BAHVEST is a direct beneficiary to the recent rally in gold prices as investors could be exploring safe-haven assets, supported by the protracted US-China trade war, recent COVID-19 outbreak, which may translate to increase concerns over a potential slowdown in global trade and economic activities. Valuation is undemanding at 14.8x FY3/20 P/E, 71.0% lower than 2Y average of 51.1x. Technically, the stock is trending within the upward channel, targeting RM0.65, followed by a LT TP of RM0.725, support is set around RM0.54, with the cut loss level envisaged around RM0.535.

From aquaculture to gold mining. BAHVEST’s core business was rearing of marine fish in Sabah and transportation of live fish to places like Hong Kong and South China. At end-2016, Bahvest’s Managing Director Datuk Lo Fui Ming injected his private mining business in Tawau (317.7 ha) into Bahvest for RM96m. In Aug 2018, the group commenced mining operations at Bukit Mantri after acquiring a 100% stake in Wullersdorf Resources in Jan 2017.

Sustainable gold mine. The group identified 28ha (only 8.8%) of land (may sustain their earnings >15 years) to begin mining operations and reported maiden gold production in Sep 2018 of 23.69kg. The sub-lease term on the mining land of 317.7ha will continue until Sep 2048, which provides long-term land resources for BAHVEST to sustain their business for years to come.

Higher average price of gold in 4Q19 and YTD. We noticed the gold price surpassed USD1,300 and USD1,500 in Jan-19 and Aug-19; this is a positive catalyst for BAHVEST. Also, the average price of gold in 4QCY19 is USD1,483 (3QCY19: USD1,474 and 4QCY18: USD1,229), while having an average price of USD1,561 on the YTD basis. Should we put mining production volume status quo, the higher gold prices will boost its revenue, in turn, translating to higher earnings (as most of their production costs are fixed) moving forward.

BAHVEST trading within the upward channel. Based on the recent momentum over the last few weeks, BAHVEST has been recovering steadily. Indicators are suggesting that the upward trend is still intact. The resistance zone will be envisaged around RM0.65, while the key supports are at RM0.54, with the cut loss set at RM0.535.

Source: Hong Leong Investment Bank Research - 13 Feb 2020