INVESTMENT MERIT
' Transfer to Main Market. After achieving an aggregate net profit of RM25.9m for five onsecutive financial years to FY11, GRANFLO has obtained approval for the transfer of its listing to Main Market on 26 Sept under the Technology sector. This should help to improve the group's profile and reinforce its track record to tender for more sizeable projects both in Malaysia and in the region.
' 10-year Thai fiber optic project. This was awarded by Communications Authority of Thailand (CAT) for the installation of 4,500 ports in two provinces near Bangkok. The project has already been completed and is expected to generate at least RM64.0m in revenue over the next 10 years or RM6.4m/year from FY13 onwards.
' Another deal from CAT? The management guided that CAT had also offered GRANFLO to become its marketing partner to promote the fiber-optic package to the public. We understand the deal is still in the the disussion stage. However, this could potentially contribute up to a total RM123.0m in revenue over 10 years (including RM64.0m of revenue from the installation of ports previously) based on tier incentive and performance, and assuming the ports are 100% sold over 18 months.
' Diviend policy of a minimum 20% payout. It expects to pay 0.68 sen DPS in FY13 based on our projection, implying gross yield of 3%. We believe its dividend policy is an attraction for investors as compared to other technology stocks, which has not commited to a dividend policy like GRANFLO.
' Compeling valuation. GRANFLO is currently trading at FY13 PER of 6.6x, which is lower than that of FBMKLCI Top 100 Small Cap FY13 PER of 7.6x. The group should warrant a PER that is at least at par to the FBMKLCI Top 100 Small Cap in our view given that GRANFLO is one of the very few profitable RFID companies in contrast to its closest peer ' SMARTAG, which has been making losses since the past few quarters. We have, thus value GRANFLO at RM0.26 based on its FY13 targeted PER of 7.6x.
SWOT ANALYSIS
' Strength: Established regional network, growing recurring income stream.
' Weaknesses: Small market capitalisation.
' Opportunities: Expanding business into healthcare sector and other regional market e.g. Thailand and Vietnam.
' Threats: Economic and political risks.
TECHNICALS
' Resistance: RM0.25 (R1), RM0.27 (R2)
' Support: RM0.22 (S1), RM0.215 (S2)
' Outlook: S-T (Bullish), M-T (Bullish), L-T (Bullish)
Comments: Grand-Flo is has just rebounded from the strong trend line support at RM0.22. Should the rebound continue, the share price may look to retest the RM0.25 triple-top resistance. The MACD, however, is showing signs of a bearish divergence and hence traders should look towards only a quick in-out trade
BUSINESS OVERVIEW
Grand-Flo Solution Bhd ('GRANFLO', BURSA CODE: 0056), founded in 1994, is a leading integrated tracking solution's provider, consisting of EDCCS (Enterprise Data Collection and Collation System) & labels production. GRANFLO has an established regional network in Malaysia, Thailand, Vietnam, Singapore, Hong Kong and China, and a reputable clientele mainly comprising of MNCs (e.g. Western Digital, Motorola, F&N, Tesco) & GLCs (e.g. Pos Malaysia, Communications Authority of Thailand). The group generated 86% of its 1H12 total revenue of RM41.9m from the domestic market while the remaining were mainly from Hong Kong & China.
BUSINESS SEGMENTS
EDCCS Solutions: Provides complete front-to-back-end integrated barcoding & RFID tracking solutions, from hardware and software to systems maintenance and barcode labels solutions. Besides, GRANFLO also provides complementary products such as IT infrastructure and Point of Sales systems (e.g. Fixed Position Scanners, Barcode printers, and etc.)
Labels: Manufactures barcode labels and other self-adhesive labels for general food, consumer products, pharmaceutical and toiletries industries. It is starting to produce clean room-grade labels for the semiconductor sector.