The ups and downs of its share price. We had so far issued two OR reports on FIBON; (i) a Not Rated piece in May 2013 in which we said FIBON is a “Small and Illiquid But Steady” stock for its relatively flattish resilient earnings; (ii) a follow-up update in Sep 2013 titled “Small and Beautiful” with a Trading Buy rating with fair value of RM0.40/share. This was after its new venture into the higher margin factoring finance business which we believed should boost this microcap stock to a new level. Since our second OR report, the share price of FIBON surged to as high as RM0.675 (+108%). However, disappointing results coupled with the factoring business failing to take off contributed to the retreat of the share price to RM0.475 as of yesterday, which is still +46% since our Trading Buy call.

Two bad quarters but now back to normal. Since Sep last year, there had been five results reports. The first result, 1Q14 which was announced in end Oct 2013 saw its net profit surging 79% QoQ to RM1.83m from RM1.02m, thanks largely to improved manufacturing sales and RM0.50m forex gains. This also pushed the share price to a high of RM0.675 in early Nov. However, FIBON reported two bad quarters sequentially with net profit plunging to RM0.69m in 2Q14 and RM0.33m in 3Q14 no thanks to its second major customer in Indonesia stopping orders after the customer changed its business direction. While 4Q14 results were normalised to RM1.16m, 1Q15 results were hit by forex loss of RM0.23m pushing its net profit down to RM0.84m. The RM0.23m forex loss was mainly realised loss after FIBON converted all foreign currency mainly AUD into MYR. As such, future forex risk is likely to be minimal. Having said that, future normalised net profit per quarter is c.RM1.0m-RM1.2m from here.

Factoring business is still slow but… Since the acquisition of Fibon Capital in mid-Jul 2013, the group has yet to make any significant breakthrough in the factoring business as the gestation period took longer than expected as it needs time to learn the business especially, the legal documents. It had negotiated with few customers for this financing facility, which is worth RM1m-RM2m for each project but yet to finalise. Good news is that the latest 1Q15 results had shown maiden earnings from this new venture albeit small amount with pretax profit of RM20k out of RM56k revenue. We maintain that this high margin business could grow significantly should FIBON adopts an aggressive strategy in the future. On the other hand, FIBON has sent two units of LogiCube switchboard sample to its Singapore customer recently. Should the customer accept this sample, it could materially impact FIBON’s earnings given its low earnings base.

Valuation looks fair as business is back to normal. At current price of RM0.475 or PER of 11.6x which is a discount to FBMSC of 13.2x. As business is back to normal, its current valuation is fair given its microcap status and tight shares liquidity. Our earnings projection is based on normalised earnings with no contributions from factoring and LogiCube businesses. Meanwhile, its cash balance has increased to RM23.4m (@ Aug 2014) from RM20.1m a year ago, against its current market cap of RM46.6m. Its FY14 NDPS of 1.1 sen (ex-date: 01/12/14; payable: 29/12/14) translate into a decent yield of 2.6%. FIBON is now Not Rated from Trading Buy given it is fairly valued now. We shall relook the stock once the factoring and LogiCube businesses start to see meaningful earnings in next the 1-2 quarters.

Source: Kenanga