Wednesday, 28 October 2015

Careplus - The Eye of The Dragons

Careplus Group Berhad (Carepls - 0163) is one of the smaller company that is involved in the manufacturing rubber and synthetic gloves. The group also manufacture non-woven disposable such face mask, surgical gowns, caps and show covers.

With a total market capitalization of just RM 183million, and a strong rising USD, where will this lead for Careplus ?

Careplus had went through a series of corporate exercise which saw bonus issue and enlarge share capital. Currently, Careplus had a total of 364.24 million of outstanding shares issued at par value of RM 0.10.

Despite the latest equity shake up from the board weaker market, Careplus had remained resilient on it's share price, consolidating well at the range of RM 0.50. A good break out with substantial volume will be seeing Careplus challenging new heights in the coming day. A quick look out will see Careplus putting a good easy challenge at quick resistance of RM 0.55.

Stronger USD really matters

It is common sense to see glove makers have a better profit margin from a stronger USD against the MYR since glove products are traded in USD.
After retreating back from a high of almost RM 4.45 to 1 USD, the greenback continue it's warpath journey upwards, with the latest conversion at RM 4.28 to 1 USD. The expectation from the Federal Reserve of United States in raising the interest rate had been increasingly sought after as Janet Yellen had indicated a raise since 2014. The gradual raise of the interest rate by Feds will result in an even stronger USD against MYR.

The cheaper oil price will also give a bigger margin on synthetic gloves as raw material cost comes cheaper. Hence, glove makers are seeing a double boost from a stronger forex gain and cheaper material input.

Rising Demand on Gloves

The gloves industry will continue more demand in the nitrile gloves where healthcare continue to improve. According to research company PR Newswire, the improvement of healthcare in the US and Europe will continue to drive up nitrile gloves demand, where Malaysia is the top world largest supplier of rubber gloves, commanding two third of the global market share.

The key factor driving up the global glove demand is from the rising number of aging population, increasing healthcare expenditure, accelerating awareness on hygiene and healthcare reforms with more stringent regulations, improvement of global economic growth and increasing potential in emerging markets.

With all the key driving forces behind, key player such as Top Glove, Hartalega, Kossan and Supermax had each allocated a capex of approximately RM 150m to RM 400m for expansion activity, which includes M&A. This will be seeing approximately RM 1.5 billion ready to be reinvested into the gloves industry.

Careplus - A Prime Target from the Dragons

Emerging glove makers that are still growing will probably see good offer knocking from the bigger player. Currently, the smaller player in the listed market is Esceram (Market Cap - RM 113 million), Careplus (Market Cap - RM 183 million) and Comfort (Market Cap - RM 350 million). The potential target for the M&A will be Esceram and Careplus, given their market capitalization of below RM 250 million.

According to the latest budget, rubber glove manufacturers will be the prime beneficiaries in view of the proposal for a Special Reinvestment Allowance (RA) Incentive for companies that have exhausted their eligibility to qualify for RA. The rate of claim is at 60% of qualifying capex and can be set off against 70% of statutory income from year of assessment 2016 to 2018. This had open a good window for the Big 4 to secure their next big expansion.

According to close sources, Careplus is currently being courted by Top Gloves and Hartalega on a possible take over. Top Glove had publicly announced on their next route of action which will see M&A to grow it's business. Top Glove is ready to spend up to RM 400 million in M&A activities on businesses that is of the similar or related industry. However, the competition will not be easy for Top Glove with the presence of Hartalega as well as possible turn up from Kossan and Supermax.

Should Top Glove spend RM 400 million on Careplus, that will see Careplus worth approximately RM 0.785. (RM 400 million / 510 million shares *assuming Careplus-wa are fully exercised)

As of lately, Careplus major shareholder, Lim Kwee Shyan had been seen actively converting Careplus-WA into mother share.


Careplus will be a very interesting company to be look at. Given the stronger USD, the fastest manner to capitalized this opportunity is through M&A.
- Careplus to benefit from stronger USD
- Cheaper oil price will see cheaper manufacturing cost on synthetic gloves, hence higher profit margin
- Gloves market continue to see demand driven up by key factor such as increasing healthcare expenditure, accelerating awareness on hygiene and growing emerging market opportunity.
- Careplus manufactures face mask will see demand to 1Q of 2016  in affected country by the haze situation.
- Careplus is prime target for M&A activities by Top Gloves. Top Gloves capex of RM 400 million will see Careplus worth RM 0.785 a share
- 2016 to 2018 as being a good year for Rubber Makers to see reinvestment under Budget 2016

Ride the wagon? You decide.
Bone's short term TP : RM 0.60

Cheers and have a nice day


Tuesday, 27 October 2015

SEB - Twin Dragon

Seremban Engineering Berhad (SEB - 5163) is primary involved the engineering sector with more than 30 years of experiences. The company had distinct record in handling the engineering part of the plant building project dealing with oil and gas and hazardous material. The group also manufacture fabricated process equipment, provide maintenance of plant as well.

For the past 1 year, SEB is involved in the SAMUR project which had saw higher revenue. But due to cost overrun, it had dampened the result. Now that SEB had learn a hard way of experience, where will SEB be heading into the coming days?

SEB had been trading in a thin volume manner for sometime, however, not until the recent transaction which had saw more than 2.5 million of shares crossed hand in the open market on the 21st of October 2015. Prior to the event, SEB had maintained at RM 0.45 as a short term consolidation effort. Should the momentum come back, SEB should be able to see a stronger volume in the coming days that will penetrate above RM 0.50.

SEB could be trading it's way towards RM 0.70 along with several corporate exercise that will see new shareholder unlocking the true value of SEB.

SEB on Pengerang

Nothing can be better with a twin catalyst for SEB's share price to appreciate further. SEB is known for their expertise in plant building as well as fabrication of plant materials. Although the previous project in SAMUR (Sabah Ammonia Urea) plant had saw higher operating cost, the experiences gained from the project will equipped SEB ready for the next bigger chunk of project in Pengerang. SEB involvement in SAMUR also pave way for other Petronas linked projects, especially in Pengerang.

According to close sources, SEB will be looking to secure a package in the Refinery and Petrochemical Integrated Development project (RAPID) in Pengerang valuing almost RM 300 million. As of recent, Bina Puri and Gadang had announced their contract awards from Pengerang.

The management of SEB is also very confident on securing more waste management contract as well as airport terminal facilities.

Emergence of New Shareholder

SEB is a subsidiary of Success Transformer Corp Berhad (Success - 7207) through the ownership of 52 million shares (65.26%). Due to the failure of Success in bringing more value to SEB as a majority shareholder, Success had been looking for new shareholder to unlock and add new value to SEB by selling their block of shares.

According to close known sources, Success had finalize the share sale of SEB at approximately RM 40 million for the whole block of 52 million shares, which could reflect a value of RM 0.77 a share.

As of recent, Success had saw it's share price rocketed from a lowly RM 1.30 to RM 2.00 in a short time frame.

The latest quarter had saw SEB's NTA standing at RM 0.70, however, there are still a considerable sum of undervalue freehold property assets that could be dating back to 2009, where asset had appreciated by a considerable sum

In a quick conclusion, SEB will be an interesting company to look out based on:
- Upcoming announcement on projects secure at Pengerang worth approx RM 300 million
- Success selling at approx RM 0.77 a share to new emerging shareholder
- Potential corporate exercise from new shareholder with new asset injection, bonus issue and private placement

Will SEB hit the ceiling limit with the twin catalyst? You decide.

Bone's short term TP : RM 0.60

Cheers and have a nice day


Monday, 19 October 2015

October Feature on Comcorp - Synergizing IT and Energy

Comintel Corporation Berhad (Comcorp - 7195) is involved in semiconductor electronics, ICT solutions as well as the recent involvement in the green energy technologies.

Comcorp had been little known to the investor due to under coverage of the company. However, with the recent restructuring efforts as well as the involvement in the green energy technologies (Biogas), Comcorp could be emerging as one of the rising star in the future.

With the recent stronger USD as well as the involvement in the renewable energy sector, how could this interpret to Comcorp as a whole in the future?

Comcorp had saw a huge volume transacted in the open market during the month of July. The recent dampened market sentiment had saw the share price dropped back to the range of RM 0.25. However, Comcorp had saw some recent price movement with significant volume at the end of September, which followed by a good consolidation of volume and price at the range of RM 0.30.

Comcorp could be looking to see a break out in the coming days once it had broken RM 0.32 with supportive volume. A quick outlook will see Comcorp challenging back towards RM 0.40 as the first resistant line.

Benefiting from stronger USD

Comcorp had been a silent beneficiary of the stronger USD through it's fully owned subsidiary BCM Electronic Corporation Sdn Bhd. BCM Corp derived 100% of it's revenue in USD. With the increased demand in the electronic segment and the stronger USD, the electronic division had recorded a stunning improvement of RM 14 million to RM 151.16 million compared to the last corresponding quarter in 2014.

Currently, the exchange rate of MYR to USD is RM 4.18 to 1 USD.

With the robust outlook in the electronic sector coupled with the stronger forex gain, Comcorp will continue to benefit from the brighter outlook from it's wholly owned subsidiary, BCM Electronics.

Starting a Recurring Revenue Through Green Energy

Comcorp through it's subsidiary, Comcorp Green Technologies Sdn Bhd had ventured into the renewable energy sector recently. While the current hottest renewable energy had been solar power, Comcorp aimed for the niche pie in the renewable energy sector - Biogas.

Comintel had with US green technology firm, Biogen, came out with the Advanced Biomass Gasifier system that will put through a 100% carbon free process energy generation from renewable energy.

The 2MW REPPA (Renewable Energy Power Purchase Agreement) will start in December 2015, which will see through a revenue of RM 6.67 million per annum for a period of 16 years.

The success of the Advance Biomass Gasifier system will open a large opportunity for Comcorp to tap into the RM 30 billion market of bio-energy in Malaysia and Indonesia.

Indonesia Bio-Energy market a gold mine

The Indonesian government expects to develop 1,200 MW bio-energy fueled power plants with the minimum feed in price of RP 1150 (RM 0.36) per kilowatt hour. However, prices will depends on the location of the biomass and it's connectivity to the transmission grid. According to the Indonesian energy and mineral resources minister for renewable energy - Dadan Kusdiana, biogas/biomass power plant will need USD 3.1 million per MW.

Currently, Comcorp through it's 80% owned Indonesian unit - PT Intelcom Indonesia is prepared to pioneer the RM 15 billion market of biogas/biomass energy in Indonesia.

Fundametal Outlook

Currently, the core revenue contributor of Comcorp will still goes to it's electronic manufacturing division - BCM Electronics. While doing so, Comcorp had diversified into recurring revenue project in the renewable energy sector, which will start to see contribution to the financial of the company in FYE 2016.

The electronic division is expected to continue it's strong contribution to the group, with a forecast of 4 cents EPS for FYE 2016. With the fully operational Advance Biomass Gasifier system in December 2015, that will see a further contribution of approx 4.7 cents in EPS in the financial standing of Comcorp (6.67m / 140m shares). That had not counted on the future projects / REPPA that Comcorp will be looking to undertake in the future locally and internationally (Indonesia).

Comcorp is a very interesting company to be look at based on
- Improving financial from stronger demand on electronic sector.
- Stronger USD for a better forex gain in the electronic division
- RM 6.67 million recurring income from REPPA starting December 2015
- A total of RM 30 billion bio-energy market from Malaysia and Indonesia
- Trading at more than 50% discount from NTA of RM 0.71
- Potential EPS of 8.7 cents in year 2016, at PER x10, valuation at RM 0.87, a 190% capital appreciation from the current RM 0.30.

Bone's short term TP : RM 0.40
Long term : RM 0.60

Cheers and have a nice day


Friday, 16 October 2015

SCABLE - More Than Just Cables

Sarawak Cable Berhad (Scable - 5170) predominantly involved in the manufacturing, trading, supply and installation and commissioning of power cable and industrial wires. The types of cables include single core power cable, multi core power cable, aluminium cable, wires and conductor.

With the recent volatile sentiment in the market, what is hidden inside Scable which will be ready to be unleashed out?

Scable can be seen trading within a range of RM 1.30 to RM 1.60, with good signs of accumulation sighted during the June and November 2014, where strong accumulation are mostly done at the range of RM 1.50. Although the recent market correction had brought Scable below RM 1.20, the stock had been resilient in coming back towards it's trading zone in a quick manner. A short term outlook might suggest that Scable will be able to continue it's momentum towards RM 1.60 in the coming days.

On a longer term outlook, Scable had on 15 October 2015 broken a long term down trend resistant line as per highlighted in the above graph. With this break out, it could be meant that Scable is looking forward for a new uptrend in the making. A quick psychological resistant will be placed at RM 1.60.

Sowing From Different Cables
Scable already had an outstanding book order of approximately RM 1.4 billion, comprises of the latest project secured for a 275kV transmission job at Samalaju industrial park valued at RM19.1 million. The other predominant jobs include the 500kV backbone line (RM 620m), Balingian Power Plant (RM 493m) and Pengerang (RM 257m).

Scable had also a healthy tender book valuing RM 1.4 billion with jobs from TNB 500kV lines in Peninsula Malaysia, underground cables for 132kV in Petra Jaya Kuching, supply of underground 275kV cables for Pengerang, and some various TNB tenders for supply and distribution lines.

After acquiring Leader Cable Industry Berhad on 2013, the Scable had emerge as the strongest electric and telecom transmission cable in the South East Asia region.

The group foresee to see a total revenue of more than RM 1 billion for the FYE 2015 by doubling up the exports from 20% to 40%, and capitalizing the current stronger USD for a better forex gain as well. Currently, group managing director, Mr Aaron Toh had identified Australia and Singapore as the key export market for the 132kV underground high voltage cables. Scable is also marketing their newly launched 275 kV power cables to Singapore and Australia to cater for the rising demand of electricity in the city.

Indonesia's Foray

While most think that Scable is just a power cable manufacturer, they could be dead wrong when Scable 78% owned PT Inpola Mitra Elektrindo (IME) starts to commission the 10MW hydro power plant in north Sumatra.

The RM 80million hydro electric plant is already on it's final stages and will see commissioning in the January 2016. The latest revised tariff in the PPA with 28% increase to 28.5 cents per kWh will be looking to generate an estimated RM 40 million a year. A 78% ownership from Scable could easily translating to RM 30 million of cash flow a year. IME will have a renewable concession of 20 years.

Beside that, Scable is already in advance planning stage for the next joint venture with Indonesia utility body Perusahaan Listrik Negara PT (PLN) for a double 10MW in north Sumatra. The PPA is expected to conclude by the end of this year. However, this JV will see Scable holding 65% while PLN will hold the remaining 35%.

Fundamental Outlook

Working on the current book orders as well as focusing on export market for larger kV transmission lines to capitalized on the stronger USD, Scable had seen extraordinary growth for FYE 2015, with 1H 2015 earning hitting 7.47 EPS. Scable will expect to see more contribution in the 2H 2015 from current book orders, estimating to see a total EPS of 16 to 17 cents for FYE 2015.

We continue to place a positive outlook on the RM 1.4 billion worth of projects tendered by Scable which will keep the group busy for the next 2 years.

The commissioning of the 10MW hydro electric plant will also be seeing a RM 30million cash flow starting 2016, which will be contributing approx 9 cents in EPS for FYE 2016 based on 317million outstanding shares.

Scable will be an interesting company to be look out in the near term. Given a solid fundamental outlook, Scable will be good to be invested based on:
- Estimated FYE 2015 EPS of 16 cents, PER x 10, value at RM 1.60
- Hydro Electric Plant start commissioning on January 2016, estimate to bring RM 30m cash flow per year, 9 cents EPS per annum.
- Good healthy order book at RM 1.4billion, and a healthy tender book value of RM 1.4 billion.
- Scable to see 2 new PPAs for Indonesia's north Sumatra Hydro Electric Plant by end of 2015.
- Stronger USD contribute to a better margins for export market
- Focus in supplying 132kV and 275kV power cable to key market like Singapore and Australia to cater for their demand.

Ride the Electrifying Cable?

Bone's short term TP : RM 1.60

Cheers and have a nice day