The Edge - Insider Asia’s Stock Of The Day

Author: Tan KW   |   Latest post: Fri, 8 Apr 2016, 12:05 PM


Insider Asia’s Stock Of The Day: UPA (29/12/2015)

Author: Tan KW   |  Publish date: Tue, 29 Dec 2015, 10:15 AM

This article first appeared in The Edge Financial Daily, on December 29, 2015.


UPA Corporation Bhd ( Valuation: 2.60, Fundamental: 2.50)

Given prevailing market uncertainties, investors are likely to gravitate towards more defensive stocks with high yields and, better yet, export exposure. 

Founded in 1975, UPA (Fundamental: 2.5/3, Valuation: 2.6/3) has grown into one of the leading diary and paper products manufacturers in Asia. The paper and plastic division accounted for 88% of revenue in 2014 with the balance coming from distribution of printing related machines. 

We like UPA for its attractive valuations and underlying fundamentals. It has a strong balance sheet with net cash and a good dividend track record. It also stands to benefit from the export business, which accounted for 50.6% of its 2014 revenue. 

The company has consistently paid dividends, since 1999. Dividends totaled 8 sen per share annually over the past 2 years, translating into 4.02% yield. Furthermore, net cash stood at RM40.9 million, equating to 26.6% of its RM153.9 million market capitalization. 

Additionally, UPA trades at an undemanding trailing P/E of 8.5 times and 0.8 times book. Valuations are cheap relative to its better-known peer, Asia File Corporation BHD ( Valuation: 2.00, Fundamental: 3.00), which  currently trades at 13.6 times P/E and 1.7 times book. 

Amidst a slew of disappointing corporate results this year, UPA has actually fared very well.

For 3Q2015, revenue rose 20.3% y-y to RM45.2 million, boosted by higher sales from the machine trading segment. In tandem with the revenue growth, net profit surged 76.4% y-y to RM5.7 million. The increased in margin was due, primarily, to higher other income of RM3.8 million as compared to RM2.3 million last year. Netting off the increase in other income would have resulted in 27.7% net profit growth. We believe the improved results can be attributed to their export exposure that benefited from the recent weakening of ringgit. 



Insider Asia’s Stock Of The Day: UPA (29/12/2015)

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Insider Asia’s Stock Of The Day: REXIT (23/12/2015)

Author: Tan KW   |  Publish date: Wed, 23 Dec 2015, 11:02 AM

This article first appeared in The Edge Financial Daily, on December 23, 2015.


Rexit Bhd ( Valuation: 1.10, Fundamental: 1.95)


REXIT (Fundamental: 1.95/3 Valuation: 1.1/3) should appeal to both yield and growth-seeking investors for its high growth prospects and consistent dividends. It is currently trading at P/E and EV/EBITDA of 18.4x and 12.2x, respectively, which we believe is still attractive relative to its earnings growth potential. 

Listed on the ACE-market, Rexit is a small and relatively unknown company with a market capitalization of RM113.9 million. It is primarily involved in the provision of web-based solution services to the financial industry. Some of its products include E-cover, E-PPA and InfoGuardian.

E-Cover is an online insurance portal while e-PPA is a software that is used when members withdraw part of their EPF funds to invest in approved unit trust funds. InfoGuardian, on the other hand, is a case document and workflow management solution for corporate firms. Rexit’s clients include Allianz, Tokio Marine, RHB bank, Al-Rajhi bank and various unit trust funds.

Leveraging on its strong customer base, the company registered a strong set of 1QFYJune2016 results. Revenue grew 16.9% y-y to RM4.1 million boosted by higher software sales including subscription and transaction fees. Core pre-tax profit — excluding foreign exchange gain of RM0.3million — jumped 121.3% y-y to RM1.8 million. The increased in margins was due, mainly, to better product mix — the previous corresponding quarter saw higher proportion of low profit margin hardware sales.

Net cash currently stands at RM22.1 million, or 19.4% of its market capitalization. Furthermore, dividend payments have been consistent, since FY2006. For FY2015, dividend totalled 1.5sen, translating into net yield of 2.4% at the current price of 64 sen.

Moving forward, the detariffication of Malaysia’s general insurance is expected to take place in 2016. This will result in a more competitive insurance industry, where insurers will now have the flexibility to design and price their products differently. Management believes the proposed detariffication will underpin future growth as it will create greater overall demand and hence more project opportunities for the company.  



Insider Asia’s Stock Of The Day: REXIT (23/12/2015)

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Insider Asia’s Stock Of The Day: STAR (21/12/2015)

Author: Tan KW   |  Publish date: Mon, 21 Dec 2015, 11:58 AM

This article first appeared in The Edge Financial Daily, on December 21, 2015.


Star Media Group Bhd

Relative to other listed media companies like Media Prima and Media Chinese, Star Media Group (Star) (Fundamental: 1.8/3, Valuation: 1.4/3) stands out due to its strong balance sheet and sustainable dividend yield.

Star is the most widely read English language newspaper in the country. The stock’s main revenue comes from its print and digital segment, which contributed 65.7% of total revenue for 9M2015. Another 27.2% came from event and exhibition services. These are offered via subsidiaries that include SGX-listed Cityneon Holdings Ltd (Cityneon).

Meanwhile, yield-seeking investors will be attracted to Star’s above average yield of 7.8%. We think this is sustainable given the company’s strong fundamentals — net cash stands at RM418.3 million or 56.7 sen per share. Notably, Star has been rewarding shareholders with a payout ratio of between 71.2% and 119% since 2011.

However, investors should note that weak consumer sentiment could negatively impact advertising spending — a key income generator for Star’s print and digital segment.

For 9M2015, net profit declined 7.2% y-y to RM83.5 million on the back of a marginal 0.7% increase in revenue to RM736.3 million. The margin contraction was primarily due to lower revenue from advertising spending and higher direct costs from Cityneon. Nevertheless, we are still comforted by Star’s dominant position and strong free cash flows. 

Moving forward, Star plans to grow its media segment by expanding aggressively into video content via “TheStarTV”. The company will also be looking to expand its events business in emerging markets like Vietnam and Myanmar. 

The Malaysian Chinese Association owns a 42.5% stake in Star, with institutional investors collectively holding another 41% of shares. The stock trades at a P/E ratio of 16.3 times, compared with Media Prima’s 18.9 times and Media Chinese’s 8.3 times.  




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Insider Asia’s Stock Of The Day: Riding the US housing recovery

Author: Tan KW   |  Publish date: Thu, 17 Dec 2015, 11:04 AM

This article first appeared in The Edge Financial Daily, on December 17, 2015.


Insider Asia’s Stock Of The Day: Riding the US housing recovery

Wood furniture stocks have done very well this year against the lacklustre broader market. Largely export-oriented, the sector has benefited from the strengthening USD and recovery in the US housing market. 

To recap, the US housing market hit rock bottom in 2008 after more than a decade-long boom. Sales of US new homes plunged sharply to a record low level (see chart 1). After bottoming out in 2009-2012, housing starts began to show signs of recovery in 2013 — albeit still 30% below historical average. 

Malaysia’s wood-related industry clusters stand to benefit from the unfolding economic recovery in the US. Blessed with rich and diverse forest resources, Malaysia has established itself as one of the world’s major exporters of wood-related products. The recent sharp decline in ringgit has also enhanced the sector’s export competitiveness against other furniture exporting countries. 

Given the favourable external environment, wood furniture makers saw their aggregate earnings surging 50% to RM187.3 million and total market capitalisation more than doubling to RM2 billion in the past one year. 

Wood product producers, which supply plywood, chipboard, particleboard and other wood products to the furniture makers and other downstream players, have largely moved in tandem with wood furniture stocks (see chart 2). Aggregate earnings for these companies soared 2092% to RM215.1 million while their market capitalisation jumped 150% to RM3 billion in the past 12 months. 

For upstream timber logging and processing companies, the favourable exchange rates and regional timber supply crunch could translate into near-term earnings upside. Nevertheless, many of these companies are also involved in plantation and were hurt by lower crude palm oil prices. As such, timber companies, as a whole, has not performed as well — their share prices moved in line with the benchmark index, FBM KLCI. 

Looking ahead, we think the US housing industry — supported by improving labour market — is positioned for steady growth in 2016 despite the rising interest rate environment. Current weak oil prices, which have slumped to multi-year lows, should continue to help put extra cash in the pockets of American consumers.

Since last October, InsiderAsia has picked four furniture stocks as proxies to the furniture export boom, namely Latitude, Poh Huat, Homeritz and Lii Hen (see table 1). All four companies are backed by strong net cash balance sheet — crucial for companies operating in cyclical sector — and have a good track record of paying dividends. 

Poh Huat is the best performer with its share price gaining 224% since first recommended, followed by Lii Hen (126%), Homeritz (111%), and Latitude (104%). The four stocks recorded an average share price gain of 141%, outperforming the 117% gain for the overall sector by some distance. 

Firms with local manufacturing base, such as Muar-based Homeritz and Lii Hen, operate in a rising cost environment. Upholstered home furniture maker Homeritz could experience higher raw materials and import costs (though somewhat mitigated by export sales) while Lii Hen could face supply constraints due to labour shortages.

Conversely, Latitude and Poh Huat are currently in sweet spots to ride the upcycle as they have shifted most of their labour-intensive production to Vietnam for its cheap labour force and attractive tax incentives. 




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Insider Asia’s Stock Of The Day: POHUAT (17/12/2015)

Author: Tan KW   |  Publish date: Thu, 17 Dec 2015, 10:57 AM

This article first appeared in The Edge Financial Daily, on December 17, 2015.


Insider Asia’s Stock Of The Day: Poh Huat Resources Holdings Bhd

Poh Huat (Fundamental: 2.1/3, Valuation: 2.1/3), the country’s third largest furniture maker, manufactures home and office furniture using natural veneer, solid and reconstituted wood-panels in lieu of timber. Its furniture range is marketed under ‘AT Office Systems’ and ‘AT Home Systems’. 

The wood furniture maker derived 63% of its sales from the US and 24% from Canada with the remainder from UK, Malaysia, Singapore and the Middle East. As such, it will be less affected by the slowing local economy as the demand is primarily driven by economic growth in North America.

The company has manufacturing plants in Vietnam and Malaysia, after ceasing its China operations in 2013. The local operations have undergone a rationalisation exercise to focus on higher-margin office products while the Vietnamese operations focus on labour-intensive bedroom furniture, shipping some 63% of total sales. 

Poh Huat has pared down its borrowings over the years, gearing falling from 11.5% in FY10 to net cash of RM20.7 million as at end-July. Thanks to the higher sales orders and better economies of scale, ROE jumped to 19.7% from 8.1% over the same period. 

Peers Latitude and Lii Hen both reported stellar results for 3QCY2015. Poh Huat will be releasing its seasonally strong 4QFY15 results by end-December. We expect earnings for the quarter to be boosted by higher shipment from the Vietnamese arm, favourable exchange rates and margin improvement for the Malaysian operations.

Dividends have been on the rise for the past three years — dividends for 9MFY15 increased to 3 sen per share from 2.5 sen a year ago. In the last financial year, FY14, dividends totalled 4 sen, giving a yield of 2.2%.

Valuations are attractive relative to its positive sector outlook, earnings visibility and dividend upside. The stock is trading a shade higher the sector’s trailing P/E of 10.8 times with a market capitalisation slight below its trailing 12-month sales.




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Insider Asia’s Stock Of The Day: SUPERMX (15/12/2015)

Author: Tan KW   |  Publish date: Tue, 15 Dec 2015, 02:57 PM

This article first appeared in The Edge Financial Daily, on December 15, 2015.


Supermax Corporation Bhd 


WE continue to favour Supermax (Fundamental: 1.0/3, Valuation: 1.4/3) for its comparatively undemanding valuations and strong growth potential. Its peers Hartalega, TopGlove and Kossan are trading at trailing 12-month P/E of 25.2-40.8 times and 4.3-6.5 times book. In comparison, Supermax is trading at 30-50% discount with trailing P/E of only 17.2 times and 1.8 times book.

The stock has been a laggard for the past one year (+47.5% year-to-date) compared to the other Big Four glovemakers (+62.2-146.9%).  This was partly due to repeated delays in commissioning its new plants, which affected its financial performance. However, we believe Supermax has largely overcome the issue, judging from its latest quarter results.

For the quarter ended September 2015 (change in FYE to June from December, starting FYJune2016), revenue grew 11.3% y-y to RM309.9 million, thanks to higher output from the new production lines and efficiency gains. Net profit surged 38.3% to RM38.5 million, boosted by increased sales of higher-margin nitrile glove and the stronger USD.

Going forward, we expect Supermax to continue its strong double-digit growth momentum, underpinned by the two new plants in Meru, Klang, which has started production in batches since early 2015. The plants will have a total of 40 production lines with installed capacity of 600 million pieces of nitrile gloves per month.

When fully commissioned at end-2015, total production capacity will increase by 40% to 25 billion gloves per year. Higher-value nitrile gloves will then account for 53% of its total installed capacity. 

Supermax was recently awarded one of the licenses to supply medical gloves to the UK’s National Health Service (NHS) for the next four years. The NHS, which covers all hospitals in the UK, consumes approximately GBP50 million (about RM327.6 million) of medical gloves per year. Assuming a conservative 25% market share, this contract alone would contribute an additional 8% to its topline, starting FY2017.  




  121055 likes this.
Elixir With fact10and11ready capacity wud be further boosted .being a laggard catch up game to reflect industry norm esp pe multiples gives the co lots of catch up game to do .With new UK contracts and improved revenue and weak rm profit bottom line shld improve .with top glv selling at fwd pe of 25 times spmax shld follow suit and expected to hit rm5 soon
22/12/2015 23:55
Elixir A co unfairly bullied and sold down on instruction .gods great .Allow other funds to collect and participate the growth of a well managed blue chip. The wind is blowing ur direction Let the share fly .Show them!!!!!!
24/12/2015 21:36
koonbee5 Post removed. Why?
24/12/2015 21:42
koonbee5 Post removed. Why?
24/12/2015 22:02


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