM 1,178.3 million for FYE 2014.

Based on the 5 years historical revenue figures, Engtex 5 year average annual revenue growth rate is 11.62%.

According to projection, Engtex will be looking to break above a total revenue of RM 1.3 billion for FYE 2015 based on it's consistent growth.

As of the latest quarterly, Engtex had managed a profit of RM 13.515 million behind the revenue of  RM 306.385 million. With the continuous demand from the construction sector and the start of the new plant in Pahang in 2nd Quarter 2015, Engtex will continue to show strong earning in the coming quarters. Based on average EPS of 4 cents +/- per quarter for FYE 2015, Engtex can be looking to see a total EPS of 16 cents for FYE 2015, which is translating to RM 1.60 valued with PER x10.

At the current price of RM 1.09, it is currently trading at 70% value from it's NTA of RM 1.54, and valued at PER x6.8 should full year EPS forecast of 16 cents materialized.

Engtex NTA could be ranged higher as they had a siginificant portion of undervalued / not revalued land and building since 1990s.

Engtex will be an interesting growth company to be vested into based on
- More than 6,000km aging water pipes in Klang Valley and more than 40,000km aging water pipes in Malaysia that need to be replaced.
- Strong construction growth in Malaysia, stemming higher demand in pipes and steel
- Diversified stream of income from hospitality to kick in
- Factory in Pahang to start operation in 2nd Quarter 2015.
- Trading at 70% value from NTA of RM 1.54 with huge undervalue / not revalued land and building since 1990s
- Strong growing EPS, projection of 16 cents for FYE 2015, value at RM 1.60 at PER x10.

Bone's TP : RM 1.50

Cheers and have a nice day


Monday, 8 June 2015

June Special on KUB - Nothing To Hide

KUB Malaysia Berhad (KUB - 6874) is a diversified group with products and services spanning across agriculture, energy, PEC (property, engineering and construction), F&B and ICT.

KUB share price had been a great roller coaster from the past 7 years, with the lowest point of RM 0.20 to a high of RM 1.30. Back then, KUB had been very reliant on government infra and constructions projects. However, things had taken to a change when KUB had started to realign the group focus into growing it's agriculture sector, which is the covers from the cultivation of palm oil tree to the processing of the palm oil.

While CPO is set to return back to the economical profitable range, what could be there for KUB in the coming days?

KUB had been actively traded in the 2Q of 2014, starting from 40 cents to a high note of 64 cents in July 2014. However, due to the broad weak market sentiment, KUB had shed off the gains and consolidate at the range of RM 0.38 to RM 0.46 in a lower volume. The consolidation effort is seemingly looking to see saturation, and KUB could be poising above towards challenging above RM 0.46 after a stronger 1st Quarter FYE 2015 release, which feature and EPS of 1.87 cents.

Trending with the El Nino

KUB had a wide perception from the public that the company is mainly involved in the engineering and construction sector. In fact, according to the latest report (2014 Annual Report), the company derived it's strongest profit from the agriculture sector (Palm Oil), with a PBT of RM 15.8 million at the back of a revenue of RM 40.7m, despite a roller coaster CPO prices during the year 2014. With this in line, we can see that KUB is having a 39% profit margin from it's plantation operations.

The recent El Nino effect which had been gradually threatening a lower Palm Oil output had been a turn around game for the CPO prices.

According to the technical reading of the CPO chart, the FCPO had started to break out from a 10 months consolidation range which had been trading around 2100 to 2250. The price break out towards 2350 will mark a bullish journey for the FCPO in the coming days.

To support the view, the FBMPalmOil is seen hitting the long term support line of 17580. The initial rebound that had started could signal a good start for the plantation sector in the coming days.

KUB currently had palm oil plantation in Johor and Sarawak, totaling approximately 8000 hectares of plantation land.

One of the Cheapest Entry for a Palm Oil Mill operator

As KUB had not been classified under the plantation sector, it will be easily miss out for the traders and investor. In fact, KUB will be looking set to put into operation of their new Palm Oil Mill in the coming 3rd to 4th Quarter of 2015. The new 45 metric tonne per hour FFB palm oil mill will be looking set to generate an additional RM 130million of turnover per annum for the agriculture sector of KUB. At the current pace, the mill is already in it's 70% completion.

Based on the current high operation profit margin in their plantation division, should KUB be able to reap 30% from the RM 130million annual turnover, that will translate to an additional PBT of RM 39 million in the bag, or 7 cents of EPS before tax.

The palm oil mill will be situated in Sarawak, as KUB will continue it's plantation expansion in the East Malaysia, with much focus in the Sarawak. KUB had allocated a total of RM 48 million as capex for the expansion as the group had identified a few areas in Sarawak and will boost it's plantation land to more than 10,000 hectares in the coming 2 years.

Top and Bottom Restructuring

KUB had went through a series of restructuring, which include the newly appointed CEO, Dato Zainal Abidin Salleh on April 2014. Under the lead of Dato Zainal, the group had started to see restructuring in it's F&B outlets as well as it's PEC division. A&W which had been swimming on red inks had finally took a turnaround in FYE 2014 to put in a profit before tax of RM 76,000.00.

The PEC sector had also managed to reduce it's losses from RM 14.5million in FYE 2013 to RM 7.4 million in FYE 2014. The group had also took a takeover exercise on KUB Precast Sdn Bhd and returned the subsidiary operation to the black. The PEC division is eying several infra projects in Johor, which is specifically on the power sub station in the fast growing industrial of Johor.

Beside this, KUB will also be adding in more cash flow from it's on going sale for it's office in Oasis Square, Ara Damansara. KUB will be looking to beef up it's cash flow by RM 25 million in the coming quarters after the completion of the on going sales process.
The asset disposal that will generate a handsome amount of cash flow and the recent proposal for the renewed authority for company share buy back program had also put the current share price of RM 0.40 even more attractive. The company will be allowed to buy back 55,646,469 shares from the open market from an internal generated fund that will not be more than RM 77.28 million, being the total of the company retained earning and share premium reserve.

While KUB doesn't adopt a scheduled revaluation policy, some of it's land and property are still carrying old school valuation, with the oldest carrying a value based on the year of 1988 for a 143,609sf freehold plant in Tebrau, Johor that with a book value of only RM 953,000.

KUB had nothing to hide, but everything to show in it's coming quarter results. With the on going asset disposal, improving CPO price and the commissioning of the oil palm mill in 2015, we would be able to see a higher EPS of probably 8 to 10 cents for FYE 2015, which can be translate to a price of 60 cents based on EPS 10 x PER 10. The coming company share buy back process will also help to enhance the value of the company to the shareholders. KUB should be a good long term haul with a possible target of RM 1.00 in the future.

Show down on KUB? You decide

Bone's short term TP: RM 0.60

Cheers and have a nice day


Wednesday, 3 June 2015

ILB - Integrated Cash Pile

Integrated Logistic Berhad (ILB 5614) is no stranger as an established logistic player in the international front. Currently, the group had established footprint at Malaysia, China and United Arab Emirates (UAE) which provide a mixture services of : -

- Warehousing : Rental of warehouse, handling and providing logistic solution services
- Freight Forwarding : Sea and air freight forwarding and shipping agent
- Transportation and Distribution : Trucking and container haulage

2 years ago, ILB had underwent a restructuring exercise which had saw the disposal of warehouses in Shenzhen and Henan during 2013. The disposal had resulted in ILB's sharp declining revenue for the year 2014. Along with several provision in their other investment, namely HengYang Petrochemical Logistic Ltd,  ILB had been seen performing below par for the year 2014, sipping into the red zone.

However, with the disposal of the warehouse in 2013, and after rewarding shareholder with treasury shares and good dividend in 2014, what is lying ahead for ILB in 2015 and beyond?

ILB had been trading in a low volume nature for the past 8 months since October 2014. However, the company had saw numerous share buy back especially from the director during the season, which had saw both executive director, Mr Tee Tuan Sem and Makoto Takahashi, each totaling more than 11% of shares directly.

ILB consolidation had finally came to a halt when the company had approved a 10% share buy back, which had saw the company whipped up shares from the open market, starting from a lowly 70 cents region. The company had recently put in huge share buy back at the range of RM 0.80.

A quick outlook would see the share being supported well at the range of RM 0.80, and the continuous buy back will be looking to see ILB trading in the region of RM 0.80 to RM 0.90 in no time.

ILB - Still Banging on China

2 years ago when ILB had decided to sell off their warehouse in ShenZhen and Henan, there had been rife speculation that ILB could be exiting the China market, cashing out and look for new opportunity at the other region. However, with the massive economy development in China, it could be unwise for not tapping with the growth of the great nation. The sale of the warehouses is a restructuring exercise in ILB to focus on the higher demand area in China, which means area with higher utilization rate.

According to sources, ILB operation in Wujiang, China, had been running at 100% utilization rate for all its 6 warehouses. The company had previously invested another RM 56million to build 3 more warehouses in that area, in which the 3 warehouses will be ready for operation now. Sources had informed that the 3 new warehouse will probably hit up 100% within 2015.

WuJiang, situated in the southern of Suzhou, and eastern side of Shanghai, is a strategic place for warehousing with it's close proximity from the port and main city.

The 3 new warehouse that will be ready and operational in 2015 will see a great contribution towards the bottom line of ILB FYE 2015.

Riding on the completed airport from UAE

Despite the challenging year in 2014, ILB 50:50 joint venture, INL, had achieve a occupancy rate of 52%. However, in line with the fully operational Al Maktoum International Airport, INL is believed to be able to see more occupancy rate for it's close proximity towards the airport. INL facilities including high quality warehouse and cold room facilities, which will be suitable for diaries and food products that is imported to UAE.

Although the company had saw sharp slide in global oil prices which affected major world economies, the group is still positive on the future occupancy rate for INL, which will be mainly bolstered by the fully operational Al Maktoum International Airport.

Solid Fundamental with Possible Corporate Exercise

As of the latest financial take out, ILB is on a net cash position of approx 70 cents. Currently, ILB is sitting on cash and cash equivalent worth RM 152,698,000. At the current price of RM 0.82, buying the current share will be liken to pay 12 cents for an international logistic company, and on top of that, enjoy the potential growth of the company in China and Dubai. The current price is also reflecting less than 50% of the current NTA of RM 1.71 as well, of which a significant portion is dominated by cash.

ILB had saw massive share buy back from the company as of lately. The recent approved 10% share buy back from the company will allow ILB to buy back a total of 17.8 million shares, with an allocation of fund no more than the company retain earning and share premium, which had a total of more than RM 50 million.

As of the latest tracking, ILB had bought in 1.5 million of shares from 26 March 2015 to 2 June 2015, at a cost of RM 1.158 million. Joining in the bandwagon had saw Makoto Takahashi raking in 742,000 shares on 28th May 2015 at an average cost of RM 0.814.

With the huge accumulation and share buy back, this could throw in the assumption of corporate exercise in the future which could be looking at
- Bonus Issue
- Possible Asset Injection of ILS Sdn Bhd (Integrated Logistic Solutions Sdn Bhd, A Malaysian Logistic company, held privately with common shareholder) to raise fund from public for local expansion, which could possibly see par value reduction, share split, private placement and right issues.

ILB outlook is deemed interesting in the coming future. Even without any near term corporate exercise, with the start of the operation of the 3 warehouses in Wujiang and the cash pile, ILB is poised to see a changing game in 2015. However, with the current massive buy back from director and company, the game just need to get hotter.

Putting your bets in ILB warehouse? You decide

Bone's Short Term TP : RM 0.90
            Long Term TP : RM 1.20


Cheers and have a nice day