Thursday, October 15, 2015

For KESM's 'Fans' ... Service Provider For Auto Semi Industry.

It is expected to grow in tandem with the booming semi industry. Despite a potential slowdown in the global automotive sector, industry observers are confident that KESM, the largest independent burn in test and service provider for the local auto semi industry, will not be too affected by such a scenario.

The burn in process is a practice for detecting early failures in semi devices by subjecting the components to both electrical and thermal stresses over several hours. Typically, the burn in test is conducted at the component level when the cost of testing and replacing parts is at its lowest.

KESM has some 70% contribution of its total burn in and test sales from the global auto industry. It supplies specialized semi devices to the world’s reputable auto manufacturers.

Apart from the auto sector, KESM also serves customers and consumer to the communications and consumer sectors.

KESM does not deal directly with the auto players but rather clients which are semi makers supplying to the auto sector.

Semiconductor content are in cars, ranging from the entertainment, GPS, engine management and even driver assistance system is increasing.

Industry observers say it is common practice for semiconductor players to do the testing both in house as well as to sub contract out the service (burn in and testing process) to a third party.

The company has also benefited from forex gains for FY2015.

In May 2015 KESM completed the acquisition of the remaining stake of 34.62% in its 65.38% owned subsidiary KESM Test Sdn Bhd.

KESM also involved in electronics manufacturing service (EMS) however contribution to the group is small.

The company is controlled by Singapore based Sunright Ltd with 48.41% stake.

Any upward pressure in utility costs and minimum wage rates in Malaysia and China will adversely impact KESM profit margins.

Tuesday, April 14, 2015

TGuan ... Worst Over

The company reported a net loss of rm4.2 million in 4QFy2014, from net profit of rm6.3 million in 4QFy2013 due to one off impairment loss on receivables of rm5.5 million, realized and unrealized forex losses of rm4.1 million and losses related to relocation of its China based operations.
It is believed the worst is over for the company and expect a stronger 2015, underpinned by capacity expansion and the shift to higher margin products – thin stretch films and PVC food wrap.

It had completed the 1st phase of expansion at end 2014 with the installation of its state of the art thin stretch film machines, four additional lines for PVC food wrap and new machines for the compounding division.

It will invest an additional rm40 million in 2014 for its first 33 layer nano technology stretch film line, a blown film line more PVC food wrap machines.

It is the sole manufacturer of PVC food wrap in Malaysia and one of only three in ASEAN. It aims to be the largest producer in the region by 2016. Profit margin from this segment is the highest amongst its business units.

The weaker ringgit will improve its competitiveness against global risks.

Earnings will also be boosted by lower resin prices, which are correlated to crude oil. Raw materials account for about 80% of operating costs.

It is currently trading at a huge 37% discount to book value (14 April 2015). Historical PER is 12.4 times.

Thursday, March 12, 2015

HuaYang ... High Gearing A Concern !!!

It had snapped up several parcels of land totaling rm151 million, has dismissed concerns its gearing is high amidst the gloomy property market outlook.
It had in Jan 2015 announced the acquisition of two parcels in Bukit Mertajam, Penang for rm31 million, It had reportedly its maiden venture into the Penang mainland property market.

It had also entered into a conditional agreement with Nation Holdings Sdn Bhd to acquire 3.24ha of leasehold land in Selayang for rm120 million. It is said to be setting its sight on Sabah.

Its enthusiasm for expansion is concerned by many due to its high gearing of about 0.5 times. The company’s total debt to equity ratio of 64% against LBS Bina’s 40%, Hunza Properties Bhd’s 43% and SelDredging’s 79%.

Huayang believes sales from its project launches will fuel profit growth and improve operational cashflow. This will pare down borrowings in the medium term.

The acquisition increases its gross development value only marginally. This may allay market’s concerns in the short term but the apprehension remains whether affordable housing developers can continue to acquire new land parcels.

It is a developer primarily focusing on affordable housing.

With the prices of construction work and materials locked in by Huayang and unit pricing not expected to increase given the company is a developer of affordable housing, profit margin is expected to be maintained. As prices are locked, its primarily focuses on improving sales of its various projects.

Its stock price downside is buffered by high dividend yield. However when its gearing is high, the management might forgo high payout.

If the property sector weathers the ongoing period of tight lending standards now (March 205), Huayang may emerge as one of the favourite picks for property sector.

Sunday, March 8, 2015

Heveaboard ... Only Player Exports To Japan, Sustainable Competitive Advantage

As it delivers on its earnings, this will lead to a re-rating of the stock.

It is also gaining interest among institutional investors, which CIMB Equities Research believes hold a combined 15%-20% stake.

The company’s particleboard and furniture factories is that demand from Japan and China remains robust. Its competitive manufacturing edge is not easily replicable and the barriers to entry for the Japanese market remain high.
No other Malaysian furniture player exports to Japan. To cope with burgeoning orders from China, HeaveaBoard is likely to reduce the sale of lower-margin E1 boards to free capacity for E0/super E0 boards.

Over the medium term, HeaveaBoard is considering line extension/expansion to increase capacity.

A potential re-rating catalyst is strong 1QFY15 results.
Its Chinese customer base is growing at a rate of 40-50% per annum and HAVE is likely to reduce its allocation for E1 boards in favour of much higher-margin E0/super E0 boards for supply to China. It is also mulling a pressing line extension or new pressing line to increase capacity to meet the strong demand from China.

Observers were impressed by HeaveaBoard’s German-made state-of-the-art equipment and control systems.

All of HeaveaBoard domestic and most of its ASEAN-based competitors are not in the E0/super E0 space as only Japanese regulatory requirements demand such boards. Given this and the very long and stringent quality due diligence process, many particleboard manufacturers prefer to sell lower-margin but higher-volume E1/E2 boards. Thus, HeaveaBoard’s competitive advantage is sustainable over the medium term.

Thursday, March 5, 2015


IRIS: Continue to expect an improved performance ahead based on: resumption of works in Tanzania and Republic of Guinea; improved contract flow for Rimbunan Kaseh (RK) and Sentuhan Kasih (SK) projects; completion of upgrading works for waste incineration power plant in Phuket; ramp up of production in its food waste to fertilizer plant in China; and contributions from its Gerehu Heights project.

Overall performance has been led down by losses due to lack of scale in RK and SK projects.

This was attributed to a slow award of projects by both the state government and FELDA.

However it displayed narrowing losses from the segment.

For FY2014, the group has secured a combination of five RK and SK projects. This should contribute positively as it looks to turn around the segment.

Potential gross development value of Gerehu Heights estimated at rm300 million. Positive contributions are expected in financial year 2016.

Also expect a ramp up in production for its food waste to fertilizer plant in China. Now (Feb 2015) incurring losses, it operates at only one third of its capacity.

It had received a permit from the local government to secure waste from other regions in the area. The move will allow the plant to achieve the scale necessary to generate positive contributions.

RGB: It is planning to venture into the business of selling parts –for the electronic gaming machines it manufactures – to its existing clients in order to grow its revenue stream for the financial year ending Dec 31 2015.

It had tied up with a business partner – a company that provides turnkey technical support and parts.

This venture will allow RGB to be a complete solutions provider

It is aiming to grow both its profit and revenue by 5% in FY2015 driven by the sale of 1500 gaming machines, the placement of an additional 500 Bingo machines in the Philippines and its 7000 machine concessions across Asia.

The casinos will need to replace or add to their gaming machines when they undergo a replacement or floor expansion.

It is also planning to expand its footprint in new markets in Asia – both for supplying its gaming machines as well as acquisition minority stakes in clubs which host such machines.

Currently (March 2015) its income is coming from the technical support and management division. Moving forward, it wants to buy equity in clubs which operate these gaming machines. It is looking at a minority stake of 20% to 30% to have another stream of recurring income.

RGB is already in the process of completing the first such acquisition, with its subsidiary RGB acquiring a 30% stake in Timor Holding. Lda. It has currently 90 gaming machines operating there which it is reaping revenue via concession agreements based on a profit sharing scheme with its customer.

Internal generated funds and possibly a corporate exercise will be used for fundraising.

PPB: It expects its revenue growth for FY2015 to be driven by its core segment of flour, feed milling and grains.

The flour, feed milling and grains segment has always been the largest contributor of its core segments.

PPB is the single largest shareholder in Wilmar with an 18.3% stake.

Wilmar contribution to PPB had declined in FY2014 to 67% or rm695 million compared with 72% in FY2013 due to lower CPO prices.

This coupled with lower income from its investment in equities and losses in the packaging business, had impacted PPB’s profit in FY2014.

The environmental and engineering segment is expected to achieve a higher revenue in 2015 as the contracts progress to the construction phase. The group’s current construction order book stands at rm413 million.

It will also be committing rm283 million to expand and upgrade the stable of cinemas under GSC.

For its property division, it is banking its Puteri Harbour project in Nusajaya, Johor with a GDV of rm1.5 billion.