INVESTMENT MERIT

Stepping into higher margin factoring finance business. Fibon has recently diversified into the factoring finance business in mid-July through its newly acquired subsidiary, Fibon Capital S/B (formerly known as OPES Management S/B) for RM40k. OPES has been granted a license to conduct factoring finance business by Bank Negara Malaysia since July 2010 and subsequently became the Ministry of Finance Malaysia’s approved Factoring Company for Government contracts. Management believes the new factoring finance business could provide vast business opportunities as well as further enhancing the group's products proliferation. Earnings contribution from this division may not be meaningful during the gestation period due to the learning curve, but could grow significantly should the company adopts an aggressive strategy in the future.

Production limitation in its manufacturing business (due to its capacity constraint) could be resolved in the next few months given that Fibon is currently at the advanced stage of negotiation with a land owner.

Strong and clean balance sheet. Fibon has a strong net cash and cash equivalent balance of RM20.1m as at end-FY13, which translates into 20.5 sen or 63% of the group’s current share price. Meanwhile, Fibon also has a strong retained earnings and share premium totalling RM24.7m, which could be utilised to address its tight share liquidity issue in the future.

FY13 result driven by higher product margin. Fibon reported a high single digit net profit growth of 8.9% YoY (to RM4.9m) in FY13, thanks to higher product margins, mainly boosted by its newly launched switchboard invention, Fibon LogiCube, leading the group’s GP margin to expand to 58.9% from 53.5% a year ago. Meanwhile, the group also proposed a 1.25 sen first and final single-tier dividend, translating into a decent dividend yield of 3.9%.

Fair value at RM0.40. We value Fibon at RM0.40 based on a targeted FY14 PER of 7.6x, which is at a 30% discount to the FBM small cap forward PER of 10.9x due to its relatively small market capitalisation and tight shares liquidity concerns. Dividend-wise, 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. TRADING BUY

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: RM0.355 (R1), RM0.380 (R2)

- Support: RM0.24 (S1), RM0.215 (S2)

- Comments: We believe buying interest is starting to gain traction now as the active volume gradually picking up at the recent bottom level @RM0.310. Should the share price manage to breakthrough overhead resistance @RM0.355 (20-day SMA), we suspect the share price may go up further towards RM0.420 (recent high).

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 which comprise 66% of its sales.

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