Friday, 30 September 2016

Bright - Brighter Go

Bright Packaging Industry Berhad (Bright - 9938) had once shot into the lime light at the hostile change of ownership which saw the emergence of Dato Ricky Wong through Wong SK Holdings Sdn Bhd as a substantial shareholder for Bright with 22.7% stake on October 2013. After the ruckus in Bright, Wong SK Holdings Sdn Bhd again offer to take over TechFast in 2014 at 26 cents.

Subsequently, Wong SK Holdings Sdn Bhd continue to increase stake in Bright, which is now at the critical border of MGO, which is 33%.

According to the latest filling on the shareholding of Wong SK Holdings Sdn Bhd, it is at the borderline level of 32.936%. Which means, Wong SK Holdings Sdn Bhd just need to purchase from the open market a mere 105,128 units of share in order to trigger the MGO.


What is actually so interesting in Bright that makes Dato Ricky Wong edging nearer and nearer towards a MGO of this listed vehicle?

While an easy answer will be "Value", but what kind of values are the retailer seeing, and what kind of hidden values that the retailer could had missed ?

For most of the mass retailer in the market, the fastest way is to access is cash level, and determine the net cash position. For this case, Bright is holding on a RM 35.616 million of net cash. For a share base of 164.264 million, that is equivalent to 21.68 cents per share.


But for an experienced investor, there are more to that on just the net cash value. These value are easily missed out by retailers that are not familiar with corporate finance, hence hidden value.

Firstly, the company have a share premium of RM 15.584 million. While this amount cannot be access directly by means of dividend, but it can give Bright a potential "bonus issue" of 1 bonus share to 6 existing mother share, enlarging the share base by 27,377,333 share based on par value of RM 0.50, which can utilize RM 13.688 million. (Bonus of  1 to 6 is based on Par value of RM 0.50)

Secondly, the share is carrying a par value of RM 0.50 per share. It is possible for the company to do a par value reduction and capital repayment back to shareholder if agreed by majority of the shareholder. Take an example for a reduction towards par value of RM 0.10, that will unlock 40 cents of shareholder equity that can be repay back to the shareholder.

To take all this into account, if Bright is to do a capital reduction and repayment of 40 cents, and uses RM 30 million to pay special dividend, that would worth a total cash of RM 0.58 per share (RM 0.40 from capital repayment and RM 0.18 from dividend).

Subsequently with the lower par value of RM 0.10, then the company can undertake a bonus issue of 2 bonus share for 3 ordinary share (instead of 1 to 6 with RM 0.50 par value) which will make it more enticing for further speculation and boost liquidity of the share.

At the current price of RM 0.36, that really looks like a crazy offer, where you are paying RM 0.36 with potential of getting RM 0.58 in capital repayment and dividend, and also a chance for a bonus issue exercise. The NTA of Bright is RM 0.73 per share.


To put this into technical mean, Bright had broken 2 resistant line, one which is horizontal resistant of RM 0.34, and a long term down trend resistant line as well. It is a good indicator to see that the counter is gaining positive uptrend momentum, for this case, we will see the potential corporate exercise of MGO is the best fuel to boost the stock price higher.


To take this further, the pioneer vehicle of Dato Ricky Wong, which is Asia Media (Amedia), had went through some corporate exercise and is banging it's way upwards in the market again, sending a signal to the market that Dato Ricky Wong is "in the office and at work now".

While Bright had contracted with Zao Philip Morris Izhora from Russia for a USD 15 million aluminium foil supply, the business had saw challenging environment such as fluctuation of currency and commodity prices. With the potential cash pile in Bright and a ambitious Dato Ricky Wong, who knows if Bright will be a vehicle for some new business venture for him again after Amedia?

For this reason, the chances are bright for Wong SK Holdings Sdn Bhd to head for a MGO in the coming days. In fact, familiar sources are looking to see the MGO putting a potential price range of RM 0.50 to RM 0.60. If the offer is RM 0.60, why not ?

Bone's TP : RM 0.60

Monday, 26 September 2016

LionFib - The Better Lion

Lion Forest Industries Berhad (LionFib - 8486) is the trading and distribution arm for the Lion Group, especially in the building and construction material and steel bars. It also involves in tradings of auto lubricants and oils under brand name of Hi-Rev.

The Lion Group made a good fortune from steel industry during the better days back at 2010. However, things started to fall apart when competition got intense with steel import from neighboring countries such as China, putting a dent in the profit margin. The last couple of years saw steel products imported from China are even cheaper than the production cost of some steel manufacturer. The Lion Group took a tougher beating when Megasteel which manufacture hot rolled steel ceased operation due to financial issue.

Among the packs of Lion, the better ones are Lion Industries Corporation Berhad (Lionind - 4235) and Lion Forest Industries Berhad. While Lionind produces long steel bars and wire rods that are used in construction, it is LionFib that is in charge of the distribution of the long steel bars, wire rods and other building construction material.

MITI to impose anti dumping steel tax on long steel bar

According to the latest official notice into the investigation with regard to steel concrete reinforcing bar products imported into Malaysia, the investigation authority had found out that there was an increase in imports during the period 1 October 2012 to 30 September 2015 which had caused serious injury to the domestic industry, and result in decline of market share, domestic sales, profitability, negative cash flow and reduction in employment and wages.

As of such, the provision to safe guard the domestic industry will be in the form of a safeguard duty of 13.42% imposed on imports of long steel bar, with the final outcome to be made within 26 to 28 September 2016.

Annjoo

LionInd 

Masteel

Ssteel

Amidst the challenging economy, government had played their part in ensuring the survival of domestic steel player with the imposition of safe guard tax on all imports of long steel bar. This new development had been celebrated by steel manufacturer that are involves in production of long steel bar.

Link to official notice :


Fundamental Outlook

During the Q4 of FYE 2016, Lionfib continue to show great losses, which is contributed from impairment of long term receivables from associate company.

Despite the company having a profitable operation, the impairment of more than RM 300 million of receivables from associate company had hammered a huge blow into financial result of Lionfib. The impairment exercise had saw the share price taking a severe beating as well.

However, on the bright part, now the company is looking to start afresh again, where investor do no need to worry on any future impairment on receivables at least for the next 3 years.

At the current cash level of RM 104 million with a borrowing of RM 22.3 million, that still leave LionFib with a net cash of RM 81.7 million, or approximately 35 cents of cash per share. At the current market price of RM 0.53, that would be buying into a share with 66% of the value in the form of cash.

The current NTA of the company is RM 2.26 per share.

With the imposition of the safeguard tax towards long steel bar that is used in reinforce concrete in building and construction, it will be believe that LionFib will be able to perform better at least for the next 200 days. A net cash position and no foreseeable large impairment would definitely put LionFib in an interesting position for any investor that are willing to take position of the current situation for a turnaround.

Technical Outlook


The technical price chart also outline on the positive changes in the company by rebounding above the technical support line of RM 0.50, and broken above the downtrend line. If compared to company such as Masteel, Annjoo, Ssteel and Lionind, it is notable that LionFib does have a larger space of capital appreciation.


Conclusion

LionFib's share price had reflected on the damage from the impairment exercise. However, the current price could resemble a good opportunity for investor to pitch in the potential turnaround at an attractive pricing, considering a net cash level of RM 0.35, NTA of RM 2.26 per share and government effort in stepping up to protect the local steel industry. With technical chart pointing a potential rebound, it will anyhow be a worthwhile risk to be taken.


Bone's TP : RM 0.70

Thursday, 22 September 2016

KSSC - Of Steel and Water

K. Seng Seng Corporation Berhad (KSSC - 5192) a Selangor based steel manufacturer, focuses in stainless steel water pipes, steel sheets and other polishing consumables. The company supplies to various industry, such as marine industry, oil and gas, construction as well as automotive industry. Given the latest stint in the steel industry that had saw various steel manufacturer pushing up in a bullish manner, KSSC could be possibly be one of the last remainder in the bullish steel run.

While some are thinking when will this bullish steel sentiment is going to end, some analyst could predict that it will not end so soon, reason given is due to the impact from the implementation of anti dumping tax on CRC steel to protect the local steel industry from foreign player, the current cessation of HRC production from Megasteel and robust infrastructure demand and construction boom in the local arena. The sentiment could be lasting until at least the the 2nd half of 2017, where most company will start to report on the financial year end.





Based on the price chart of the above 4 steel manufacturer, it is notable that the steel sentiment continue to run strong, given the strong interest in those company. While most of the company had accelerated much in their capital appreciation, this could provide a great stage for KSSC which had just started it's journey.


Given the chart out look, KSSC had just broken up on primary resistant line of RM 0.45.  This could be a convincing start for the company that had been lacking of share movement activity for almost 1 year.

With the booming steel sentiment not looking to back down anytime soon, there shouldn't be much of a problem for KSSC to trade at the range of RM 0.60.

KSSC to expand in house

It had been noted that KSSC had been holding back on reinvestment due to the uncertainty of the steel industry in the past few years. Albeit the tough environment, the company had been operating in a profit and pays an annual dividend without fail for the past 4 years.

Now, with the government implementing anti dumping tax to protect the local steel manufacturer, KSSC will expand it's operation with their existing land in Seri Kembangan, which is good for operation integration and synergy.

With demand chalking in from the vacuum left by China's import and cheaper HRC material import, the steel industry in Malaysia now can enjoy a better margin.

Fundamental Outlook


The Q2 FYE 2016 financial had saw an earning of 1.15 cents per share. However, the management is positive on seeing better revenue from demand in automotive and construction sector as well as water steel pipe replacement work in Selangor to address the issue of non revenue water.

The group also expect a better contribution from it's engineering work segment. While there are no profit forecast from the management, familiar sources that link with KSSC are estimating a better Q3 and Q4, which could chalk up a a total revenue of more than RM 70 million for the 2 remaining quarters, of which huge revenue are from the water pipe replacement exercise from Selangor.

Conclusion
KSSC is a potential rising star, given it's exposure to the water pipe replacement exercise in Selangor. With the current better steel margin, this will be a double joy for KSSC. Trading at 60% of the NTA value RM 0.77, and with a good record of dividend paying for the past few years, KSSC could be a good bet as the last rising steel player.

Bone's TP : RM 0.60

Monday, 19 September 2016

Astino - Hard Steel Aston Martin

Astino Berhad (Astino - 7162) could be an unpolished and under sighted gem that is reaping on the benefit of a better profit margin from it's steel manufacturing and marketing. This could probably have to do with the nature of business that Astino is dealing in with a wide mixture of steel products ranging from scaffolding, roofing, pipes and joints to PVC material and also Agro House Multi System for poultry feed stock.

However, with the steel division contribution most of the revenue and profits, it is unreasonable that the current strong theme play should see a fundamentally strong company like Astino to be left out in the dark. While some might have the perception that Astino is a Penang based company that caters for the northern region, it is notable to see that Astino actually had 2 plant up and running in Bukit Beruntung that is mend to penetrate into the central region of the Peninsula Malaysia, with the latest new plant up commencing and running since 3Q of 2015.

Strong Steel Theme

Steel player are celebrating hard and high, with most of the steel company turning into the black after a stint of quarterly losses, with some having their share prices surging to a 5 year high. Here are some of the example on the performance of the local steel company in KLSE recently.

AISB

Annjoo

CSCSteel

LSteel

Masteel

Mycron
YKGI


While some are fundamentally strong, but a turn around company such as YKGI, AISB, LSteel are running above it's presume valuation based on earnings.

Strong Fundamental

As per shown on the 3Q financial result, it is noted that Astino had a cumulative earning of 8 cents per share, backed with NTA of RM 1.08. Reeling on with a better margin and more demand in it's metal roofing division, it will not be shy to see Astino putting up with a strong Q4 to mark a strong closing for FYE 2016.

According to close sources that are familiar with Astino, Q4 result will not be seeing anything lesser than a EPS of 3 cents. Taking into count, Astino is capable of valuation at RM 1.10, based on PER x10 on EPS 11 cents.

To put it into technical reading, we can see that Astino had a great support at RM 0.75, and had been trending on a gradual up trend basis for the past 3 months. It is expected that Astino could be delivering it's final set of result for FYE 2016 in the coming week.

Given all the positive figures, it will not be a coincident that director Mr Ng Back Teng had proceeded to acquire from the open market at price of RM 0.777 per share, reflecting the confidence in the future prospect and direction of the company.


Gradual beneficial from Zika outspread

Astino Modern Design
Insect Netting System
While it is a fact that the Zika is spreading across the globe, it had reached Singapore, Indonesia and now Malaysia. The virus which is heavily linked with birth defect (microcephaly) and some other health complication do not have any antidote other than natural healing. World Health Organization is looking at a time frame of approximately 5 years for R&D and commercial production of the vaccine, which means that the human being in the world are only left with the "prevention" method in tackling with Zika, where the main carrier of the virus is from Aedes Mosquitoes.

While most of the people will be easily linking the Zika outspread with gloves company, it could make almost no sense with a steel manufacturer like Astino. Little that we know that Astino actually manufacture insect netting system in their steel division. This product will be in a rising demand as long as Zika continue to spread in infected countries, and will be sought after by landed property as well as high rise condominium. By the way, it is not a myth that mosquitoes can actually fly up to 15th floor of your apartment.


Conclusion

To summarize on Astino, it is an overlooked company despite the current strong steel trend. Moreover, it's existing fundamental are strong enough to back on the projected future earning. Astino could be interesting over next coming week on the final quarter financial result for FYE 2016.


Bone TP : RM 1.10

Thursday, 15 September 2016

PBA - Don't Miss Me Out

PBA Holdings Berhad (PBA - 5041) is a Penang based water operator that is owned by the Penang state government. At the current state of the global economy, utilities provider could be looking to garner better interest from investor that are looking for a bargain purchase in defensive company. For a company such as PBA that are defensive in nature and pay out dividend, it will be highly sought after by such investor.

What is the interesting factor that could make PBA your choice of a defensive investment at the current state of volatile economy?

Simple Financial Analysis and Valuation


A quick glance at it's latest quarterly financial result could warrant the current price of the company being undervalued. With the 2nd quarter putting up 5.07 cents in EPS, it would be quite conservative to annualized the earning based on the nature of the business - water utility provider. However, to put it in a more accurate manner, it will be more proper to estimate 3 quarter of earning with an average of 5 cents, while allocate 1 quarter with higher administration expenses due to yearly bonus for staff and dividend, putting up a conservative 2 cents.

With that, PBA is capable of performing a total earning per share of 17 cents for FYE 2016.

Simple valuation on PER x 10 (being a defensive company with dividend and gradual growth) can see PBA potential of being at RM 1.70.

Robust Growth Outlook in Penang

The state of Penang had been seeing a robust growth for the past 5 years. The state had attracted much foreign direct investment, contributed 20% of the total FDI received in Malaysia. Different classes of industry continue from China, Taiwan and US foray into Penang due to it's strategic location to port and ample of human resource.

With more infrastructure development that is planned for Penang, it will attract more economy development, more worker and ultimately see an increase in utilities usage such as Water.

For the past 5 years, PBA had been recording an increasing revenue. With 2016 being the first full financial year that is going to benefit from the water tariff hike that is effective on 1st April 2015, this will put PBA into investor radar soon.

Penang continue to see major development in the island and peninsula, such as underwater sea tunnel, City of Dreams by Ewein, STP II by E&O and Penang World City by Tropicana and Ivory.

Technical Outlook


After consolidating for more than 6 months, PBA is looking ripe to break out from the stronghold of RM 1.15 after a saturated consolidation, backed with improving fundamental from earning as well as increasing NTA, current being at RM 2.34 per share.

Should PBA break out on RM 1.15, that will mark a new uptrend for the share, with potential of hitting RM 1.30 resistant for a short term outlook.


It is also interesting to note that PBA had been under the radar of Malaysian fame investor "Cold Eye". Having sitting with 2.8 million share which is just 0.85%, it is worth putting a bet that Fong Siling will be in no time increase his stakes as the company suite his investment criteria which focuses on solid growth with good dividend record, back by good NTA and foreseeable future growth.


Now with all this simple facts lay out, would PBA become your choice of investment given the potential? The choice is yours to see this Grade A company growing with you or without you.

Bone TP : RM 1.50

Cheers and have a nice day

Regards,
Bone

Monday, 12 September 2016

Arank - Growing Strong

A-rank Berhad (Arank - 7214), one of the major manufacturer in the South East Asia for aluminium billets could be looking to see better prospect in the coming years despite on the challenging business environment on the current economy.

With crude oil price continue to be depressed, high volatile commodity prices that is easily shaken by business demand and over supply, it had been difficult for businesses to make a accurate forecast in order to tune to the best efficiency for the operation. This however might not be the same for Arank, which had recently saw the emergence of Dato Leow Chong Howa, the owner for LB Aluminium Berhad (Lbalum - 9326) as one of the majority shareholder with 27.78% controlling stake earlier this year.

Running with better synergy

Lbalum manufacture aluminium extrusion that is used for construction, furniture, auto industry as well as other aluminium products such as aluminium sheets. It's main ingredient is none other than aluminium billets, which is the main product of Arank. Now that Lbalum had finally fully completed the commissioning of two additional extrusion line, this had increase the overall capacity and further strengthen its position as the market leader domestically through diverse product offering, catering for various design, complexities and dimension. Now, Lbalum is able to see output of 4,300 metric tonne per annum, which is the largest press in Malaysia.

As for Arank, the increase capabilities will also directly address to a increase demand in the supply of aluminium billet, which will drive it's revenue and profitability inevitably. The top down strategic alliance in Lbalum and Arank will be very beneficial for both side of the company and investor.

Aluminium had gain favor recently due to its strength albeit being lighter than other metal. This had directly pushed up demand for the application of aluminium in industry such as auto industry as well as building material construction.


The advancement of battery technology point towards Aluminium

Lithium-ion battery first commercialized in 1991 by Sony and Asahi Kasei. The battery continue to see advancement in technology and subsequently become accounted for more than 66% of rechargeable battery in 2011. However, albeit all the research being pour into the development of Lithium-ion battery, it is an unavoidable fact that the Lithium-ion battery are possible of explosion from design flaw and electrical short, where battery temperature can shoot up rapidly to 500 Celsius, causing the cell to explode with venting flames, which industry termed it as "rapid disassembly".

With more and more mobile electrical goods being developed and used by consumer, it is important that the product are safe to be used by consumer. However, the recent event of new flagship smart phone Samsung Note 7 that had launched recently being issued with a global recall due to battery failure that is prone to explosion. The explosion is caused by "rapid charge" feature that enable huge current to charge the battery  This unfortunate event that plagued Samsung is foresee to cost the company more than US 1 billion.

Vehicle on fire from battery explosion
originate from a smart phone device
While the blame can be easily placed on the battery manufacturer, it is a prime time for manufacturer to expedite on the next evolution for the rechargeable battery, which are pointing towards the usage of Aluminium as the next best element. According to researches, Aluminium based battery such as Aluminium-ion could eliminate unfortunate event such as battery explosion due to rapid overheating. Other researches pour into the evolution of rechargeable battery are Aluminium-Air battery that can see a longer lasting charge and recharge with water.

As there are yet to see any commercialization on Aluminium based battery, analyst expect to see potential first commercialization on Aluminium battery probably at 2019.


Better Margin

Albeit the falling Aluminium prices in the global market, Aluminium player are enjoying a better profit margin due to an even lower input raw material cost. Technical chart had shown that Arank is trending on a gradual uptrend basis that is supported by improving fundamental from improving earning per share, contributed from better profit margin. We view that the 2 completed production line in LB Aluminium will see increase the order of Aluminium billet from Arank.

According to the 3rd Quarter financial result, Arank had a cumulative 8.73 EPS, back with RM 370 million in revenue.

With the coming 4th Quarter financial result to be announced later in this month of September, Arank is most likely able to deliver the FYE 2016 with estimated EPS of 11 cents. This will reflect in Arank on potentially valuing at RM 1.10 trading at PER x10.

Arank is not enjoying the Aluminium boom alone, as industry player are reflecting with stronger share prices. Among them are Lbalum, PMetal and Pmbtech.





Conclusion

Car body frame made from Aluminium
Arank given it's future prospect and synergy with Lbalum, will be an interest company to be look upon.

Technical signal are signalling prices to trade along long term uptrend range, supported with growing EPS due to better profit margin. Usage of Aluminium in the auto industry and potentially in the rechargeable battery market will continue to mark better prospect for this metal.



Bone TP : RM 1.00

Thursday, 8 September 2016

Chuan - Don't Think Twice

Chuan Huat Resources Berhad (Chuan - 7016) is a low profile company that do not make it to the ears of most retail investor in the market. However despite that, Chuan Huat Resources Berhad founded at 1957 had actually debuted into the KLSE in 1997, putting them having on public listed for coming 20 years.

Started out as a small enterprise as a hardware shop business, till date, Chuan 3 core business are divided into building hardware division, steel service center division and IT division.

While 2016 had been a challenging year for most of the equity market, the only sector that had been defying this in the Malaysian market is none other than the cold roll steel sector, celebrating from a anti dumping tax protection on cold roll while did not impose the ban on hot roll as per demanded by Megasteel, a superbly win win situation.

Most of the steel player had ran up wildly, from bigger names like Annjoo and CSCStel, and to smaller unknown off names like YKGI, Mycron, AISB and LSteel. However, this benefit had even overflow to steel and building material trader such as Leonfb and of course, Chuan Huat Resources Berhad. The anti dumping tax impose on cold roll import had definitely push demand to contract it with local player. With the better steel margin now, the industry had a breath of relieve again.

For the 2nd quarter, we can see that Chuan saw a better revenue with better margin in the building and construction supplies, especially in the steel division.


Most of the demand came from local larger infrastructure project such as the MRT packages as well as LRT extension, road building and property construction projects in the Klang Valley, as well as Penang. Geographically, Chuan had warehouse supplies for both Klang Valley and Penang. Internationally, Chuan had foray into Cambodia.

While some may see the better steel margin in Malaysia as a seasonal event that happen once in a few years, most would not see it to end so soon, which could last up to more than 1 year.

To say this, we would not be shy to annualize Chuan potential 2016 EPS towards the range of 8 to 9 cents in a quite skeptical manner, assuming they maintain the revenue and margin. While steel price take effect into a stronger USD, the hike of interest rate from the Fed will see adverse effect in the steel margin.

Aside from the better prospect of EPS in 2016, it is a known fact that Chuan had been trading on quite a discount from it's NTA of RM 1.54. Current market price of RM 0.48 is only 31% of it's NTA, which would suggest quite a reasonable bargain for investor who seek a safety margin net through NTA.

Growing and Parting with AISB ?

While it could be less known in the public, Chuan does have a considerable interest in AISB through it's fully owned subsidiary Chuan Huat Hardware Sdn Bhd. However, it had been seen that Chuan had been reducing it's stake in AISB in a rather gradual manner from more than 7.3% to the current 6.7% holding.


The recent steel boom had lifted AISB from misery. Now that AISB could had potential corporate exercise in that would liquidate shareholding, it would be a reason on the gradual reduction of stake by Chuan in AISB. However, as long as AISB continue to surge up, that will be a win win situation for both. Subsequently, AISB had signal it's intention to be involved in property development with commercial factory for a start.


Chuan disposing off Pineapp for a windfall gain ? (Pineapple Resources Berhad - 0006)

Pineapp had gained listing in 2002, dealing with computer hardware trading and supplies. However, the stock is rarely being traded as it lacks of interest and there are no significant development in the company. For the past 10 years, the stock did not see a single day trading volume of more than 1 million units exchanging hand, and the financial are just good enough to stay afloat between the red and black.

With more almost 64% in controlling stake, the worthwhile asset of Pineapp is only it's listing status. With around 5 million in cash and 0 debts, Pineapp is a very good candidate for a quick RTO. With strict listing requirement, and with the current stagnant market situation, it will be ideal for some business owner to take the RTO process. Some of the example are the likes of Tnlogis and Wong, SYF and Mieco.

Rumor in the insider circle could had identify potential party on Pineapp. However, the main concern is still the price.

Summary
For Chuan to sit in a better steel margin with consistent demand from local infrastructure project, couple with a surging up AISB and a potential land fall on sale of Pineapp, backed with stronger EPS projection for 2016, at the current price RM 0.48 which is 31% of the NTA, it really wouldn't sound too bad to hit a bet on this vehicle, considering it too broke a long term downtrend line as well.


Valuing Chuan at RM 0.80, based on potential EPS of 8 to 9 cents, and trading at 50% value of NTA. Other windfall are bonus.

Bone TP : RM 0.80