INVESTMENT MERIT

- Strong and clean balance sheet. Fibon has a strong net cash and cash equivalent balance of RM19.4m as at 3QFY13, which translates into 19.8 sen or 64% of the current share price. Meanwhile, the group also has a strong retained earnings balance of RM22.9m, which is equivalent to 75% of its current market capitlisation. 

- Penetrated into the higher-margin switchboard market.  Fibon has started its foray into the switchboard market since October 2012 under the name of Fibon LogiCube. To date, the group has managed to sell two units of Fibon LogiCube for about RM1.0m each with a gross profit margin of more than 60%. 

- Competive advantages through international standards achievement.  Fibon’s fibre reinforced polyster insulators have met the stringent requirements for  a temperature rise, short circuit as well as obtained the ASTA certifications (an international standard) for its capabilities to design, construct and develop low-voltage switchboards.  Fibon believes that it is one of the few local companies with products that have met these stringent standards and thus it is able to enjoy some competitive advantages when penetrating into the oversea markets. 

- Achieved maximum capacity for now. Fibon expects to record an organic revenue annual growth rate of c.5% for now due to its capacity constraint as a result of land and labour shortage for its production. Nevertheless, we understand that management aims to resolve the above issues within the next few months. 

- Fair value at RM0.34. We value Fibon at RM0.34 based on a targeted FY14 PER of 6.5x, which is in line with its 1-year historical average PER but is at a 35% discount to the FBM small capital index forward PER of 9.9x due to its relatively small market capitalisation and illiquidity concerns. Dividendwise, the group has continued to reward its shareholders by distributing 20%-25% of its net profits since listing. We understand that Fibon has an intention to raise its dividend payout ratio gradually to c. 45%-50% in view of the group’s steady business growth.

SWOT ANALYSIS

- Strength:  Technical know-how in a niche industry

- Weaknesses: Low market cap. 

- Opportunities: Exploring new client base overseas. 

- Threats: Foreign exchange and economic risks.

TECHNICALS

- Resistance: RM0.340 (R1), RM0.490 (R2)

- Support: RM0.280 (S1), RM0.260 (S2)

- Comments:  FIBON’s has crossed above the nearest moving average line (20- & 50-day SMA) recently. Nevertheless, further gains would likely be capped at the RM0.34 resistance (100-day SMA line).

BUSINESS OVERVIEW

FIBON Bhd (Bursa Code: 0149, FIBON) is engaged in the formulation, manufacturing and sales of polymer matrix fiber composite materials and products for the Electrical, Electronic, Petrochemical and Automotive industries. FIBON provides solutions for the formulation of composites materials and polymer matrix fiber composite material in Malaysia and in the ASEAN region. Currently,  the  company  operates  from  its  factory  in Kluang,  Johor.  Its  1½  storey  light  industrial detached factory is used to manufacture polymer matrix composites and serves as the company’s head office and R&D facilities as well. The  company’s  revenue  is mainly  derived  from  the oversea  markets  with  Singapore  being  its largest export destination followed by  Indonesia and Australia. To date, 66% of its products are sold oversea.  

BUSINESS SEGMENTS

Motor Manufacturer:  Used for phase insulation/slot insulation in Toys, Fans, Washing Machines, Vacuum Cleaners, etc. 

Transformer Manufacturer: Used for Coil Wrap/Layer Insulation in Adapters and Commutators.

Compressor Motor Manufacturer:  Used for phase insulation or capsulation in Air-conditioners and Refrigerators.

Source: Kenanga