Dear Friends of i3 Investors' Forum,

 

With the current pare down of High Value Govt Stimulus  Projects construction stocks, construction material stocks like long steel & cement and to a lesser extend all property related stocks should be mediocre. Most consumer stocks got a boost due to the scrapping of GST. So I have looked for less affected industries.

One stock piqued my attention - EG Industries Bhd.

Why EG? 

Answer: Because price has now fallen back to year 2015 leveL in spite of its 3 Cash calls by Rights Issue

Another reason is why I3 forumers have given up hope & SOLD DOWN ON EG INSIDERS HAVE BEEN BUYING AND ACCUMULATING.

So I went to take a closer look on EG Industries (Is this EG(G) Going to Hatch an Ostrich or A Crocodile?

A Stock With Potential or Another Conman Stock?

Calvin thinks EG has good potential to be a good growth stock.

And these are my findings:

1)  EG at 49.5 sen with NTA of Rm1.21 is now selling at almost 60% Discount to NTA. This is more than twice the Margin of Safety required by Benjamin Graham at 30% discount to NTA.

 

2)  A LOOK AT SOME OF EG ASSETS REVEALED THAT THEY ARE LOCATED IN KEDAH, PENANG & THAILAND

 

Thailand

Lot 122 304 Industrial Park Tha Tum District Srimahapho Prachinburi, Thailand  Factory, Office Building & Warehouse Freehold .

PURCHASED IN YEAR 2011 APRIL  FOR RM7,490,435

IN YEAR 2011 BEFORE 1MDB SCANDAL THE RINGGIT WAS STRONGER THAN THE THAI BATH. SO EG STANDS TO GAIN IN VALUE AS THAI BATH HAS GONE UP MORE THAN 25% AGAINST WEAK RINGGIT NOW.

 

KEDAH

H.S.(M) 17426 P.T.No. 8543 Bandar Sungai Petani Daerah Kuala Muda Kedah  Factory, Office Building & Warehouse Leasehold PURCHASED IN APRIL 2012 BEFORE PROPERTY BULL RUN IN MALAYSIA  FOR  RM10,316,950

AS KEDAH IS NOW UNDER MUKHRIZ PH ASSET VALUE HERE  SHOULD BE HOLDING UP WELL

 

AND OTHER PROPERTIES ARE LOCATED ON PENANG ISLAND

SO EG HAS FAVOURABLE ASSET BACKING AS A MARGIN OF SAFETY.

 

3) LATEST RESULT UNDER PERFORMANCE WAS OVERSTATED.

REFER TO LATEST QR REPORT

B1. Review of Performance Comparison between the current quarter (“Q3 2018”) and the preceding correspondence quarter (“Q3 2017”)

For the current quarter ended 31 March 2018, the Group recorded revenue of RM256.1 million, an increase of 1.2% as compared to RM253.1 million recorded in the previous year corresponding quarter. The increase in revenue was mainly attributed to higher sales volumes from existing consumer electronics products

. Despite the increase in sales revenue, the Group’s profit before tax for the current quarter decreased by 28.9% or RM1.8 million to RM4.2 million from RM6.0 million in previous year corresponding quarter due to following reasons:

(i) weakening of US Dollar against Malaysia Ringgit which translated into lower product margin;

(ii) higher depreciation costs arising from enlarged machinery base which the machineries were not operating at maximum capacity level;

(iii) slower growth in sales volume due to long material lead-time which affected the ramp up of production volume and period to launch new product model;

(iv) higher freight inward cost to obtain spot buy components. Comparison between the current financial period-to-date and the preceding correspondence financial year-to-date

For the current financial period-to-date, the Group recorded revenue of RM758.5 million, an increase of 1.5% as compared to RM747.5 million the last year corresponding period which mainly attributed to higher sales volumes from existing consumer electronics products, partially offset by the decrease in sales volumes of data storage products 

 

READ CAREFULLY AGAIN THE PERFORMANCE REVIEW AND THEIR WORDINGS

 

(i) weakening of US Dollar against Malaysia Ringgit which translated into lower product margin; 

NOTE BY CALVIN: WEAKENING OF US DOLLAR TRANSLATES TO LOWER PROFIT.

BUT LOOK UNDER BORROWINGS:

B11. Group Borrowings and Debt Securities Total Group borrowings as at 31 March 2018 are as follows:

(c) Denominated in Malaysia Ringgit RM35,354,000

Denominated in US Dollar RM155,129,000 

Denominated in Thai Baht RM18,192,000

 

THE WEAKENING OF US DOLLAR ALSO TRANSLATES INTO GAIN IN EXCHANGE FROM BORROWING.

SO OH OH!! COMPANY DID NOT HIGHLIGHT AND STATE THE POSITIVE ASPECT. SO THERE IS A SILVER LINING IN EVERY CLOUD!

 

(ii) higher depreciation costs arising from enlarged machinery base which the machineries were not operating at maximum capacity level;

 

SEE

Depreciation of property, plant and equipment  RM23,765,000. (WOW! RM23.7 MILLIONS DEPRECIATION FOR PPE?)

WHY THE URGENCY TO DEPRECIATE FAIRLY NEW MACHINERIES? WHY DIDN'T AIRASIA & AAX DEPRECIATE THEIR PLANES? WHY EG ASSETS SHOULD GO INTO DEPRECIATION SO FAST?

AUDITOR/ACCOUNTANT OVER DID IT?

 

(iii) slower growth in sales volume due to long material lead-time which affected the ramp up of production volume and period to launch new product model; 

(OK NO COMMENT ON THIS)

 

(iv) higher freight inward cost to obtain spot buy components. Comparison between the current financial period-to-date and the preceding correspondence financial year-to-date 

(AGAIN NO COMMENT AS FREIGHT COST CAN AND DO FLUCTUATE.)

 

OVERALL CALVIN IS OF THE OPINION THAT THE NEGATIVES ARE OVERSTATED.

 

4) LATEST QUARTER SHOWS FURTHER PAY OFF OF PAYABLES

(Decrease) / Increase in trade and other payables (66,492). PAYING OFF RM66.4 MILLIONS

GOOD. VERY GOOD.

 

5) RECEIVABLES ARE UP TO DATE AND VERY HEALTHY

The Group maintains an ageing analysis in respect of trade receivables only.

The ageing of trade receivables as at the end of the reporting period was:

As at 31.03.2018

Not past due ....................................................RM184,394,000

Past due 31 - 60 days......................................RM 3,522,000

Past due 61 - 90 days ......................................RM217,000 

Past due more than 90 days.............................RM 26,000

 

UNLIKE SENDAI WITH RECEIVABLES UP TO ONE YEAR OVERDUE THE RECEIVABLES OF EG ARE

 

NOT PAST DUE: RM184.3 MILLIONS. (EXCELLENT!)

31 - 60 DAYS ARE RM3.5 MILLIONS

61 - 90 DAYS ARE ONLY RM217,000

AND DANGER OF BAD DEBT 9MORE THAN 90 DAYS DUE?) RM26,000?

VERY GOOD. NOT BAD AT ALL

 

6) ALL THAT MANAGEMENT PROPOSED BY RIGHTS ISSUE HAVE BEEN FULFILLED

LAST TIME ONE LADY BOSS FROM FOUNTAIN VIEW MISUSED DESIGNATED FUNDS. SO GOT REPRIMANDED BY BURSA & LATER FOUNTAIN VIEW GOT DELISTED

FOR EG THE PROPOSALS HAVE BEEN CARRIED OUT IN A TRANSPARENT MANNER

SEE

 

Details Proposed Utilisation Actual Utilisation 31.03.18 Intended Timeframe of Utilisation (from 11 Nov 2015) IN OOO

Repayment of bank borrowings 2,960  (2,960) 

Within 6 months Purchase and upgrade of machinery 16,000 (16,000) Within 24 months

Expansion and upgrade of factory 20,000 (20,000) Within 12 months

Purchase of inventory such as electronic component, printed circuit board and plastic resin 5,000 (5,000) Within 12 months

Acquisition of new businesses or assets 8,000 (8,000)

Within 24 months Working capital 3,660 (3,660) Within 12 months

Expenses relating to the Proposals 2,000 (2,000) Immediately 

 

NOTE: ONLY RM2.96 MILLIONS GONE TO REPAY BANK BORROWINGS

 

PURCHASE OF NEW MACHINERY RM16 MILLIONS

EXPANSION AND UPGRADE OF FACTORY IS RM20 MILLIONS

PURCHASE OF RAW MATERIAL IS RM5 MILLIONS

BUYING NEW BUSINESS/ASSETS RM8 MILLIONS

EXPENSE FOR CORP EXERCISE IS RM2 MILLIONS

 

SO RM49 MILLIONS WENT FOR EXPANSION FOR FUTURE GROWTH

 

7) WITH 3 RIGHTS ISSUES THESE PAST YEARS FOR EXPANSION COMPANY REVENUE HAS REACHED RM1 BILLIONS

REFER TO ANNUAL REPORT

FINANCIAL REVIEW

Group revenue in FY2017 jumped to its highest-ever of RM1,008.3 million, marking a 41.5% increase compared to RM712.7 million previously. This strong growth was on the back of sales expansion in both PCBA and box build segments.

 

8) ONE NOTABLE FACTOR IS DIRECTORS' OWN OPTIMISM IN EG INDUSTRIES

 

WHILE EG PRICES IS WEAKENING INSIDERS HAVE BEEN LOADING AND LOADING UP

 

 

Director's Particular:

Name	TERENCE TEA YEOK KIAN

---

Details of Changes:

Currency

Malaysian Ringgit (MYR)

 

Date of Change		Type	Number of Shares	Price
	01-Jun-2015	Acquired	15,600	0.715

 

Nature of Interest	DIRECT
Shares	ORDINARY SHARES OF RM1.00 EACH
Reason	ACQUIRED FROM OPEN MARKET
Consideration	RM11,154.00

---

Total no of securities after change

Direct (units)	215,000
Direct (%)	0.29
Indirect (units)	0
Indirect (%)	0.00
Total (units)	215,000
Total (%)	0.29
Date of Notice	03-Jun-2015

  

IN JUNE 03 2015 DIRECTOR TEA YEOK KIAN FIRST APPEARED WITH ONLY 215,000 EG SHARES AT 0.29%

BY LATEST PURCHASE ON JUNE 1ST 2018 HE HAS INCREASED HIS SHARE HOLDINGS TO OVER 50.4 MILLION EG SHARES AT 18.92% TO BE THE TOP SHARE HOLDERS

WARREN BUFFET LIKES DIRECTORS BUYING COMPANY SHARES WITH THEIR OWN HARD EARNED MONEY.

I SEE EG INSIDERS ARE NOT JUST BUYING BUT GOBBLING

 

Substantial Shareholder's Particular:

Name	TERENCE TEA YEOK KIAN

---

Details of Changes:

Currency

-

 

Date of Change		Type	Number of Shares
	01-Jun-2018	Acquired	54,000
	Registered Name	TERENCE TEA YEOK KIAN
	Nature of Interest	Indirect Interest

 

Nature of Interest	Indirect Interest
Shares	ORDINARY SHARES
Reason	ACQUISITION OF SHARES VIA RHB NOMINEES (ASING) PLEDGED SECURITIES ACCOUNT FOR JUBILEE INDUSTRIES HOLDINGS LTD

---

Total no of securities after change

Direct (units)	12,613,625
Direct (%)	4.73
Indirect (units)	37,863,270
Indirect (%)	14.19
Total (units)	50,476,895
Total (%)	18.92
Date of Notice	01-Jun-2018

 

WILL EG(G) HATCH INTO A GOLDEN GOOSE OR A POISONOUS SNAKE SOME FUTURE DAY?

CALVIN THINKS IT WILL MOST PROBABLY BE A GOLDEN GOOSE

 

 

 

 

 

 

WARMEST REGARDS

 

Calvin Tan Research