DPS (7198) - Potentially could be one of the unknown COVID-19 and Mega projects beneficiary !!!

Market Listing: Main

Syariah Status: Yes

Closing Price: 0.065

Expected TP: 0.10/0.13/0.15

Business Background

DPS Resources Bhd is an investment holding company primarily engaged in the activity of manufacturing and trading of furniture. The group manufactures and trades home furniture, roof trusses, provision of saw milling, kiln-drying and wood treatment services. In addition, it is also involved in the business of real property and housing development. The business segments of the company are Manufacturing and trading, Property development services, and Investment holding. Manufacturing and trading segment contributes majorly to the revenue of the company. The group’s operations are carried out in Malaysia, and internationally.

Why DPS?

1. DPS is involved in roof truss business as this is a good news to roof truss business because major projects are scheduled to start again such as East Coast Rail Link (ECRL) & Kuala Lumpur - Singapore High Speed Rail (HSR) meaning that more stations are to be build and therefore roof truss is needed.

https://www.theedgemarkets.com/article/newsbreak-hsr-be-revived-soon-say-industry-insiders

https://www.theedgemarkets.com/article/ecrl-gets-green-light-kota-barudungun-realignment

2. With the recent mega project news other mega projects like MRT 2 and LRT 3 will also start to kick boost the economy which means roof truss business will start to be in demand.

3. Strong customer base which some of their customer are involved in mega projects such as YTL, SUNWAY, GAMUDA & JKR.
 

4. Furniture stocks are turning attractive

According to Khoo Yeow Chong, president of the Malaysian Furniture Council (MFC),furniture makers are expecting a V-shaped recovery in demand for their products. In a response to a question from The Edge on how long it would take for demand for furniture to recover post-global lockdowns, Khoo says 42.9% of the industry expects recovery in the first half of 2021, but this will come after a painful 2020. Should cases of Covid-19 continue to be suppressed globally, a V-shaped recovery is expected in 2020 itself, says Khoo. “This optimism shows the furniture industry is resilient and will recover more quickly than other sectors.

Source: The EDGE Malaysia May 25-31, 2020 pg.24

5. Potential winner from Shantawood Sdn Bhd (“SSB”) vs HSBC Amanah Takaful (Malaysia) Berhad (“HSBC”) as the suit had been filed into court. The matter is pending the decision of the Court.

6. DPS has strong relationship with former Melaka Chief Minister Tan Sri Mohd Ali Rustam which is touted to become as the next governor of Melaka



https://www.thestar.com.my/news/nation/2020/05/16/former-melaka-cm-ali-rustam-being-touted-as-next-governor


Now let’s see something which not many realized about DPS….Potentially could be COVID-19 beneficiary

DPS’s subsidiary HIDAYAT YAKIN SDN BHD (301331-V) is involved in Timber Latex Clone (TLC) plantation.



Source. www.dps.com.my

Hidayat Yakin Sdn Bhd is based in Kelantan, Malaysia and has more than 2,000 hectares of natural rubber plants and would continue to reclaim another 10,000 hectares for rubber plantation.

Source: https://cbl.chinadaily.com.cn/2012-09/18/content_15807447.htm

What is Timber Latex Clone (TLC)?

Clones which can produce good yield of latex as well as timber are called latex timber clones. Latex timber clones assume importance in the context of greater demand for timber for various industrial purposes.

So how can TLC benefit DPS?

The demand for latex is very high now due to rise in demand for glove and other medical products during this COVID-19.pandemic.




 
Source: http://premierasia.com.my/rubber-timber-latex-clone.html

Timber Latex Clones is to boost upstream rubber ops

Source: https://www.thestar.com.my/business/business-news/2011/02/07/new-clones-to-boost-upstream-rubber-ops

Fundamental Analysis

Assets are healthy compared with it’s liability

Refer below latest asset & liability sheet as of February 2020 QR. A few points to note:

i. Total NTA stood at RM 0.21. Current trading price of 6.5c is a BIG DISCOUNT of 0.145 (223% discount).

ii. Strong cash pile of RM 13.98 million comparing to last year same period, where the cash position was only RM 2.09 million.

iii. Total assets stood at RM 153.57 million versus liabilities of RM 27.02 million

Strong cash flow from operations

Cash flow from operations from the recent quarter stood at RM 13.11 million compared with the same quarter last year which was negative RM 4.7 million. This is significant jump as it shows that the company is generating positive cash flow as probably indicated their business is growing

Source: https://simplywall.st/stocks/my/consumer-durables/klse-dps/dps-resources-berhad-shares
 

Technical Analysis

DPS poised for breakout once break 0.08 which is the major resistance we can expect 0.10 for the next level. RSI & MACD looks strong meaning this stocks has strong momentum.


Conclusion

We believe that DPS could be one of the unknown GEM because of it’s business nature.

Strong fair value and big discount compared to it’s NTA.

Disclaimer: The above opinion is never intended to be a BUY CALL whatsoever. I am sharing my observations ONLY based on fundamental; past history; current trading pattern; charts etc. Please make your own informed decision before buying this share or whatever share for that matter.