IQ Group Berhad (“IQ”) is a company that specializes in manufacturing of sensor products for various applications. They are a relatively small company with a market capitalization of only RM186m.  

Key highlights:

• Technically ripe breaking 200 days SMA and 6 month resistance
• Meets 4/5 of Fong SL’s investment criteria
• Clean balance sheet – net cash of 54c/ share

Recently, IQ broke the 6 month technical resistance of RM2.05 and the 200 day SMA. This is the trigger to very quickly perform an analysis on IQ. I suspect that the jump in price was due to either insiders buying ahead of the Q results. Although volume for IQ is thin, nevertheless the volume is significantly higher than 50 day volume EMA.

Like most, I am a disciple of both Fong SL and KYY’s investment methods.

Fong’s methods are relatively straight forward with the following criteria:

1. Return on equity (ROE) - good
   • 15.5% - reasonably high
2. Cash flows - good
   • Op cash flows for the past 5 years have been positive and higher than PBT besides 2016 mainly due to higher tax payment and receivable at balance sheet (due to higher revenue on Q4 2016)
3. PE Ratio – good
   • 8.9, lower than 10
4. Dividend Yield – 4.77%, good
5. NTA backing – pass
   • 1.52 (72% of share price)

Borrowing from KCChong’s article for Fong’s criteria: http://klse.i3investor.com/blogs/kcchongnz/88651.jsp

Seeing that most of Fong’s criteria has been met, it is no surprise that he is part of the top 30 shareholders list as at the last annual report date. Note that the top 30 shareholders form 91.3% of total shareholding. This leads to IQ being extremely illiquid as there are few retailers and punters (something I particularly like). 

I think the most important thing next is to know whether it will make more money next year (KYY’s golden rule) however this question is extremely difficult and requires extensive research which I have not done yet.

In short, IQ is engaged in:

• OEM - you design, I build, your brand
• ODM - I design, I build, your brand) and
• Distribution - I design, I build, my brand, you sell

IQ manufactures mostly sensors which have lighting and feedback applications. I understand that they will be able to benefit from two big things:

• Trend of moving to Green Building Index (“GBI”) requirements which requires buildings to have lighting sensors to save electricity (& save the world)
• Internet of Things (“IOT”) – as we move to a more connected world, everyday objects will have sensory and connectivity features. IQ group (mentioned in the latest annual report) is well positioned to bring their innovation and expertise to the IOT era

While I cannot yet tell whether IQ group will be more profitable in the next year compared to the current, however at least with this investment, the downside is limited.

With that, I apologize that I am unable to give a target price, however I hope this has been useful information for you (for now).

Happy Investing,

Cephas