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Author: chinleng20   |   Latest post: Mon, 29 Mar 2021, 11:01 PM

 

THIS STOCK IS BEING UNDERRATED BY MAJORITY OF INVESTORS!!

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THIS STOCK IS BEING UNDERRATED BY MAJORITY OF INVESTORS

 

Recently, Techfast Holdings Berhad (0084) had received a total contract sum RM 2,222,856,000.00 from one of the major oil players from Singapore – Wise Marine Pte Ltd. However, upon the announcement, miraculously the share price closed red instead of mooning. What is going wrong with the company?

 

To recap, the contract was mainly a supply of marine oil to Wise Marine Pte Ltd. The company had noted they would supply between 10,000 MT to 30,000 MT of LSFO, LSMGO and HSFO to the client. Based on the latest IMO global sulphur cap, we expect majority of the marine oil supplied would be LSFO, which is currently trading in the range of USD 480 – USD 520 per MT, and for TECFAST, they would enjoy a premium on top of the market price of it.

 

“But based on TECFAST’s track record, the company is a manufacturing-based company. Why would they get involved in the oil bunkering sector?”

 

Good question.

 

Upon identifying opportunities in the marine transportation as well as higher oil and gas activities in Malaysia, the company had acquired 35.0% stakes CCK Petroleum Sdn Bhd for a total purchase consideration of RM 28,233,337.50, where RM 16,170,000.00 will be settled in cash raised in the recent private placement completed by the company, and the remaining would be paid in shares at RM 0.430 per share.

 

We know that with a robust crude oil price, more on and offshore activities will be engaged, and more oil bunkering services would require, which TECFAST stands to benefit from it. After a rough calculation of the contract received based on a conservative annual delivery of 240,000 MT (20,000 MT per month) and with a net margin of 1% as the demand for MGO increases, this would results in an additional RM 1,728,888.00 in net profit for the company on the basis of USD 500 per MT of MGO (Without factoring in the premium that TECFAST enjoyed).

 

This is on top of the existing profit guarantee of RM 1,750,000.00 from the acquisition of CCK Petroleum Sdn Bhd. In total, the conservative profit per annum for the company would be approximately RM 3,478,888.00 from the new business. And with the recovering demand for the group’s existing business, a RM 2,000,000.00 net profit per annum is easy to achieve, and this brings TECFAST to an expected net profit per annum of RM 5,478,888.00.

 

So back to the question – why are they diversifying? I believe it was to increase the profit capabilities of the group and reduce reliance on the existing manufacturing services. Oil bunkering is not common in Malaysia and the closest competition in market so far should be only Straits Inter Logistics Berhad. This is a yet-to-be crowded sector that the company had ventured into!

 

Since 2019, our government had stepped up to reduce illegal oil bunkering activities, which is an added bonus for CCK Petroleum Sdn Bhd. I believe with the new introduction of oil bunkering business, TECFAST profit could at least double in the visible near term.

 

Next question – had the share price reflected the earnings spike yet?

 

I believe not. The company’s share price is still far away from its pre-global pandemic crash level of RM 0.550 per share in Jan – March 2020. This means that despite the company’s fundamental had significantly improved, the share price had not reflected yet due to the complexity of this acquisition. Now is a great chance for investors to accumulate TECFAST at low before “sifus” in the market realize its’ value! 

 

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Labels: TECFAST

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TECFAST 0.29 0.00 (0.00%) 5,256,600 

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