The Most Underappreciated Quarterly Result Ever

May, being one of the busiest months as investors are bombarded with quarterly results, it is easy to overlook some exceptional results, more so on those companies that you had not invested into beforehand. But today, we will delve deep into the quarterly performance of TECHFAST HOLDINGS BERHAD (“TECFAST”) and why is it the most “underappreciated” result, ever.

1. Revenue and profitability
    

The company had an 81.7% higher in revenue when compared year-on-year, where TECFAST had RM12.42 million in revenue for this quarter and only RM6.83 million in the corresponding quarter. As you can see, the spike in revenue is mainly coming from the oil bunkering, petroleum trading business of the newly acquired company.

A quick check on TECFAST’s recent announcement, it was noted that the company had only issued the circular to acquire the oil bunkering business and simultaneously secured several large contracts on the month of March. Technically this would mean the oil bunkering business accounted for less than 1/3 of what the actual numbers are – due to the company only recognized a month in revenue and profitability, imagine what would happen in the next quarter, the number would easily be over 3 times!

Should TECFAST’s SCF segment, mould cleaning segment and epoxy segment remains the same revenue, we would still see an additional RM8 million in revenue for the company due to the recognition.

Based on my further studies on the company’s product – namely VLSFO, LSFO, it is not hard to notice the premium in pricing had begun to increase further in the month of April. Hence, alongside with the increased premium and full-quarter recognition in revenue, it is without a doubt that TECFAST could easily turnaround their loss and based on a conservative profit margin of 10% operating margin, this would translate to a RM1.5 million in operating profit.

A quick study on the historical performance of the company would further notice that an additional RM1.5 million in operating profit is significant to the group. Hence, we might see exciting turnaround story from TECFAST anytime soon.

2. Future prospects
    

It is also important to note that upon the acquisition of TECFAST on the oil bunkering business, they received a RM1.75 million in bottom line per annum as a guarantee.

Why are they so confident on delivery the profit guarantee? I believe the management of TECFAST had the knowledge that as freight activities are busy now, the profit for oil bunkering business would increase. The management also had mentioned that the oil bunkering business would contribute 25% or more to the group’s net operating profit.

What is my take from this statement? It seems that the management is extremely confident with their oil bunkering business. And the trend plus the numbers actually coincides with the growth story.

3. Technical analysis

However interesting the growth story is, TECFAST’s technical movement is still considered bad for now. Hence the title “most underappreciated” for the company. However, from OBV and RSI we can also take note that the selling pressure had seen to take a pause, and a consolidation exercise seems to be in the range of 30.0 cents to 35.0 cents.

In conclusion, I believe TECFAST is grossly undervalued at the current level and investor should grab what they can at this level. As for trade, a support line of 30.0 cents is such a great entry point. On Monday, perhaps we could see deeper discount level due to the market panicking for no reason!