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.

Friday, 10 June 2016

NWP - Grand Shake Up

NWP Holdings Berhad (NWP - 5025) is currently known for it's timber products in Sabah, carrying more than 15 years of history of operation. NWP also offers klin drying, timber treatment, contract logging and contract saw-milling services. While the local timber industry is growing rapidly for the past 1 year with the likes of Focus Lumber, Mieco, Evergreen and Hevea, NWP had been at the darker side of the boom. However, the latest development in the entry of new shareholder could start to spark a new lease of life for NWP.

Dato Seri Nelson Kee
The consortium of Dato Seri Nelson Kee and Marcus Mak from GS Realty Sdn Bhd had altogether took up a combined stake of 17.73% in NWP. Unofficial number would suggest that Dato Seri Nelson Kee with the key team leaders from GS Realty could see more than 30% in controlling stake of NWP.

GS Realty Sdn Bhd is a no stranger in the realm of the real estate market in Malaysia. Started humbly from a corner shop in Mahkota Cheras more than 5 years ago, to date, GS Realty headquarter is situated at Fraser & Neave Business Park at Jalan Loke Yew, with branches in all over of Malaysia.

In the beginning, GS Realty started out in the sub-sales market. However, with the rapid growing property market for the past 4 years, GS Realty had worked with a good number of developers for the sales and marketing of their new under construction properties.

GS Realty is prime sales and marketing to several branded developer such as i-Bhd, Hatten City and KSL, just to mention a few. Albeit the property market condition, GS Realty had achieved a total RM 11.7million sales commission for the month 31st May 2016 (Average of RM 585 million in sales value based on 2% commission). As of to date, there are more than 18,000 agents in GS Realty.

Bringing Real Estate to another Level

It had been the dream and vision of Dato Seri Nelson Kee to bring the arena of real estate into another level. The usual practice of most real estate firm will be focusing on sub-sales market and new development properties that are built by developers. For a real estate agency to be able to sell their own property project is another new level altogether.

While doing so, retaining key people will be utmost important in the real estate industry. With GS Realty owning a public listed entity, this will enable key leaders as well as key sales people to have the opportunity to be part of the owner of the company through shareholding.

With NWP being the public listed vehicle for GS Realty, there will be great beginning and interesting journey ahead.

NWP to see corporate exercise and joint venture

NWP could be looking to see more corporate exercise in the coming days. While balance sheet of NWP is quite clean with borrowing of less than RM 1million, we could be looking at right issue with free warrant as a mean of raising fund for new land acquisition as well as working capital at 2H 2016.

NWP will also be able to see joint venture opportunity with developers for their new launch project, such as i-Bhd.

On a technical outlook, NWP could be looking interesting with a potential breakout on an ascending triangle that could see saturation at RM 0.40 level. A successful break out at the key level of RM 0.40 will then be able to see NWP trading towards RM 0.50.

Although the current fundamental of NWP doesn't support the current price valuation, however, the current changes in the shareholding, foreseeable corporate exercise in raising working capital and for new acquisition as well as new business direction from a proven team of management in GS Realty could breath a new lease of exciting life in NWP.

While on a wild thoughts, should cash cow GS Realty Sdn Bhd be injected into NWP, that will definitely cause a market frenzy. Who knows?

Bone's short term TP : RM 0.50

Tuesday, 7 June 2016

WZSatu - Built for Glory

WZ Satu Berhad (WZSatu - 7245) had been running under the spot light lately as corporate announcement are knocking on the doors in packs. The steel player had saw much diversified business with the emergence of strategic shareholder, which saw new businesses in large infrastructure construction (Highways, Bridges and Sea Ports), as well as mining concession in bauxite extraction.

When royal meant business

The rise of WZSatu is much attributable to Dato Sri Tengku Uzir bin Tengku Dato Ubaidillah, which is the executive chairman and CEO of the group. DS Tengku Uzir had been buying back shares of WZSatu from the open public since 2014 even at the peaking heights of RM 2.70 before the bonus issue. The latest sighted buy back from DS Tengku Uzir saw his stake growing to almost 25%. (Excluding warrants)

We would reflect that DS Tengku Uzir consistent buy back despite of the fluctuation price in the open market will be a good sign of confidence that there will be even greater event and future that is set in for WZSatu.

WZSatu going strong in infrastructure construction

It is notable that WZSatu only had appetite in infrastructural construction, especially on highway.
Last year, WZSatu had bagged in a RM 499 million worth of highway construction contract from IJM for a 26km stretch in the WCE. Other notable contracts that are bagged in during year 2015 will be the RM 124 million elevated bridge structure over Bayan Lepas from UEM Construction as well as a RM 58.22 million contract for extension work in Kuantan Port expansion project from Fajarbaru Builder.

For 2016,  WZSatu started to add on to it's book order with RM 65.37 million RAPID contracts (RM 46.75 million for installation of pipes and fittings, and RM 18.62 million for pipe spool pre-fabrication) and a RM 43 million highway upgrade work at Perak (Teluk Intan - Kg. Lekir) for 24 mths, commencing 10th June 2016.
The total book order is currently standing at a healthy level of RM 790 million.

We expect WZSatu to be able to clinch more construction work in the 2H of 2016, especially for highway packages from DASH, SUKE, EKVE and SKVE. Aside from contract in the peninsula Malaysia, WZSatu had formed a JV with PKMM Bina Sdn Bhd to bid for a portion of upgrade work in the Pan Borneo Highway.

Barring unforeseen circumstances, familiar sources are optimistic on WZSatu pushing book order near to RM 1 billion by the end of 2016.

WZSatu Silk Road

The latest announcement of the sale of Silk Highway to WZSatu had received mixed reaction from the public. While the Silk Highway had yet to see positive operating cash flow, it would soon become a silk road for public in the mere future with emerging township new township in Bangi, Semenyih and Kajang.

Adding the highway into the group asset portfolio will definitely open up window of opportunity for cornerstone investor in the future when the highway become profitable. This could be one of the core reason in the consistent open market buy back from DS Tengku Uzir.

The latest stint in the local Malaysian market had saw a change shift of appetite in EPF investment style, with preferences towards company with steady revenue such as highway concession. Ekovest had been tipped off in the market on EPF buying in due to it's DUKE highway concession and DUKE Extension, which is a core reason that saw Ekovest share price appreciated greatly.

SILK highway resemble a gem that is going to be uncovered in the future. When it turn profitable under the belt of WZSatu, the company will definitely see a great re-rating on share price valuation.

Although the share price chart will reflect WZSatu trading on a long term declining trend, we would like to point out on a possible turnaround event on WZSatu as the stock had broken away from a long term resistant line as highlighted in green.
The possible rebound will be backed by
- Project Book Order of RM 790 million secured in 2H 2015 until current 1H 2016.
- Restart of bauxite mining activities in 15 July 2016.
- Potential corporate exercise for fund raising activities in future for asset purchase.

WZSatu will be an interesting company to be looked out. Beside it's growing construction business, we continue to see bullish demand in the global need for aluminum, which raw material is bauxite. WZSatu will be able to see a restart in Bauxite Mining after 15th July 2016, where the extended ban will end.

A short term outlook will see WZSatu hitting a possible RM 1.20, with a longer term outlook at RM 1.50.

Bone's TP : RM 1.20

Monday, 6 June 2016

Superlon - Emerging Star Player

Superlon Holdings Berhad (Superln - 7235) had a history dated back to 1992, where the company started it's venture dealing with nitrile butadiene rubber (NBR) foam, a core insulation material. In 2007, Superlon became public listed in the second board, raising RM 8.9 million from the IPO. Till date, Superlon is carrying a market capitalization of approximately RM 160 million after 9 years of public listing.

However, a detailed analysis on Superlon saw the company started to pick up on revenue during 2014, which had lasted throughout 2015, and doesn't seem to see any stop in 2016 as well. While the global market remain challenging due to volatile raw material prices as well as currency fluctuation, what is the strategy that Superlon is going to employ to ensure the continuation of the growth of the company ?

Growing with the Asian Market

The Asian market had saw much accelerated growth for the past 5 years. Emerging market continue to boost industrial output and consumption due to rapid infrastructure development. According to Transparency Market Research, the insulation (fiberglass, plastic foam, mineral wool) market for residential construction, industrial, HVAC as well as non residential construction appliances will see a CAGR of 8% between 2014 to 2020. The market is projected to rise to USD 64.91 billion in 2020, in which much of the growth will be focused in the Asian, especially the emerging market. While Fiberglass will account for more than 42% of the overall insulation material, following tightly behind will see Plastic Foam, which is almost 40%.

Due to the rapid development of the property and construction segment in the emerging Asian market, there had been massive spillover effect into the demand on building's facilities work. As for Superlon that provide solution and services related to the HVAC & R (Heating, Ventilation, Air-Conditioning & Refrigerator), it will resemble one of the main beneficiaries from the continuation of this growth. With the rising demand for air-conditioning from building to heat and sound insulation of the passenger car, Superlon is well positioned currently to capture this growing market.

One of the proven beneficiaries from the rising development of property and construction sector is United U-Li Corporation Berhad (Ulicorp), which offers cabling system for buildings and infrastructure.

Ulicorp had been rising since middle of 2014 from a price range of RM 1.00 to the current price of RM 5.49 at 3rd of June 2016, with a total dividend of RM 0.25 per share paid back to investor during the 2 year period.

Superlon - a potential replication of Ulicorp

There are much potential to see Superlon repeating the feat of Ulicorp. Several similarities that are identical includes :
- Adequate share base to provide liquidity without huge dilution in the earning of the share. (Ulicorp 145.2 million shares, Superlon 80million shares)
- Beneficiaries from the rapid development of property and construction in the Asian market region
- Good dividend policy that reward shareholder with at least 2 dividend per financial year.
- Strong and solid management
- Net cash company

According to technical reading, Superlon will continue to trade with the uptrend line due to solid and consistent growth. The current pricing of Superlon could be attractive after a few months consolidation at the price range of RM 2.00. Another point to note is that Superlon is also intersecting with the support line of the uptrend, which will possibly suggest a upward push.

Superlon Global
Distribution Network
With the consistent strong display of financial result on the 3rd Quarter FYE 2016, Superlon should be able to hit a high note for the final quarter of FYE 2016. According to sources, FYE 2016 will be looking to see revenue hitting near to the RM 100 million mark, with EPS hitting above 20 cents per share. Valuation at PER x 12 (factor in growth at current pricing) should give a fair valuation of RM 2.40 in near term for Superlon.

Moving forward, Superlon will continue to expand it's foothold in the Asian region, targeting on emerging market segment. The penetration into the India market will be a great opportunity for push Superlon into a greater growth in the future.

Bone's Mid Term TP : RM 2.40