Thursday, 31 March 2016

Mycron - Cold Roll Hot Call

Mycron Steel Berhad (Mycron - 5087) is the first Cold Rolled Coil (CRC) manufacturer in Malaysia back then when it started it's operation in June 1990. To date, the factory is still operating in their 18 acre site at Shah Alam, Selangor. Currently, Mycron installed facilities includes:
- Continuous Pickling Line
- Hitachi - 6 High Cold Reduction Mill
- Electrolytic Cleaning Line
- Batch Annealing Furnaces
- Recoiling Plant
- Combined Skinpass Mill & Tension Leveling Line.


The latest market trend had display a strong steel industry play. The major come back for the steel industry in KLSE is due to
- Government intervention in imposing anti dumping duties towards several steel import products
- Stronger MYR that will translate to better operation profit
- Higher demand due to more public infrastructure project being dished out in 2016

While MITI had put the final line on PPCCSC by imposing anti dumping duties to exporting countries like China and Vietnam, MITI is currently still investigating on the CRC (Cold Roll Coils) and had given a provisional anti dumping duties from 4.58% to 23.78% from the alleged countries (China, Vietnam, South Korea) for 120 days starting from 25th January 2016.

The petition is filed by CSC Steel Sdn Bhd on behalf of all domestic player that are involved in producing Cold Roll Coils (CRC).


CSC Steel Holdings Berhad, which core production involved CRC had saw share price rocketing up in a strong manner since November 2015.

Sources that are familiar with this matter are looking to see MITI putting up a anti dumping duties towards imported CRC products for a possible period of 3 to 5 years, with duties as high as 30%.

The imposition of the anti dumping duty will certainly come in very good for CRC producer such as Mycron.

According to data, Mycron had been utilizing up to 78% of their max production capacity of 260,000 tonne per year. However for the past few years, Mycron had been suffering from low margins albeit the increasing demand throughout the years. 

On the technical outlook, Mycron is looking set to push above RM 0.40, supported with the changes of policy into protecting the local CRC producer by imposing anti dumping duties towards exporter from China, Vietnam and South Korea.

A technical break out on the long term resistant at RM 0.40 will then see Mycron paving towards next resistant at RM 0.48.

As per the 2nd Quarter for FYE 2016, Mycron NTA stands at RM 1.10 per share, with 2 quarter cumulative EPS of 2.89 cents.

At the current price, Mycron is deem very attractive given that
- MITI had imposed provisional anti dumping duties towards the CRC imports from China, Vietnam and South Korea while pending final decision on 23rd May 2016.
- Sources are positive on imposition of anti dumping duties on CRC with CSCStel leading the pack.
- Mycron is trading at 37% of it's NTA value of RM 1.10.
- Stronger MYR against USD will see better operational profit

Mycron will be looking to trade towards a medium term target of RM 0.48, with a short term trigger at RM 0.44.

 

Tuesday, 29 March 2016

YKGI - Steel Up

YKGI Holdings Berhad (YKGI - 7020) is one of Malaysia top 3 flat steel producer. Formerly known as Yung Kong Galvanising Industries Berhad, the group operates in Peninsula Malaysia as well as East Malaysia. YKGI also had trading hub in Thailand and Indonesia to distribute their coated steel products.

Albeit the increasing consumption of steel which is fueled by large infrastructural development in Malaysia, Malaysia steel industries outlook had been very challenging for the past 4 years with cheap steel imports largely from China and Vietnam, increasing cost from higher electric tariffs, implementation of GST as well as increasing labor cost.

However, the recent effort in the Malaysian Government in introducing anti dumping duties on steel import had gave the industries a new lease of life again. On the 22nd January 2016, MITI had imposed a flat rate 52.1% duties for import from China, while Vietnam producer/exported saw anti dumping duties as high as 34.85%, with exception for Nam Kim Steel Joint Stock Company. The duties are imposed on pre-painted, painted or color coated steel coils (PPCCSC) for a period of 5 years.

How would this be a turn around opportunity for YKGI ?


Steel Manufacturer on Pump Up Production

The huge vacant in the supply chain had definitely left the local steel manufacturer rushing to pump up their production in order to meet the continuous demand of steel. Malaysia being a developing country had been consuming much steel locally, primarily contributed by the huge infrastructural development project such as LRT extension, MRT as well as highways.

As for YKGI, the group is currently pumping out additional 80,000 tonnes or 53% in order to meet the rising demand following the imposition of the provisional anti dumping duties for PPCCSC products imported from China and Vietnam.

For the past couple of years, YKGI had been suffering from low volume production that resulted in operation losses. However, 2016 will be the turn around year for YKGI supported with higher steel demand due to large infrastructural project taking place in Peninsula (LRT, MRT) and East Malaysia (Pan Borneo Highway).

YKGI had streamlined is operation of Asteel Sdn Bhd, Asteel (Bintulu) Sdn Bhd, Asteel (Sabah) Sdn Bhd into Asteel Resources Sdn Bhd.


The technical aspect of YKGI had shown interesting development with the share price showing a rock bottom price consolidation at the range of RM 0.20, as well as a price break out on the long term down trend resistant line. The break out should be able to maintain it's momentum given the changing landscape of the industry through imposition of anti dumping duties from the government.

YKGI could be looking to travel towards it's first straight line resistant target at RM 0.36 in the medium term.


Market trending strong in steel industry

The KLSE had saw strong interest in listed steel manufacturer. The imposition of the anti dumping duties had saw huge interest in largely beaten down share price of major big player in the steel industry, such as Annjoo, Masteel, Cscsteel and SSteel.



The effect had start to see interest spilling towards the smaller steel manufacturer that is listed in the KLSE, such as Melewar and Mycron.




Benefit from a stronger MYR


One of the core reason for the group running into losses in 2015 despite higher revenue is due to the higher operating cost from a stronger USD.

As MYR had started to bounce back into the range of 1 USD to RM 4.00, this will benefit from a better production cost.


Pull Demand from Huge Public Infrastructure Development

The government commitment towards the infrastructural development of the country will continue to be the main fuel for the demand in steel industry. YKGI is expected to see it's order demand in Sarawak to rise by 50% in 2016 to 2018 due to the rapid development in the state.

Last year, East Malaysia contributed 20% of revenue to the group.

Infrastructure projects such as LRT, MRT, Pan Borneo Highway and construction development continue to underpin the demand of steel industry.


At the current price, YKGI is deemed attractive given the industry outlook and market prospect in Malaysia. A mid term outlook will see YKGI setting it's footage at the range of RM 0.35, while a short term outlook should be able to see YKGI trading above RM 0.25.


Thursday, 24 March 2016

LeonFb - A Steel Too Hot

Leon Fuat Berhad (Leonfb - 5232) had primary activities in trading of steel products as well as processing of flat and long steel sheets. The company started it's debut into the KLSE stock exchange in June 2014 at an IPO price of RM 0.60. With the continuous challenges in the competitive steel industry, Leonfb is considered a well managed company that had been able to scale towards profitability and paying 3 cents dividend for the past 2 financial year.

With the continuous robust development in Malaysia, there is always a strong demand for steel in order from various industry such as properties, construction, manufacturing and industrial use. The local steel industry is currently undergoing a strong reshape after MITI had imposed anti dumping duties from producer and exporters from China and Vietnam, with the highest tariff at 52.1%. The anti dumping duties will be in force for 5 years starting 24th January 2016. The anti dumping duties is aim at pre-painted, painted or color coated steel coils.

This major event will be going to see a steep drop of supply in steel coil, which had saw local player rushing to fulfill the demand gap. Below are some of the share price movement of established major steel player in Malaysia that had reacted towards the imposition of the anti dumping duties.

AnnJoo

CSC Steel Holdings Berhad

Masteel

 SSteel

The above steel player had saw investor interest in the local steel industry.

With most of the bigger steel player started to roll, the effect will soon to be felt to medium and smaller steel player that is listed in the KLSE, such as Leonfb.


Leonfb had been trading at the range of RM 0.46 to RM 0.52. Albeit a challenging 2015, the company had been able to pull through a revenue of RM 505 million with cumulative EPS of 5.96 cents. The latest NTA of the group is RM 0.76 per share.

Technically, Leonfb will be a good trading target due to the increase participation in the recent days, as well as the rising steel industry sentiment in the market due to the anti dumping duties imposed towards China and Vietnam.

Leonfb will be targeting to handle more volume with the completion of their new processing plant in Shah Alam on a 130,680 sqft freehold industrial land on April 2016. The plant will enable Leonfb to double up it's current capacity in the manufacturing division. Aside from that, Leonfb will also be targeting to explore the export market pending approval from local authority to operate it's new warehouse in Port Klang Free Zone.


On possible private placement

The group had saw strong expansion during the last couple of years, with land acquisition and construction of new factory and warehouse. Although Leonfb had an outstanding share issue of 310million, Leon Fuat Holdings Sdn Bhd had controlled 70.87% of shares, and LTAT 5.5%, which leaves a 25% float in the public market.

With the new factory in Shah Alam waiting to double up production capacity as well as new warehouse to handle export market, Leonfb could call for a 10% private placement to pare down debts to reduce interest payment and enhance shareholder return. A call for private placement will see a minimum RM 0.50 subscription per share.


Conclusion

Leonfb should be a good look out as a second liner in the steel industry, given the current strong sentiment in the steel industry. Leonfb is looking to see a stronger revenue in FYE 2016 through the new factory and warehouse operation that will possibly see revenue growing 20%.

Currently, the stock is also under the radar of local prominent investor, Fong Si Ling, dubbed as "Cold Eye", sitting on the top 10 shareholder list with 2million stock invested.

Leonfb short to medium term outlook should see a break above RM 0.50, and trading towards RM 0.60 based on valuation of PER x10 on FYE 2015 EPS of 6 cents.

Monday, 21 March 2016

BIG - Big Break Forward

B.I.G Industries Berhad (BIG - 7005) is a Sarawak based company that had started it's operation in Miri, Sarawak since 1982. Current core business activities involved manufacturing of industrial gases, manufacturing and distribution of ready mixed concrete in Sabah as well as property development in Sarawak, Sabah and Peninsula Malaysia.

Most of the core activities is based in East Malaysia. With the current massive state of development in East Malaysia, particularly Sarawak, it had brought into massive foreign direct investment into the state of Sarawak. The SCORE development plan as well as rising industrial park such as Samalaju Industrial Park had took a major change in the economy landscape in Sarawak.

With the most important event being the Sarawak Election that is to be staged in April 2016, massive infrastructural contract packages such as the much anticipated Pan Borneo Highway are being awarded out. Other than this, Sarawak is also addressing the needs of affordable housing through PR1MA housing project to address the needs of the rising younger population.

With such major development that Sarawak is under going, how would this be a game changer for BIG in the short term and long term outlook?

Looking on to the price chart of BIG could be indicating several major event that will have drastic material impact towards the financial of the company. BIG had saw active trading and accumulation on several different occasion in 2014, 2015 as well as 2016.

A longer outlook will set out a resistant line at the range of RM 0.70. The current price consolidation at RM 0.70, which is assisted with a ascending triangular consolidation pattern could had particularly signal out a saturation on the consolidation effort which could spark out a potential strong break up. Immediate break out trading range to be see at RM 0.70 to RM 0.80. BIG is expected to see more volume to build up in the coming days.


A Loud Big Bang

One of the core factor that had assisted in the rising share price of BIG is it's underlying asset. While business continue to be volatile, BIG's gold mine land asset in Kidurong Industrial Park, Bintulu is heading for a one-way rocket towards the North as Sarawak opens up to foreign investor to spur up the economy in Sarawak.

Bintulu, being the gateway to the highly sought after Samalaju Industrial Park had saw land prices appreciating more than 400% for the past 3 years.

According to the Annual Report 2014 of BIG, it is indicated that their land and factory is still carrying a valuation based on 1991, while the12243 sq meter (131,782.5 sqft) vacant land is valued at RM 630,519 based on valuation at 1995.
Compared to the latest valuation in 2014 - 2015, both of the land are grossly undervalued.
A quick comparison will be the factory of CCM at the same Block 26, Kemena Industrial Park had saw a 78,752 sq feet land and factory carrying a RM 35.8 million tag, based on valuation in December 2014.

According to familiar land valuer that focuses at Kemena Land District and Tanjung Kidurong, the land price at Kemena Land District is now ranging from RM 175 to RM 200 per square feet.

Based on this fact, the current market value for Lot 2072 should be approximately RM 26,356,500 (based on RM 200 psf), which will see a land sale windfall gain of approximately RM 25 million. The land sale windfall gain will translate to RM 0.52 per share. Sources informed that the land is being courted by a few interested parties and will be looking to seal the deal within this year.

To recap, Harbour Link Group Berhad is a proven material from the economic boom in the Kidurong Industrial Area.
The escalated economic push in the area had came in the way for Harbour, which had a approximate 100 acre of land to cater for large shopping malls, large size petrol station, large size shop houses and industrial lots.

Harbour share price had more than 300% increase since 2014 (3rd Jan 2014 - Harbour share price RM 0.85)


On Going Future Prospectus of BIG

Addressing the need for affordable house is critical in cities of Sarawak and Sabah. In line with the upcoming Sarawak Election in April, apart from massive infrastructure project such as Pan Borneo highway, BIG should be making it's way to benefit from the affordable housing projects - PR1MA in Sarawak.

We will also be upbeat on the Concrete division for BIG in FYE 2016 to deliver a much better result due to more commencement of construction project as well as government infrastructural project.


Conclusion
BIG is an uncovered gems sitting on gold mine land in Bintulu (Kemena Industrial Area). With the land itself being able to contribute a gain of RM 0.52 per share based on a windfall gain of RM 25 million, BIG share price is looking to see more upward surge. Can BIG hit the ceiling limit this time? Most importantly, are you going for this ? Your decision.

Bone's TP : RM 1.00 (Potential to hit ceiling)

Have a nice day

Regards,
Bone

Friday, 18 March 2016

TRC - A Better Tomorrow

TRC Synergy Berhad (TRC - 5054) is a one of the bumi status construction company that is listed in the KLSE. TRC had a good record in securing government infrastructure projects ranging from Peninsula Malaysia to East Malaysia, covering Sabah and Sarawak. TRC had exposure to notable infrastructure projects such as KVMRT 1 as well as LRT extension.

2015 had been proved to be a challenging year for TRC after being plagued with several incident on the construction of the LRT extension line. However, despite the challenging economy outlook, TRC had undertook the whole scenario in a diligent manner.

Current contribution to the group revenue are mainly from construction job secured in Kelana Jaya LRT extension project, KVMRT 1 as well as construction project on KL Eco City building. Given that most of it's LRT jobs are completed, it is currently pending on certificate of practical completion. To recap, TRC contract for the LRT extension is worth RM 950million. The issuance of the certificate of practical completion will see TRC recognizing at least 10% of the contract value, worth RM 95million for the next quarter result.


Construction to pick up in 2016

We believe that the construction arena in Malaysia will start to pick up again in 2016, fueled by more government infrastructure projects. The current notable projects are the KVMRT 2, LRT 3 rail links, Pan Borneo, SUKE and DASH highways. At the current stage with the latest RM 88 million project secured from Advanced Air Traffic (M) Sdn Bhd to develop a new Air Traffic Control Center in KLIA, TRC outstanding book order still stand healthy at RM 1.2billion.

TRC is expected to replenish it's book order to RM 2 billion through the year 2016 from infrastructural projects such as KVMRT 2.

Given the past working experience as well as TRC working relationship with Prasarana, TRC is in a very favorable position to clinch notable packages.


TRC technical outlook might be tricky as the stock had slid for 2 years, forming a long term downtrend line. However, it had successfully broken away from the long term down trend line at the end of 2015, consolidating at the range of RM 0.38 to RM 0.42.

The healthy consolidation is supported with a healthy financial ending for FYE 2015, with a EPS of 6.39 cents and a better NTA at RM 0.74 a share.

Conclusion

At the current price, TRC is deemed to be attractive given it's exposure towards coming up infrastructural projects as well as coming revenue/profit recognition from it's existing orderbook. TRC had also saw share buy back from major shareholder at the price range of RM 0.35.

Bone's short term TP : RM 0.45

Monday, 14 March 2016

KESM - The Rose Among Thorns

KESM Industries Berhad (KESM - 9334) which core principal activities are burn-in services for semiconductor devices had continue to display strong sets of financial result despite the current volatile economy outlook.

While the current semiconductor industry outlook might had saw a slight contraction in 2015 due to overwhelming production in electronic equipment segments such as communication and computing segments, the semiconductor demand in the automotive industry continue to show higher demand in high quality products that see 0 tolerance in defects.

The application of semiconductor in the automotive industry will continue to increase due to demand in safety features, application in ECU, drivetrains and etc.


Fundamental Outlook
KESM had delivered 2Q FYE 2016 in consistent with their growth, with 10% increased in revenue compared to the previous year quarter. The increase is due to the demand of burn-in services being offered by KESM.


As of 2Q FYE 2016, the cumulative EPS is 36 cents, while NTA increase to RM 6.40 per share. Albeit the current volatile global economy outlook, the management is confident on the demand of semiconductor in automotive industry, however, will exercise prudent decision in capex and expansion.


Based on the consistency of the financial result displayed in 2Q FYE 2016, KESM fundamentally supported trading range will be looking at RM 4.50 to RM 5.00 accordingly.

While currency volatility still exist, KESM shall be able to deliver a projected EPS of RM 0.65 for FYE 2016 (Projection of RM 0.15 for the next 2 quarters), putting up a valuation of RM 6.50 based on PER x10, which will also reflect it's value of NTA at RM 6.40 a share.

The high volatility of KESM is due to the smaller outstanding share base of 43 million shares, hence resorting to unforgiving sell down by retailers despite the excellent fundamental that KESM had displayed. Sources had been informed that the management are looking at possible bonus issue in order to enhance the liquidity of the share, as well as open up opportunity for fund houses to participate in the growth of the company.

Conclusion
KESM will be a good company to be invested in at the current price based on
- Largest independent burn-in service provider in Malaysia
- Focus shifting to automotive industry continue to see growing demand due to higher application of semiconductor in automobile with zero tolerance in field failure rate
- Projected EPS of FYE 2016 at 65 cents, value at RM 6.50 based on PER x 10.
- Net cash company with NTA at RM 6.40 a share
- Possible corporate exercise of Bonus Issue to reward existing shareholder as well as enhance liquidity of the shares.

Bone's TP : RM 6.00

Wednesday, 9 March 2016

PohKong - Glittering Gold

Poh Kong Holdings Berhad (PohKong - 5080) is no stranger in the Malaysian gold retailing industry. Dated back to 1976 from operating 1 outlet, currently PohKong is operating more than 100 outlets all over Malaysia. Currently, besides retailing on the the brand name of Poh Kong, new retail concept such as Diamond & Gold, Diamond Boutique, Gold Boutique and Oro Bianco are the brainchild of Poh Kong Holdings Berhad.

Last year, Poh Kong had saw major shareholder, Yeoman Capital Management Pte Ltd sweeping off massive of shares from the public into their Yeoman 3-Right Value Asia Fund. The latest feat at January 2016 saw another 650,000 units bought in the open market.

Currently, Yeoman Capital Management is holding 6.2% of Poh Kong share through direct and indirect stakes. While it is not known how big is Yeoman appetite in Poh Kong, but sources had indicated that Yeoman Capital will likely to continue increasing is shareholding towards 8 to 9%, translating to approximately 12 millions of Poh Kong share from the open market.

While there are 3 listed gold retailing company in Malaysia, namely Poh Kong, Tomei and Degem, Poh Kong is the largest among all according to market capitalization. Poh Kong also has the best liquidity in the market compared to the other 2, with 410m shares outstanding.

Gold starts to glitter
What is so interesting in the current development of gold? And what is the role of gold in the current state of global economy? Will it be worth while to hunt into gold now before a massive panic gold rush starts to spike the whole gold market?

These are some common question that might be floating in the mind of retailer.

It is important to note that Gold had actually broken away from a 3 year down trend that had started since 2013. The recent break away is a crucial indication that trader, investor and retailer need to take note about. A technical view will suggest gold to penetrate into the USD 1500 an ounce as the next stop of hike. But how would the fundamental aspect in the current state of economy would support the increasing value of gold?

Gold in natural form does not produce anything, nor will it gives you dividend by holding it. As such, gold will tend to lose it's glitter when the economy is bullish as other form of asset will bring in better returns. However, when equity market failed to deliver, it will cause massive volatility in the market when big funds starts to move around with their money. Cashing out equity would see fund being parked into money market while continue to search for a better vehicle to loop into. However, if currency is also facing a risk of devaluation through excessive quantitative easing or slashing of interest rate, fund manager will move their fund around to search for asset that can protect the value of funds, either real estate, bonds or safe heaven commodity such as gold and silver.

Now, what is the current state of economy?

Real Estate - over priced and over supply, mortgage crash?
Equity - lack of participation, performing worst?
Currency - Facing excessive QE and interest slashing?
Bonds - Risk of bond defaults? Junk Bonds on the rise?

When all the 4 above fail, fund will seek for safe heaven commodity in order to protect the value of their fund, which in turn will be gold and silver.


As a matter of fact, the data had shown that massive amount of funds had been poured into buying gold by China and Russia since July 2015. To date, the government of China and Russia is still spending billion in purchasing tons of gold bullion.

In fact, analyst forecast that the prices of gold might shoot over USD 2000 an ounce due to excessive money printing for the past 4 years and shortage of physical gold in order to cater for a huge amount of fund. This effect will cause spillover buying in other precious metal such as silver as an alternative.

How would this translate into an opportunity for PohKong ?


Back in 2015, Poh Kong had saw great interest, with Yeoman Capital Management sweeping huge amount of shares into it's portfolio. The group had continue to increase it's holding gradually since then. Yeoman Capital Management lifted many investor eye brown when they made great name in the KLSE market through their investment in Ulicorp at the range of RM 1.00. Currently, Ulicorp is standing tall at the range of RM 5.00.

It's current movement into investing in Poh Kong had definitely been studied in detailed and executed based on best practices.

Back then in 2012 when gold price peaked out at almost 1900 an ounce, it had caused frenzy in China and Hong Kong, with retailer from young and old rushing into goldsmith to get their gold and jewellery as a method to protect their wealth.

Goldsmiths in China are being queued round the clock when the public gold frenzy pops.

With the current state of economy where equity are falling due to lower corporate earning, currency are falling due to excessive QE and interest slashing, A rated bonds are giving out almost zero return, junk bonds are high risked on defaults, real estate is facing wave of oversupply and overpricing, the best possible answer could only be Gold and Silver.

Will Poh Kong be able to catch this mega gold frenzy wave that is coming it's way soon?

As for investor like you and me, what will you do now if you see this coming?

Conclusion
As a conclusion, with gold broken away from 3 year down trend, equity, real estate, bond and currency losing value, gold is position for a high chance of value appreciation. With Poh Kong tackling strong at the range of RM 0.58, a strong break out at RM 0.60 will see Poh Kong trading higher towards RM 0.65.