Friday, 22 April 2016

Denko - Changing Tale of Plastic

Denko Industrial Corporation Berhad (Denko - 8176) had acquire PT Winsheng Plastic and Tooling in Indonesia as part of the group restructuring and diversification exercise in order to see higher revenue and profit. PT Winsheng Plastic and Tooling specialized in sophisticated plastic injection moulding and mould fabrication.

The expansion exercise to set up a plant in Jakarta, Indonesia resemble Denko first footprint outside Malaysia. According to group CEO Tan Chen Wei, the expansion into Indonesia is to create greater value among existing MNC client that had relocated to Indonesia.

According to Allied Market Research, the injection moulded plastic market is expected to reach USD 162 billion by Year 2020. The research project a CAGR of 4.9% from 2015 to 2020, with most of the growth focusing in the packaging of end user segment. On a regional basis, Asia Pacific will be the leading market in terms of consumption and revenues.

The application for plastic injection mould continue to grow wider, replacing heavier metal to plastic. The Automotive Industry is one of one the prime example on how plastic had been replacing heavier metal car parts. This in turn had influence on how all the products are manufactured.

The growing prospect in this plastic moulding industry couldn't be captured more timely by Denko. Currently, Denko's customer based comprises of MNC from automotive, consumer electric, information technology and industrial product sector. Prominent leading names such as Dyson, JVC Kenwood, Pioneer, Panasonic and Schneider Electric had been core clientele for Denko plastic mould injection operation.

Denko consolidation could be looking for a successful
breakout above RM 0.38 after several previous attempts.

According to familiar sources in the industry, Denko's establishment in Indonesia will continue to grow stronger as it is looking to become a turnkey contractor, manufacturing final products for clients. With much of the consumer electric giants closing down manufacturing plant and restructure operation, including outsourcing manufacturing of final product, this is a huge window of opportunity for turnkey contractor such as Denko. Playing along this line could be seeing Panasonic being the first few client to appoint Denko for their final product production after the closure of a factory in February this year.
Indonesia is going to be a huge growing business arena as President Joko Widodo open up 35 sector for 100% foreign ownership. Indonesia had on last year drawing in more than USD  30 billion of foreign direct investment.

Consumer electronics had been the prime pushing factor for plastic injection mould industry. Demand will continue to see pick up in Asia Pacific country, especially in new emerging market nation such as Vietnam and Myammar.

Denko is committed and positive in seeing it's revenue for FYE 2016 going past RM 100 million with annual profit of more than RM 5 million. This diversification will resemble the primary path of Denko growing potential and wealth in the future.

The future of plastic injection mould industry is bright. Advance technology in resin material, improved automation and factory connectivity all point to a bright future for plastic manufacturing, and Denko will definitely be one of the pioneer in this great movement.

Friday, 15 April 2016

Halex - Higher Value

Halex Holdings Berhad (Halex - 5151) is principally involved in Agrochemical and Fertilizer products. Subsequently, the group also involved in foliage cutting and landscape potted plants as well as Healthcare disposable products.

With the current stiff competition in the agrochemical division, it had been critical for the group to look out for new business opportunities for diversification purposes in order to grow the company. Halex had been seen having interest in tapping into the real estate industry since 2014 through the acquirement of 25% stake in Kesington Development Sdn Bhd which had prime development land in Kota Kinabalu, Sabah.

Let's have a look at the price chart of Halex to see what would be the development in the company in the coming days ahead.
Based on technical readings, it can be easily identified that Halex had saw good amount of open market accumulation during the month of December 2015. The accumulation can be saw through good solid candle reading which is supported by good participating volumes. Albeit having the volume dying down due to the recent market volatility, Halex had saw a break away from the short term down trend line. The break away candlestick is shown with strong volume support, indicating a possible turn in trend, which is for this case is going uptrend.

Rise Up and Rice Up

One of the critical key project that Halex had secured in 2016 is a rice supply contract to Koperasi Majlis Belia Felda Malasysia Berhad.

Under the salient terms of the contract, Halex can supply up to 80,000 tonne of rice per year for a period of 2 years with a 1 year extension option. According to the agreement, Halex is supply price is based on market price from Bernas + a fixed premium of RM 200 per tonne. The margin for rice trading fluctuate around 7% .

Assuming Halex supply price is RM 2500 a tonne, the gross margin could be looking at a profit of RM 175 per tonne. An annual supply of 80,000 tonne will interpret to a gross profit of RM 14 million, EPS of 13 cents based on current share base of 106 million outstanding shares.

To put it more skeptical, a 70% delivery will still see a potential EPS of 9.2 cents based on rice trading alone.

The rice trading business will commence in June 2016, and will greatly contribute to the bottom line of FYE 2016.

Corporate Exercise

Halex is vying to venture into the property scene through the acquirement of Kensington Development Sdn Bhd through it's wholly owned subsidiary - Halex Realty Sdn Bhd. The prime land that Kesington own in Kota Kinabalu that span an area of 15.43 acres is a potential spot to churn in RM 1.1 billion of mixed development of commercial and residential project for the next 4 to 6 years.

This huge exercise will see Halex enlarging share base and share capital. Sources are probably seeing Halex looking to set placement share at a possible pricing around RM 0.65 to RM 0.70, due Halex having clinch the rice trading contract, and approximately 40% discount from it's NTA of RM 1.20.

The corporate exercise will raise enough capital for Halex to fully acquire Kensington Development Sdn Bhd.


Based on the current development in Halex, the current pricing is deemed attractive to investor. At the current juncture, the rice supplying contract can easily see Halex valuation jumping to 90 cents based on potential EPS at 9 cents per annum, valued at PER x10, that it notwithstanding it's other business in agrochemical and healthcare disposable products.

Bone's TP: RM 0.65

Cheers and have a nice day


Wednesday, 13 April 2016

Pensoni - Penning Higher Growth

Pensonic Holdings Berhad (Pensoni - 9997) had a history dated back then to 1965 as Keat Radio and Electrical Co in Penang. The Malaysian home grown breed of electrical manufacturing started to commence manufacturing and marketing under the brand name of Pensonic in the year 1988. Currently, the group had vast consumer electrical products ranging from kitchen appliances, home comfort, audio visual, laundry, lighting, refrigerator and others.

Despite the implementation of GST by the local Malaysian government as well as a weaker MYR starting end of 2014 due to the dropping commodity prices, Pensonic had emerge stronger than before with stringent measure in cost controlling, product diversification as well as strengthening export market.

In 2015, Pensonic had unlocked one of the land value in Penang with a disposal that sees a RM 8.4 million to the bottom line of FYE 2015.

Moving forward, what will be the key factor that Pensonic had undertook in order to continue seeing the growth of the group ?

Entering ODM market

One of the key note changes that Pensonic did is to convert competitor into client through ODM (Original Design Manufacturing). Pensonic will see ODM for larger home appliances such as washing machine and refrigerator. Tapping into ODM will enable Pensonic to see a better utilization rate of factory and better cost control in ordering of supplies. The group will look out for more ODM contracts in 2016 in order to see better cost management.

The previous 6 months result had saw Pensoni delivering a better EPS despite a slight drop in revenue. The main reason is attributable to the better operation cost.

El Nino effect towards a hotter than expected weather - A blessing in disguise

The El Nino effect in 2016 had been one of the worst for the decade with rising temperature hitting higher than expected. The hot spell which had severe effect in the South East Asian country had saw scorching sun rays sending temperature to as high as 40 degree celsius at peak afternoon in certain area.

Weather analyst are expecting the hotter than expected weather to prolong into end of June 2016. The heat wave had send consumer to buy electrical item such as fan, air cooler and air conditioner to comfort them from the scorching heat.

Sources and Panasonic Malaysia had been seeing increasing order for air ventilation unit such as fan and air conditioner. The buying spree had send Panasonic Malaysia (Panamy - 3719) share price rocketing up from a trading range of RM 24 to RM 30 in 3 months.

On a broader consumer outlook, the same could be applied to AEON which also retail consumer electrical item in Malaysia, taking a uptrend run after sliding from a peak of RM 4 at the end of 2014.

Pensonic, being a Malaysian home grown brand for consumer electrical item could be looking interesting at this juncture.
According to the chart, Pensonic had shown good support at the uptrend support line which is highlighted in red. Pensonic will be able to see a good rebound from the support line. Pensonic will be looking to challenge RM 0.70 as the psychological resistant line. A longer term outlook should be able to see Pensonic trading at RM 1.00 which will be supported by higher local demand from delivery of new completed property, stronger export to emerging market as well as better cost control management. A stronger MYR in 2016 will also underpinned better input cost for Pensonic compared to FYE 2015.

Pensonic short term TP RM 0.75 based on full year EPS projection of 7.5 cents, valued at PER x10.

Friday, 8 April 2016

Melewar - Steel Man

Melewar Industral Group Berhad (Melewar - 3778) had principal activities on manufacturing of CRC steel sheet and steel piping, engineering services as well as investment in Power Generation. Melewar is owned by late founder and chairman Tunku Tan Sri Abdullah ibni Almarhum Tunku Abdul Rahman from the Negeri Sembilan royalty.

Melewar had gone into severe financial condition after it's investment in the Mperial Power Ltd in Thailand had gone sour due to unable to see demand generated from their 160MW electric power plant. The group had went through several restructuring exercise which includes selling it's steel tube operation (Melewar Steel Tube Sdn Bhd) to subsidiary Mycron, settled by issuance of Mycron share at RM 0.44 / share to Melewar. Currently, Melewar hold 71.52% of Mycron.

The current state of steel industry had finally see some light when MITI had started to investigate on imported steel from China, Vietnam and South Korea. Currently, MITI had imposed anti dumping duties on pre-painted, painted, color coated steel coils that is imported from China and Vietnam. How will this play out for a Cold Roll Coil (CRC) player like Melewar ?

Positive on Anti Dumping Duties imposed on Cold Roll Coil 2nd Quarter 2016

The local market demand for CRC is still relatively strong and growing in an annual basis. However, the imported CRC actually play out to be approximately 51% of the supply in Malaysian market. Margin are tightly squeeze when China, Vietnam and South Korea decided to export their excessive CRC production to the nearby neighboring country like Malaysia at a very cheap prices.

Cscsteel Berhad had since filed a petition to MITI in order to start and investigation on the related matter. According to close sources that are familiar with this matter, Cscsteel are at a very favorable position at seeing anti dumping measurement being enforced to protect the local CRC player in the steel industry.

As of the latest, Cscsteel had displayed spectacular share price performance, with more than 40% capital appreciation within 3 months.

Melewar, through 71% owned subsidiary Mycron Steel Berhad also focuses on CRC steel sheet.
According to the chart, Melewar had saw rising interest in it's share. Back on September 2014, Melewar had saw great interest with more than 24 million share crossed hand in the open market from RM 0.415 to RM 0.55.

Fundamental Outlook

Melewar had started to turn around it's operation for FYE 2016 with 2 consecutive quarter in the black. Industry player are positive on the imposition of anti dumping duties on CRC steel sheet, and thus, will see local player rushing in to fulfill the gap left from the CRC import from China, Vietnam and South Korea.

Should we factor in the finalization and implementation of anti dumping on CRC import, Melewar will easily be seeing a 50% increase from the projected annualized EPS of 5 cents, which will come out to 7.5 cents.

Given a PER x10, Melewar had a tendency to trade at RM 0.75.

Currently, Melewar NTA is RM 1.32 per share.

Strong Steel Trend

The local market continue to see strong uptrend in the steel industry.

Steel industry continue to see domination in the market due to a stronger MYR as well as strong local consumption from large infrastructural project.

Melewar will also be finalizing it's disposal of investment of Siam Power through Mperial Power Ltd. Melewar is looking to seal the deal in the 2Q of 2016, disposing the remainder 49% stake in Mperial Power.

At the current outlook, Melewar is a very interesting counter to be monitored, due to the potential huge vacant supply left by CRC import. Beside that, Melewar power asset sale will also see the group in a better cash position.

Melewar short term target is RM 0.45, medium/long term at RM 0.55 to RM 0.60.

Thursday, 7 April 2016

Rsawit - Frying Palm Cake

Rimbunan Sawit Berhad (Rsawit - 5113) is an integrated plantation player in Sawarak with more than 54,000 hectares of palm oil plantation in Sarawak and palm oil mill in Miri. The palm oil industry had been long suppressed by the weak CPO prices which is due to the excessive supply in the local and international market, as well as weaker demand from importing countries.

However, the recent El Nino weather effect had bring in a wind of changes for the palm oil industry after hotter weather depressed a higher OER in the palm oil.

International Weather Agency had fore warn about the incoming effect of the El Nino 2015-2016 that could be the worst of the century, sending drastic weather changes as well as rain water level that can affect food crops. One of the easiest to get affected will be plantation.

2016 will be the year where most of the plantation stock will start to see turnaround, or a better profit margin. Established plantation player such as Genting Plantation and Kuala Lumpur Kepong  (KLK) had saw their share price gradually appreciated in the recent days.

While the bigger plantation player had started to move steadily amidst the higher CPO prices, it will be much interesting to look at the potential medium size plantation player such as Rsawit.

Should we disregard the panic sell down in March, Rsawit price consolidation will see a crossing of support and resistant line. The crossing point will suggest a new trend to take place, which will be suggesting of a potential uptrend due to the growing CPO prices in the market.

To further back this claim, we will look at the long term out look for CPO.
According to the latest data, the chart had suggested that the current CPO prices had already broken away from the long term downtrend resistant line. In fact, the current break out position is just at the initial stage, which would suggest further potential climb in the CPO.

Putting up the short term outlook, the CPO price had recently broke away from their uptrend trading range, suggesting a steep climb ahead for the CPO. Current FCPO May prices had been testing on the resistant turn support line at RM 2700 range.

Rsawit will be an interesting counter to look out at given it's current share price consolidation and high potential of soaring CPO prices in the coming days. Back in 2014,

Rsawit will be seeing more than 5400 hectares of younger trees starting to bear fruits which will generate good income. Moreover, the completion of the palm oil mill will also be a good income revenue for Rsawit in the coming days.

In short, Rsawit can potentially trade up to RM 0.65, while a longer term outlook will see it potentially reaching RM 0.70 to RM 0.80.

Tuesday, 5 April 2016

Salcon - Uprising Water Dragon

Salcon Berhad (Salcon - 8567) will be bracing for a better year ahead as earning will start to turnaround in 2016. For the past 2 year, Salcon earnings is hampered down with a series of delay from the construction of Langat 2 Water Treatment Plant. The construction had finally saw full green light late last year when all the supplementary agreement had been signed between the Selangor state government and the Federal Government.

However, the delay of construction in Langat 2 Water Treatment Plant had created a critical supply issue in Selangor that need to be addressed immediately before the projected commencement of Langat 2 Water Treatment Plant that is pushed back by 2 years to 2019.

 Full video recording at The Star here

The Selangor state government had identified 2 new plant to be built, 1 at Semenyih 2 plant at Jenderam Hilir, while the other at Labuhan Dagang at Kuala Langat. Both the project will carry a total value of RM 800 million, in which Selangor is committed to see the project taking off in the middle of 2016 with no delays, and slated to see commencement in 2017. Labuhan Dagang will hold 200 MLD while Jenderam Hilir will have 100 MLD capacity. (MLD refers to million litres per day)

As Salcon is one of the specialist in construction water treatment plant, it is undeniable to see Salcon involvement in this 2 water treatment plant as a contingency plan to address stability in Selangor water supply.

Massive Treasury Share Buy Back and Major Shareholder Share Buy Back

The market had saw massive treasury share buy back on Salcon recently. Salcon had been buying back in an active manner at the region of RM 0.60. The latest recorded buy back saw Salcon taking in almost 2% of outstanding share into their treasury holding.
Salcon had proposed for a share buy back not more than 10% that will be tabled out in the upcoming AGM.

Aside from treasury share buy back, the major shareholder had been seen buying in huge stakes as well. Infra Tropika Sdn Bhd had acquired more than 5.6 million of share in the month of March 2016.

Both the buy back activity from company and shareholder will continue to outline the confidence of the director and major shareholder in the underlying project and upcoming prospect of the company in the future.

Salcon will also be looking to see a finalization in the asset disposal in China at the end of April 2016. The completion of the disposal see Salcon significantly lighter by RM 138 million of debts, while cash will increase to near RM 300 million.

This will see net cash per share of almost RM 0.30, which is 50% of the current market value of it's share price. The latest NTA of Salcon is RM 0.85.

Technical Outlook

Salcon had successfully defended the major support line at the price range of RM 0.56. Currently, Salcon had form a solid consolidation at the price range of RM 0.60.

According to the chart, Salcon will see an intersection of a long term down trend line against the support price range at RM 0.60. A strong breakout at RM 0.60 will be a significant technical development for Salcon as being breaking away from the long term down trend resistant as well as breaking up after a consolidation effort at the RM 0.60.

The uptrend technical development will be supported with underlying fundamental as well as coming prospectus in addressing the water supply issue in Selangor.

To further back up, the strong volume presence in KPS recently resemble a good indicator for more interesting development in the Water Industry, especially with Selangor committed in spending RM 800 million for 2 water treatment plant.

At the current price, Salcon continue to be a good buy, given its strong financial balance sheet, strong book order from Langat 2 as well as strong prospectus in the RM 800 million construction packages in the 2 water treatment plant in Selangor.

Salcon short term target remain at RM 0.65, while a medium/long term target will not be shy of RM 0.75 to RM 0.80