Highlights:
 

1. LCTitan actually has a long history despite only being listed in its present form on 11/07/17 (IPO price is RM6.5). It first started operation in 1991 and was previously listed as Titan Chemicals Corp Bhd in 2005. It was subsequently privatised in 2011 after its taken over by Lotte Chemical.

2. ASP (Average Selling Price) for most of its products are on an increasing trend. ASP for Polyethylene (PE), Polypropylene (PP, raw material for Mask)  and Butadiene (one of the glove raw materials) have all improved significantly since the height of the Covid-19 pandemic in April due to tight supply, strong demand of gloves, Masks and gradual recovery in economic activities.

3. Average  PP prices  is  now  20%  higher  than  its  price  at  the  beginning  of  the  year    due  to  its  tight  supply due to undersupply from US due to shut down and closing down of plants due to Laura hurricane and slump in oil price. (Channel check with distributor for PP6331 product price raising from RM3.84 in May per kilo to RM4.64 per kilo in Aug 2020)

Read the news below:

Source: https://www.plasticstoday.com/resin-pricing/weekly-resin-report-hurricane-caused-disruption-further-tightens-pp-pe-supplies

4. PE & PP in the US and South East Asia are now undersupply, while  the  demand  from  the glove, mask,  automotive, food & beverage industries are  expected  to  be  tepid  going  forward. Besides,  the demand  from  plastic packaging  and  the  healthcare  sector  has  been  sustaining  the  growth  of the  resin industry for the forward 6-12 months. 

5. LCTITAN's raw material is naphtha, where its price has been stayed low since May 2020, due to the  plunge  in  oil prices. Naphtha price is near all-time low in recent 3 years. It is expected profit margin of Lctitan will be boosted in Q3 of 2020 to Q4 of 2020 due to high products selling price (butadiene) while lower raw materials cost as per charts below.

6. Expected to have strong double digit growth in coming 1 year based on higher product demands and selling price from Malaysia (main market) and Asia pacific (like China) and low raw material cost (it is expected oil price n raw material to remain low in coming 6-12 months due to virus makes travel restrictions globally). Oil price chart in recent 2 weeks also low and margin for LCTITAN may further expanded in Q4 2020.  

7. Decent dividend yields of over 3% which is higher than bank FD rate. Strong free cash flow provides sustainability of the future dividend payment. 

8. Strong balance sheet with Zero borrowing and the net cash per share is RM1.69 (3.9B cash) which is nearly 80% of the current share price (RM2.1).

9. It is estimated that LCTITAn may achieve 300mil to 400mil profit in Q3 2020 and even higher earning in Q4 2020 (400mil and above), the forward 12-month PEx of Lctitan should be in the range of 3x-4x (EPS 69.3c). Its peer PCHEM currently is trading at trailing PEx at about 28x. Fair PE should be in the range of 5x-7x which implied close to 67% upside from current share price (TP RM3.49 based on PE of 5x). Table below shows FY2020 Q3 profit estimation. 

10. The risk is LCTITAN biz is in the cyclical petrochemical industry. Other risk lies in big fluctuation in crude oil price which may affect its raw material cost and also sudden drop in PP and PE demands. 

Company Background
LCTitan can be said to be regional petro-chemical giant which operates 14 plants in Malaysia and Indonesia with two main categories of products:
(1) Olefins -- Ethylene & Propylene -- and their Derivatives such as Butadiene, Tertiary Butyl Alcohol (TBA), Benzene & Toluene.
(2) Polyolefins --i.e. Polyethylene (PE) & Polypropylene (PP).

Olefins and the base stocks from which the polyolefins are produced. Polyethylene and polypropylene can be said to be the most widely used plastic raw materials from which a very wide range of consumer and industrial products are produced. In FY18-19, polyolefins accounted for approximately 80% of the total revenue generated by the Group.

If you interested on my analysis report, please contact me at davidlimtsi3@gmail.com

You can get my latest update on share analysis at Telegram Channel ==> https://t.me/davidshare

Disclaimer:

This writing is based on my own assumptions and estimations. It is strictly for sharing purpose, not a buy or sell call of the company and the contents of this report should not be considered as professional financial investment advises or buy/sell recommendations. I strongly encourage you to do your own research and take independent financial advice from a professional before you proceed to invest.

I make no representations as to the accuracy, completeness, correctness, suitability, or validity of any information on my report and will not be liable for any errors, omissions, or delay in this information or any losses and damages arising from its display or usage. All users should read the posts and analysis the information at their own risk and we shall not be held liable for any losses and damages.

Summary:

• Nova Wellness Bhd is engaged in manufacturing dietary supplements which include vitamin, mineral, and herbal supplements, functional food products under brand name Activmax and Sustinex, and Skincare products sold under brands Novavis and SP8.

• Nova has cash of RM32.43mil and no debt.

• Nova has their own brand of sanitizer and also some disinfect and cleaning products.

• They may further improve their profit margin through R&D and produce their products in-house, which allows them to have better quality and cost control.

• Strong Sales for some specific products such as Vitamin C, sanitizers etc during MCO time and higher awareness of importance of immune system during COVID time further support their products sales in future. (https://www.thestar.com.my/business/business-news/2020/05/12/nova-wellness-to-launch-new-healthcare-products)

• Nova is supplying Sanitizer to a number of government hospitals since the pandemic began according to some company update in May 2020.  This can create recurring income for Nova.

• The completion of phase one of Nova new factory is significant, as it now increases production capacity by five times. Nova is now in the process of constructing phase two of the factory. (New  Plant  has  secured  CCC , Certificate  of  Completion  and  Compliance).

• Besides the health food products, Nova intends to utilize this factory to produce products such as low GI bread.

• Nova is looking to make inroads regionally, it has obtained approval for some of its products in Indonesia and Thailand.

• Second Clinical Trial of Hepar-P Capsule for  the  treatment  of  non-alcoholic fatty liver disease. Upon completion, it would be the first herbal product who passed the clinical trials in Malaysia – a recognition to Nova.

• Nova currently trading at trailing PE of 26x, but with expansion and strong sales of its products, it is expected forward PE of 16x for FY2021 to FY2022, which is still much lower than Bioalpha holding and Dpharma which over 40x PE (Pharma and Bioholding are loss making).

• More  Partners  would  join  via  Nova  Wellness  Program  Partnership. Management  are  expecting  to  have  more partners this year. 
•  

2020 I am focusing more on gloves and healthcare stocks which I still heavy on glove stocks so far. 

Some of Nova Nova sanitizer products.

If you interested on my analysis report, please contact me at davidlimtsi3@gmail.com

You can get my latest update on share analysis at Telegram Channel ==> https://t.me/davidshare

Disclaimer:

This writing is based on my own assumptions and estimations. It is strictly for sharing purpose, not a buy or sell call of the company and the contents of this report should not be considered as professional financial investment advises or buy/sell recommendations. I strongly encourage you to do your own research and take independent financial advice from a professional before you proceed to invest.

I make no representations as to the accuracy, completeness, correctness, suitability, or validity of any information on my report and will not be liable for any errors, omissions, or delay in this information or any losses and damages arising from its display or usage. All users should read the posts and analysis the information at their own risk and we shall not be held liable for any losses and damages.

See the extract from Samchem Annual report 2019 as figure below  

Source: Annual Report 2019

Highlights:

1. Samchem is a leading industrial chemical distributor in Malaysia and South East Asia with growing revenue of over 1 billion per year in 2018 and 2019.

2. If we strip off the forex loss of 6.36m (mainly due to rupiah depreciation), last quarter profit actually was new high (PBT 13mil) in recent year even during MCO period which some of its operation might be slightly affected.

3. Strong demand even during MCO may come from the raw chemical material supply chain to sanitiser, glove and healthcare related industries.

4. I like Samchem mainly due to it has a a division that does Blending of solvents to make customised products for specific applications. This blending segment can increase their profit margin as a growing number of companies are outsourcing their blending processes and its Nusajaya’s facilities has the capacity to provide these needs.

5. This Blending division also focuses on chemical distribution with value-added services such as storage & warehousing and bulk-breaking (into drums or smaller packaging)

Catalysts:

1. Continuously higher demand for its Hand Sanitiser raw chemical material products due to Second wave of Covid-19 in South East Asia. According to recent Samchem AGM, Sanitiser chemical raw material sales has increased from 5% to 20% since Feb. 
2. Their chemical supply to Glove Industry in 2020 and 2021 may increase also due to all glove players ramp up their production although their weightage to their overall revenue is not too significant
3. Samchem still growing its oversea business especially in Vietnam which is growing steadily every year and they also got IPO plan to list its Vietnam business.
4. Smaller players of Blending business are phasing out gradually due to higher competition and high capex requirement.  This may benefit Samchem as it may gradually improve its blending division in future due to lesser competition and higher economy of scale.
5. Samchem continuous improving its operational efficiency especially on chemical distribution, packaging and warehousing management system which can further improve its profit margin. 

Revenue and Profit Margin:

Samchem’s revenue has shown increment from 2016 (around 602m) to 1.05B in 2019 as shown in the Figure 1. This is more than 50% increment over 4 years time. As long as the company can improve its profit margin by 1-2%, the net profit improvement year-on-year will be quite significant.