LANDMARKS BHD
Primary Symbol & Exchange: LANDMRK
1643 - Ordinary Shares - Malaysian Stock
Exchange Price/share @ 20/5/2011 RM:1.56
Mkt Cap RM’m : 749.9
Shares (m): 480.68 Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Hotels
Fox Capital: Hospitality
Executive Chairman: Dato’ Zakaria bin Abdul Hamid
Managing Director: -
KNOWN MAJOR SHAREHOLDER(S) (as at 31/12/2010)
Genting Bhd 30.31%
North Symphony Sdn Bhd+ 17.99%
+ 50% owned by Dato' Zakaria bin Abdul Hamid
Background.
Landmarks was set up in 1973 as Basset Rubber Company, which actively ventured into oil palm and rubber cultivation. It also had joint ventures with Perbadanan Kemajuan Negeri Perak to develop housing projects in Kamanting and Taiping. During its initial years, the Group changed its name several times, from Basset Rubber Company to Ytong Malaysia, followed by Premium Holdings. In 1983, it changed its name to Landmarks Holdings and merged with Landmarks Corporation, and continued to actively engage in rubber and oil palm, housing, property, hotel and shopping complex businesses. In 1989, it was officially incorporated and commenced operations as an investment holding company with the takeover of the entire undertaking, assets and liabilities of Landmarks Holdings. It was listed on the Kuala Lumpur Stock Exchange on 8 January 1990.
Since the appointment of Datuk Zakaria bin Abdul Hamid as Group Chairman on 24 October 2007, Landmarks has realigned its group strategy to focus on the lifestyle sector. The Group divested all of its non-core and non-strategic assets to focus on moving forward with its new theme - “to be a leading player in the lifestyle sector, focusing on resorts, hospitality and wellness in the South East Asian region”.
Figure 1 illustrates the assets that had been disposed by the Group in order to realign its strategy and restructure its debt:
Figure 1: Disposal of assets
Date..... Company........................... %.... Consideration
13-Oct-99 President Hotel Sdn Bhd...........(67.4%) RM108.4m
24-Oct-02 Mayne Nickless Limited............( 2.3%) RM97.2m
28-Apr-04 Setia Haruman Sdn Bhd ............(25.0%) RM50.0m
15-Oct-04 Mont Kiara Land..................(100.0%) RM17.4m
25-Nov-04 Tiara Labuan Sdn Bhd.............(100.0%) RM3.0m
23-Sep-05 MSL Properties Sdn Bhd ...........(50.0%) RM77.9m
15-Feb-06 Qualitas Healthcare Corp..........(60.0%) RM10.3m
22-Sep-06 Mediscreen Sdn Bhd................(70.0%) RM3.8m
8-Dec-06 Mayflax Sdn Bhd....................(50.0%) RM0.8m
11-Apr-07 Sungei Wang Plaza Sdn Bhd........(100.0%) RM284.8m
5-Sep-07 Shangri-La Hotels (Malaysia)...... (26.6%) RM287.0m
20-Nov-07 Archipelago Resorts Sdn Bhd..... (100.0%) RM72.1m
5-May-08 Teknologi Tenaga Perlis Consortium (20.0%) RM179.2m
...............................................................Total RM1,191.8m
Source: Bursa Malaysia,
After disposing its non-core and non-strategic assets, the Group repaid most of its debt prior to the restructuring. It has kept its balance sheet healthy with net cash position since FY07. The Group also used some of the disposal proceeds to purchase 100% stake in Bintan Treasure Bay Pte Ltd, a special purpose vehicle that owns two parcels of leasehold land on Bintan Island measuring 338 hectares. The land is held under its subsidiary, PT Pelangi Bintan Indah. Bintan Treasure Bay Pte Ltd is also the master developer of Treasure Bay Bintan, a “Water Resort City” that will comprise resorts, wellness, cultural, residential and commercial developments with supporting facilities such as a Customs, Immigration, Quarantine and Port (CIQP) terminal, marina, cruise transit point, education, medical, convention and other integrated entertainment facilities.
The 100% stake in Bintan Treasure Bay Pte Ltd was bought in three tranches between 31 May 2007 and 2 May 2008 at total cost of RM764.7m.
Besides its large land bank on Bintan Island, Landmarks’ other major asset is The Andaman Langkawi resort hotel. The management appointed Sheraton Overseas Management Corporation, an affiliate of Starwood Hotels & Resorts Worldwide, as the new perator of The Andaman Langkawi on 10 December 2009. The resort has since been rebranded “The Andaman, a Luxury Collection Resort” and included in Starwood’s portfolio of The Luxury Collection Hotels & Resorts. The rebranding includes upgrading of the property, and refurbishment of rooms and facilities, which is currently on-going.
WHY WE FEEL THIS COUNTER IS UNDER VALUED
(1) Under-researched, cheap valuation
Landmarks is an under-researched stock with no coverage currently. Hence, the cheap valuation is partly due to the lack of information flow to the investment community, and because there is no concrete guidance on the master plan for Bintan as it is still being finalised. A change is expected to come in June where a firm master plan will be provided. The stock is currently trading at a 127% discount to its book value of RM3.54. It also has a strong balance sheet – it has been in net cash osition since FY06.
Landmarks is a cheaper proxy to rising land prices in Bintan, the gateway to the Riau Archipelago. The current share price (RM1.56 as at closing on 20/5/2011) is even below Genting Berhad’s average book cost of RM2.05 per share. Landmarks is trading at a hefty discount of more than 50% to our estimated RNAV of RM4.81. It also boasts RM130m net cash, which works out to RM0.27/share or approximately 17% of the current share price.
(2) Huge potential in Bintan development.
Huge potential can be seen in Landmarks’ Treasure Bay Bintan. Although Landmarks has sold most of its other assets and currently only owns the Andaman Langkawi, 20% + 1 share in MCL Properties, and its 338-ha land bank in Bintan Island, the Group will reap huge rewards from its bold move to become one of the leading hospitality layers on Bintan Island.
The early signs are promising as Gallant Ventures, the master developer for Bintan, has managed to sell c.SGD$85m worth of its Lagoi Bay development land to investors and developers. Gallant Venture has also sold c.85% of available commercial sites in the Lagoi Bay Village project. Besides that, the government of Indonesia is eager to promote Bintan Island as an alternative tourist destination to Bali. Gallant Ventures has started construction on Lagoi Bay and is believed to be looking for potential JV partners to build an airport on Bintan.
The airport will benefit Landmarks, which 338-ha site on Bintan is located next to Bandar Telani Bintan Ferry Terminal, the main gateway to Bintan Island from Singapore. We believe Landmarks deserves a higher valuation after the positive re-rating given to Gallant Ventures
(3) Treasure Bay in good stead to get gaming license
The biggest wildcard for Treasure Bay Bintan is the gaming license. Landmarks will eventually leverage on its major shareholder and gaming operator, Genting, to obtain a gaming license from the government of Riau. We believe it is only a matter of time before the government of Indonesia endorses that granting a license for gaming operations in Indonesia would help to attract more visitors, as demonstrated by Resorts World Sentosa and Marina Bay Sands in nearby Singapore.
On 24 January 2008, Bintan Treasure Bay signed an agreement with PT Wisata Hiburia, which has been granted a Surat Izin Tetap Usaha Wisata Internasional Terpadu ksklusif (Decree for Permanent Licence of International Exclusive Integrated tourism) by the Kebupaten Bintan. The decree improves the prospect of the government allowing gaming outlets to be opened within Treasure Bay. Under the agreement, PT Wisata Hiburia has assigned Treasure Bay as an Exclusive Integrated Tourism Zone (EITZ), which grants permission for certain licensed activities to be conducted within the development. These licensed activities include medical tourism, multimedia and information technology hosting, and games and entertainment, including gaming. With this zoning agreement in place, coupled by Genting’s successful foray into the gaming industry in Singapore with Resorts World Sentosa, we believe it is only a matter of time before Genting decides to flex its muscles as major shareholder of Landmarks and push for a gaming outlet in Treasure Bay to tap into the thus far untested gaming industry in Indonesia. We think that the target market for Landmarks’ casino operations will be different from the patrons in Singapore whereby the operations in Bintan will be on a smaller scale, hence becoming synergistic to Genting’s casino in Singapore.
(4) Strong major shareholder (Genting Bhd) whose average cost is at RM2.05/share.
Genting is currently the largest shareholder of Landmarks with 30.3% stake in the Group, which it had bought between 18 August 2006 and 28 December 2007. It average cost is RM2.05 per share, which is 40% higher than its current share price of RM1.53.
Saturday, May 21, 2011
Saturday, April 2, 2011
SPRITZER - EXPECTED HIGHER DEMAND FROM JAPAN
SPRITZER BHD
Primary Symbol & Exchange: SPRITZR
7103 - Ordinary Shares - Malaysian Stock
Exchange Price/share @ 1/4/2011 RM:0.945
Mkt Cap RM’m : 123.474
Shares (m): 130.66 Par RM: 0.50
SECTOR CLASSIFICATION
MSEB: Consumer
Fox Capital: Consumer - Drinks
Executive Chairman: Dato’ Lim A Heng @ Lim Kok Cheong
Managing Director: Lim Kok Boon
KNOWN MAJOR SHAREHOLDER(S) (as at 3/10/2008)
Dato’ Lim A Heng @ Lim Kok Cheong + 55.42%
Lembaga Tabung Haji 8.45%
Skim Amanah Saham Bumiputra 6.12%
+ Direct & indirect interest
BACKGROUND
The Spritzer Group is the largest fully integrated manufacturer of bottled water in Malaysia. It also manufactures toothbrushes, pre-forms and packaging bottles and began producing mineral water in 1988. The group manufactures and sells bottled water under the brand names of “Spritzer”, “Cactus”, “Sunsui” and “Summer”.
Group Managing Director, Mr Lim A Heng @ Lim Kok Cheong, JP, holds a 50.4% stake in Spritzer Bhd. He has more than 39 years of experience in the consumer products industry. He is also a substantial shareholder and one of the founders of Yee Lee Corporation Bhd (YLC) , a company listed on the Main Board of Bursa Malaysia. The YLC Group is mainly involved in the production of edible oils and other consumer products. The company was admitted to the Second Board of Bursa Malaysia in September 2000. The company was subsequently transferred to the Main Board.
The group comprises five active subsidiaries, two of which, Chuan Sin Sdn Bhd and Angenet Sdn Bhd, are principally engaged in the manufacturing of natural mineral water, distilled water, drinking water and carbonated flavored water. Chuan Sin Cactus Sdn Bhd (CSC) primarily sells and distributes bottled water products under the “Cactus” brand. Golden PET Industries Sdn Bhd (GPI) produces polyethylene terephthalate (PET) bottles for cooking oil and mineral water, pre-forms (raw material for manufacturing of PET bottles) for PET bottles, toothbrushes and other plastic household products. PET Master Sdn Bhd (PM) is involved in the manufacture and sales of PET bottles and polypropylene (PP) cups.
The core company in the Spritzer Group is Chuan Sin. Its water bottle plants, which are capable of producing 147 mln liters of water a year, are located on a 295-acre site in Taiping, Perak. The group has a smaller bottled water manufacturing facility in Yong Peng, Johor.
The “Spritzer” brand, Malaysia best selling natural mineral water is produced and bottled out of a vast site with bountiful natural mineral water resources in an area surrounded by lush tropical rainforests greenery, away from pollution, housing and industrial areas.
The group’s production lines are completely automated and equipped with the state-of-the-art bottling technologies. The plant is manned by qualified professionals such as food technologists, chemists, microbiologists and engineers. Over the years, Spritzer’s bottled water products have garnered a number of awards and set many milestones. The mineral water for each bottle is extracted from an aquifer located over 400 feet deep underground in the tropical rainforest. An aquifer is a wet underground layer of water-bearing permeable rock or unconsolidated materials (gravel, sand, silt or clay) from which groundwater can be usefully extracted using water well.
Taiping is said to be the town with the highest rainfall in Peninsular Malaysia, with about 4000mm of rain per year. The Spritzer group has pioneered conservation measures to ensure that its water sources are not polluted. Their water source and surrounding rainforest are has been designated as a private protected reserve. The water extracted from the aquifer within the group’s land contains beneficial trace minerals. Naturally filtered through the long distance and a variety of rock strata, the water is naturally rich in minerals, in particular Orthosilicic Acid (OSA). OSA has numerous health benefits. It keeps skin young, smooth and supple by stimulating the formation of natural collagen. It also said to help maintain a head full of thick and luscious hair. Hair with higher silicon content has more shine and lustre, and tends to drop less. Every litre of Spritzer natural mineral water contains 35 mg of soluble silicon in the form of OSA, which is an active and bio-available form of dietary silicon that the human body can absorb. The group has a full range of bottled water including natural mineral water, sparkling natural mineral water, distilled drinking water, carbonated fruit flavoured drink, non-carbonated fruit flavoured drink and functional water.
Spritzer advocates that "Not all bottled waters are the same." For the protection of its customers and in line with the Malaysian Food Act and Regulation, Spritzer bottled waters are clearly distinguished by their caps - white for drinking water and assorted colours for natural mineral water.
Other than selling bottled water under its Spritzer and Cactus brands, the group also supplies mineral water to other third parties, such as hypermarkets, supermarkets and petrol stations, which sell the bottled water under their own in-house brands. Interestingly, upon checking out Spritzer’s homepage, we find that the group even provides an online option for consumers to buy its bottled water. With a minimum order of 2 cartons, the buyers even get a complimentary delivery service for locations within the Klang Valley.
Spritzer : Subsidiary Companies Company :
Chuan Sin Sdn Bhd
Chuan Sin Cactus Sdn Bhd
Hidro Dinamik Sdn Bhd
Pet Master Sdn Bhd
Angenet Sdn Bhd
Golden Pet Industries Sdn Bhd
Source: Spritzer
Spritzer group is led by Dato’ Lim A Heng @ Lim Kok Cheong, its Non-Independent Non-Executive Chairman and Mr Lim Kok Boon, its Managing Director (MD). The chairman has more than 40 years of experience in the trading and manufacturing of edible oils and consumer products industry. He also holds top positions for the Perak Chinese Chamber of Commerce and Industry, Associated Chinese Chambers of Commerce & Industry of Malaysia, and the Malaysia-China Chamber of Commerce (Perak Branch). Dato’ Lim is also involved in Yee Lee Corporation Bhd. Meanwhile, the MD has more than 30 years of working experience in the sales and distribution of F&B products and is the Past President/Consultant of the Asia and Middle East Bottled Water Association (ABWA). He was instrumental in the growth of Chuan Sin Sdn Bhd, a wholly-owned subsidiary of the group, when it successfully switched to the production of bottled water in 1988 and is now overseeing the group’s day to day operations.
FINANCIAL PERFORMANCE
The group had recorded a higher revenue of RM35.8 million during its 2Q/FY11 ended 30th November 2010, an increase of RM6.3 million representing a 21.3% increase as compared to the corresponding 2Q/FY10. The increase in group revenue was mainly contributed by the higher sales of various bottled water products. However, the group’s profit before tax (PBT) had decreased from RM3.4 million in its 2Q/FY10 to RM2.8 million in its 2Q/FY11. This was as a result of the higher operating expenses and finance cost attributed mainly to the group's expansion plan and the setting-up of the bottling plant in Shah Alam, Selangor.
As compared to RM34.8 million reported in the preceding 1Q/FY11, the group’s revenue had increased slightly to RM35.8 million in 2Q/FY11. Group PBT had decreased from RM3.3 million in the preceding 1Q/FY11 to RM2.8 million in 2Q/FY11. This was a decrease of approximately 15.3%, mainly attributed to the higher operating expenses and finance cost as mentioned earlier.
OUTLOOK/CORP. UPDATES
In tandem with the improving domestic economy, we expect that the group’s local retail sales would grow steadily. Bottled water is a relatively inexpensive consumer product, and we foresee that the demand would grow steadily. At the moment, less than 10% of Spritzer’s group sales are derived from exports (to destinations such as within Asia and Australia).
1) Increase product range
In line with the group’s expansion plan and the enhancement of its production capacity, Spritzer has been increasing its product range to cater to the needs of the various market segments. With these continuous efforts to promote and nurture their various brands, the group’s sales volumes of its various bottled water products will continue to grow. Spritzer is also looking at expanding its sales of water in larger container sizes (up to 5 gallons) for the use of water dispensers at office or home premises. Besides Taiping and Shah Alam, the group also has a bottling facility in Yong Peng, Johor.
2) Economy growing steadily
The latest available Malaysian economic data (January 2011) revealed reasonably positive growth rates in y-o-y percentage terms, for instance: IPI (+1.0 y-o-y), and Manufacturing Sales (+7.7% y-o-y), Exports (+3.0% y-o-y) and Imports (+13.5% y-o-y). Malaysia had reported a very respectable 4Q/2010 GDP growth of +4.8% (+7.2% for full year 2010 GDP), stable 4Q/2010 unemployment rate of 3.2% and manageable CPI of 2.4% (January 2011). Meanwhile, Bank Negara Malaysia (BNM) had last reaffirmed its accommodative overnight policy rate (OPR) of 2.75% in March 2011.
WHY WE FEEL THAT SPRITZER IS A "TRADING BUY"
1) Demand for Spritzer water to be boosted by Japan nuclear fallout disaster
It is understood that Spritzer is finalising a deal to increase exports of mineral and drinking water to Japan to alleviate the shortage there. Radioactivity from the Fukushima Daiichi nuclear power plant, which damaged in the March 11, 2011 earthquake and tsunami, is seeping into the drinking water in the Tokyo and Tohuku regions. Radioactive contamination in the water supply has reached a level that makes it unsafe for consumption by infants and the Japanese government has called on water companies to increase supplies.
Spritzer's advantage is that they are already exporting to Japan and therefore, they know the dealers there. They expect a big boost to their shipments there as the nuclear crisis continues to unfold.
The radiation scare affects every part of Japan, and hence, the increase in demand from outside Japan can be very tremendous. Exports to Japan contributed about RM7 million or 10% of Sprinter's total revenue for 1H2010 ended 31/11/2010. The company says additional orders from Japan may boost its shipments to Japan by 30% to 40%.
2) Consistent dividend payout
The group had declared a first and final tax exempt dividend of 2.5 sen per share (2.5 sen DPS) for its financial year ended 31st May 2010 (FY10). The dividend was subsequently paid out during December 2010. Spritzer has a consistent dividend payout track record in recent years, of at least 25% of its annual net earnings.
3) Mercury Securities have made a "Buy Call with substantial upside" for Spritzer.
Based on their forecast of Spritzer’s FY11 EPS and an estimated P/E of 9 times (within its historical range), they set a FY11-end Target Price (TP) of RM1.10. This TP is 16.4% upside from its current market price of RM0.945. Our TP for Spritzer reflects a P/BV of 0.96 times over its FY11F BV/share. Meanwhile, the local beverage sector’s average P/E and P/BV is 11.8 times and 2.5 times, respectively. It is worth noting that above have yet to take into account the potential revenue boost from the Japan nuclear disaster.
4) Market leader (i.e. top producer) in Malaysia
Spritzer is in a competitive industry but it is a market leader in Malaysia and it has remained profitable when many mineral water producers have closed shop. The additional orders from Japan will help the company expand its market share.
Primary Symbol & Exchange: SPRITZR
7103 - Ordinary Shares - Malaysian Stock
Exchange Price/share @ 1/4/2011 RM:0.945
Mkt Cap RM’m : 123.474
Shares (m): 130.66 Par RM: 0.50
SECTOR CLASSIFICATION
MSEB: Consumer
Fox Capital: Consumer - Drinks
Executive Chairman: Dato’ Lim A Heng @ Lim Kok Cheong
Managing Director: Lim Kok Boon
KNOWN MAJOR SHAREHOLDER(S) (as at 3/10/2008)
Dato’ Lim A Heng @ Lim Kok Cheong + 55.42%
Lembaga Tabung Haji 8.45%
Skim Amanah Saham Bumiputra 6.12%
+ Direct & indirect interest
BACKGROUND
The Spritzer Group is the largest fully integrated manufacturer of bottled water in Malaysia. It also manufactures toothbrushes, pre-forms and packaging bottles and began producing mineral water in 1988. The group manufactures and sells bottled water under the brand names of “Spritzer”, “Cactus”, “Sunsui” and “Summer”.
Group Managing Director, Mr Lim A Heng @ Lim Kok Cheong, JP, holds a 50.4% stake in Spritzer Bhd. He has more than 39 years of experience in the consumer products industry. He is also a substantial shareholder and one of the founders of Yee Lee Corporation Bhd (YLC) , a company listed on the Main Board of Bursa Malaysia. The YLC Group is mainly involved in the production of edible oils and other consumer products. The company was admitted to the Second Board of Bursa Malaysia in September 2000. The company was subsequently transferred to the Main Board.
The group comprises five active subsidiaries, two of which, Chuan Sin Sdn Bhd and Angenet Sdn Bhd, are principally engaged in the manufacturing of natural mineral water, distilled water, drinking water and carbonated flavored water. Chuan Sin Cactus Sdn Bhd (CSC) primarily sells and distributes bottled water products under the “Cactus” brand. Golden PET Industries Sdn Bhd (GPI) produces polyethylene terephthalate (PET) bottles for cooking oil and mineral water, pre-forms (raw material for manufacturing of PET bottles) for PET bottles, toothbrushes and other plastic household products. PET Master Sdn Bhd (PM) is involved in the manufacture and sales of PET bottles and polypropylene (PP) cups.
The core company in the Spritzer Group is Chuan Sin. Its water bottle plants, which are capable of producing 147 mln liters of water a year, are located on a 295-acre site in Taiping, Perak. The group has a smaller bottled water manufacturing facility in Yong Peng, Johor.
The “Spritzer” brand, Malaysia best selling natural mineral water is produced and bottled out of a vast site with bountiful natural mineral water resources in an area surrounded by lush tropical rainforests greenery, away from pollution, housing and industrial areas.
The group’s production lines are completely automated and equipped with the state-of-the-art bottling technologies. The plant is manned by qualified professionals such as food technologists, chemists, microbiologists and engineers. Over the years, Spritzer’s bottled water products have garnered a number of awards and set many milestones. The mineral water for each bottle is extracted from an aquifer located over 400 feet deep underground in the tropical rainforest. An aquifer is a wet underground layer of water-bearing permeable rock or unconsolidated materials (gravel, sand, silt or clay) from which groundwater can be usefully extracted using water well.
Taiping is said to be the town with the highest rainfall in Peninsular Malaysia, with about 4000mm of rain per year. The Spritzer group has pioneered conservation measures to ensure that its water sources are not polluted. Their water source and surrounding rainforest are has been designated as a private protected reserve. The water extracted from the aquifer within the group’s land contains beneficial trace minerals. Naturally filtered through the long distance and a variety of rock strata, the water is naturally rich in minerals, in particular Orthosilicic Acid (OSA). OSA has numerous health benefits. It keeps skin young, smooth and supple by stimulating the formation of natural collagen. It also said to help maintain a head full of thick and luscious hair. Hair with higher silicon content has more shine and lustre, and tends to drop less. Every litre of Spritzer natural mineral water contains 35 mg of soluble silicon in the form of OSA, which is an active and bio-available form of dietary silicon that the human body can absorb. The group has a full range of bottled water including natural mineral water, sparkling natural mineral water, distilled drinking water, carbonated fruit flavoured drink, non-carbonated fruit flavoured drink and functional water.
Spritzer advocates that "Not all bottled waters are the same." For the protection of its customers and in line with the Malaysian Food Act and Regulation, Spritzer bottled waters are clearly distinguished by their caps - white for drinking water and assorted colours for natural mineral water.
Other than selling bottled water under its Spritzer and Cactus brands, the group also supplies mineral water to other third parties, such as hypermarkets, supermarkets and petrol stations, which sell the bottled water under their own in-house brands. Interestingly, upon checking out Spritzer’s homepage, we find that the group even provides an online option for consumers to buy its bottled water. With a minimum order of 2 cartons, the buyers even get a complimentary delivery service for locations within the Klang Valley.
Spritzer : Subsidiary Companies Company :
Chuan Sin Sdn Bhd
Chuan Sin Cactus Sdn Bhd
Hidro Dinamik Sdn Bhd
Pet Master Sdn Bhd
Angenet Sdn Bhd
Golden Pet Industries Sdn Bhd
Source: Spritzer
Spritzer group is led by Dato’ Lim A Heng @ Lim Kok Cheong, its Non-Independent Non-Executive Chairman and Mr Lim Kok Boon, its Managing Director (MD). The chairman has more than 40 years of experience in the trading and manufacturing of edible oils and consumer products industry. He also holds top positions for the Perak Chinese Chamber of Commerce and Industry, Associated Chinese Chambers of Commerce & Industry of Malaysia, and the Malaysia-China Chamber of Commerce (Perak Branch). Dato’ Lim is also involved in Yee Lee Corporation Bhd. Meanwhile, the MD has more than 30 years of working experience in the sales and distribution of F&B products and is the Past President/Consultant of the Asia and Middle East Bottled Water Association (ABWA). He was instrumental in the growth of Chuan Sin Sdn Bhd, a wholly-owned subsidiary of the group, when it successfully switched to the production of bottled water in 1988 and is now overseeing the group’s day to day operations.
FINANCIAL PERFORMANCE
The group had recorded a higher revenue of RM35.8 million during its 2Q/FY11 ended 30th November 2010, an increase of RM6.3 million representing a 21.3% increase as compared to the corresponding 2Q/FY10. The increase in group revenue was mainly contributed by the higher sales of various bottled water products. However, the group’s profit before tax (PBT) had decreased from RM3.4 million in its 2Q/FY10 to RM2.8 million in its 2Q/FY11. This was as a result of the higher operating expenses and finance cost attributed mainly to the group's expansion plan and the setting-up of the bottling plant in Shah Alam, Selangor.
As compared to RM34.8 million reported in the preceding 1Q/FY11, the group’s revenue had increased slightly to RM35.8 million in 2Q/FY11. Group PBT had decreased from RM3.3 million in the preceding 1Q/FY11 to RM2.8 million in 2Q/FY11. This was a decrease of approximately 15.3%, mainly attributed to the higher operating expenses and finance cost as mentioned earlier.
OUTLOOK/CORP. UPDATES
In tandem with the improving domestic economy, we expect that the group’s local retail sales would grow steadily. Bottled water is a relatively inexpensive consumer product, and we foresee that the demand would grow steadily. At the moment, less than 10% of Spritzer’s group sales are derived from exports (to destinations such as within Asia and Australia).
1) Increase product range
In line with the group’s expansion plan and the enhancement of its production capacity, Spritzer has been increasing its product range to cater to the needs of the various market segments. With these continuous efforts to promote and nurture their various brands, the group’s sales volumes of its various bottled water products will continue to grow. Spritzer is also looking at expanding its sales of water in larger container sizes (up to 5 gallons) for the use of water dispensers at office or home premises. Besides Taiping and Shah Alam, the group also has a bottling facility in Yong Peng, Johor.
2) Economy growing steadily
The latest available Malaysian economic data (January 2011) revealed reasonably positive growth rates in y-o-y percentage terms, for instance: IPI (+1.0 y-o-y), and Manufacturing Sales (+7.7% y-o-y), Exports (+3.0% y-o-y) and Imports (+13.5% y-o-y). Malaysia had reported a very respectable 4Q/2010 GDP growth of +4.8% (+7.2% for full year 2010 GDP), stable 4Q/2010 unemployment rate of 3.2% and manageable CPI of 2.4% (January 2011). Meanwhile, Bank Negara Malaysia (BNM) had last reaffirmed its accommodative overnight policy rate (OPR) of 2.75% in March 2011.
WHY WE FEEL THAT SPRITZER IS A "TRADING BUY"
1) Demand for Spritzer water to be boosted by Japan nuclear fallout disaster
It is understood that Spritzer is finalising a deal to increase exports of mineral and drinking water to Japan to alleviate the shortage there. Radioactivity from the Fukushima Daiichi nuclear power plant, which damaged in the March 11, 2011 earthquake and tsunami, is seeping into the drinking water in the Tokyo and Tohuku regions. Radioactive contamination in the water supply has reached a level that makes it unsafe for consumption by infants and the Japanese government has called on water companies to increase supplies.
Spritzer's advantage is that they are already exporting to Japan and therefore, they know the dealers there. They expect a big boost to their shipments there as the nuclear crisis continues to unfold.
The radiation scare affects every part of Japan, and hence, the increase in demand from outside Japan can be very tremendous. Exports to Japan contributed about RM7 million or 10% of Sprinter's total revenue for 1H2010 ended 31/11/2010. The company says additional orders from Japan may boost its shipments to Japan by 30% to 40%.
2) Consistent dividend payout
The group had declared a first and final tax exempt dividend of 2.5 sen per share (2.5 sen DPS) for its financial year ended 31st May 2010 (FY10). The dividend was subsequently paid out during December 2010. Spritzer has a consistent dividend payout track record in recent years, of at least 25% of its annual net earnings.
3) Mercury Securities have made a "Buy Call with substantial upside" for Spritzer.
Based on their forecast of Spritzer’s FY11 EPS and an estimated P/E of 9 times (within its historical range), they set a FY11-end Target Price (TP) of RM1.10. This TP is 16.4% upside from its current market price of RM0.945. Our TP for Spritzer reflects a P/BV of 0.96 times over its FY11F BV/share. Meanwhile, the local beverage sector’s average P/E and P/BV is 11.8 times and 2.5 times, respectively. It is worth noting that above have yet to take into account the potential revenue boost from the Japan nuclear disaster.
4) Market leader (i.e. top producer) in Malaysia
Spritzer is in a competitive industry but it is a market leader in Malaysia and it has remained profitable when many mineral water producers have closed shop. The additional orders from Japan will help the company expand its market share.
GOLDEN OPPORTUNITY IN ADVERSITY
There has been a long break since the last posting. During that period, the world was faced with a few obstacles which has interrupted the global economic recovery most notably:-
1) heightened geopolitical tension in the Middle East (Egypt) and North Africa (Libya)
2) March 11 2011 earthquake and tsunami in Tokyo, Japan, which was followed by a nuclear crisis.
These tensions and crisis have resulted the equity market to suffer a downward spiral all over the world arising from panic selling. The unfolding nuclear crisis in Japan is expected to continue to dampen market sentiments as investors take a cautious stance. Even though markets have recouped some of their losses since Japan was hit buy an earthquake and tsunami on March 11, 2011, uncertainties still linger, especially with the actual economic fallout from the developing nuclear crisis.
A report by Nomura Securities Ltd issued last week states that it expects a steep slide in Japanese consumer spending on services, including eating out and recreational services. It anticipates the recent Tohoku, Tokyo earthquake is likely to have heavier impact than the Kobe earthquake in 1995. The Nikkei 225 has recovered only slightly, closing at 9,708.39 last Friday (April 1, 2011) - still far below its pre-earthquake close of 10,434.38 on March 10, 2011.
However, investors can take comfort in the fact that the Dow Jones Industrial Average in US, which plunged heavily after the terrorist attacks on New York's World Trade Centre (WTC) on Sept 11, 2001, recouped all its losses by end of year 2001. There was a widespread fear in the financial markets when Dow Jones fell 684.81 points after the US stock markets opened a week after the WTC attacks. As panic spread amid uncertainties, Dow Jones lost some 1,369.7 points to close at 8,235.81 on Friday, Sept 21, 2001. Nevertheless, by the end of 2001, not only Dow Jones pared its losses, it also managed to register a decent gain of 415.99 points between Sept 10, 2001 and Dec 31,2001, closing at 10,021.5 points.
On a visit to South Korea Monday (Mar 21, 2011), the billionaire investor Warren Buffet spoke of the possible positive economic outcomes from the earthquake-tsunami-meltdown tragedy in Japan: "Frequently, something out of the blue like this, an extraordinary event, really creates a buying opportunity. I have seen that happen in the United States, I have seen that happen around the world. I don't think Japan will be an exception."
If you decide to take the plunge and buy Japanese stocks, the high risk of those stocks means you should be prepared to wait a long time to reap those expected returns. If you are investing for a short-term killing, you may be likely to be disappointed.
1) heightened geopolitical tension in the Middle East (Egypt) and North Africa (Libya)
2) March 11 2011 earthquake and tsunami in Tokyo, Japan, which was followed by a nuclear crisis.
These tensions and crisis have resulted the equity market to suffer a downward spiral all over the world arising from panic selling. The unfolding nuclear crisis in Japan is expected to continue to dampen market sentiments as investors take a cautious stance. Even though markets have recouped some of their losses since Japan was hit buy an earthquake and tsunami on March 11, 2011, uncertainties still linger, especially with the actual economic fallout from the developing nuclear crisis.
A report by Nomura Securities Ltd issued last week states that it expects a steep slide in Japanese consumer spending on services, including eating out and recreational services. It anticipates the recent Tohoku, Tokyo earthquake is likely to have heavier impact than the Kobe earthquake in 1995. The Nikkei 225 has recovered only slightly, closing at 9,708.39 last Friday (April 1, 2011) - still far below its pre-earthquake close of 10,434.38 on March 10, 2011.
However, investors can take comfort in the fact that the Dow Jones Industrial Average in US, which plunged heavily after the terrorist attacks on New York's World Trade Centre (WTC) on Sept 11, 2001, recouped all its losses by end of year 2001. There was a widespread fear in the financial markets when Dow Jones fell 684.81 points after the US stock markets opened a week after the WTC attacks. As panic spread amid uncertainties, Dow Jones lost some 1,369.7 points to close at 8,235.81 on Friday, Sept 21, 2001. Nevertheless, by the end of 2001, not only Dow Jones pared its losses, it also managed to register a decent gain of 415.99 points between Sept 10, 2001 and Dec 31,2001, closing at 10,021.5 points.
On a visit to South Korea Monday (Mar 21, 2011), the billionaire investor Warren Buffet spoke of the possible positive economic outcomes from the earthquake-tsunami-meltdown tragedy in Japan: "Frequently, something out of the blue like this, an extraordinary event, really creates a buying opportunity. I have seen that happen in the United States, I have seen that happen around the world. I don't think Japan will be an exception."
If you decide to take the plunge and buy Japanese stocks, the high risk of those stocks means you should be prepared to wait a long time to reap those expected returns. If you are investing for a short-term killing, you may be likely to be disappointed.
Monday, November 22, 2010
LIONFIB - BIG LET DOWN IN THE PROPOSED CAPITAL DISTRIBUTION
Under the announcement made by LIONFIB today, only RM58.00 million (i.e. at RM0.25 per ordinary share) will be distributed to its shareholders from proceeds received from the sale of its Malaysian tyre business, the entitlement date for which shall be determined after the completion date of sale.
This is a huge disappointment, indeed. Under the circumstances, we would recommend a HOLD or CUT LOSS & BUY LATER AT LOWER PRICE.
We believe that there is still upside upon announcement of the entitlement date after completion of sale in early 2011. However, the quantum is significantly lower than we anticipated.
We note that RM200 million is earmarked for investments to be identified and RM141.57 million will be for LIONFIB's working capital in its principal activities in the trading of building materials and steel products. In the event there is any change in part of the proceed's usage to capital distribution to the shareholders, there may then be further upside on this counter.
This is a huge disappointment, indeed. Under the circumstances, we would recommend a HOLD or CUT LOSS & BUY LATER AT LOWER PRICE.
We believe that there is still upside upon announcement of the entitlement date after completion of sale in early 2011. However, the quantum is significantly lower than we anticipated.
We note that RM200 million is earmarked for investments to be identified and RM141.57 million will be for LIONFIB's working capital in its principal activities in the trading of building materials and steel products. In the event there is any change in part of the proceed's usage to capital distribution to the shareholders, there may then be further upside on this counter.
Sunday, November 21, 2010
HOVID - TRADING AT A BARGAIN DUE TO PN17 STATUS
HOVID BHD
Primary Symbol & Exchange: HOVID
7213 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 19/11/2010 RM:0.15
Mkt Cap RM’m : 114.31
Shares (m): 762.08
Par RM: 1.10
SECTOR CLASSIFICATION
MSEB: Consumer Products
Fox Capital: Chemicals
Executive Chairman: Ho Sue San @ David Ho Sue San
Managing Director: Ho Sue San @ David Ho Sue San
KNOWN MAJOR SHAREHOLDER(S) (as at 7/10/2009)
Ho Sue San @ David Ho Sue San 49.57%
Tel: 05-5060690
Fax: 05-5061215
7803 1126 Fax. No.: (603) 7806 1387
BACKGROUND
Founded some 70 years ago and famous for the natural herbal beverage Ho Yan Hor Herbal Tea which is a concoction of 24 herbs, Hovid has established itself as the leading manufacturer of pharmaceutical and herbal products in Malaysia. Besides manufacturing its own products under the Hovid brand name, the group also manufactures products on contract manufacture basis for private labels.
Besides being involved in pharmaceutical activities, Hovid is also involved in the commercial extraction of nutrients from palm oil fruits through a patented procedure as well as biodiesel through its previously 58.2% owned subsidiary – Carotech Bhd (listed on the ACE Market – previously known as the Mesdaq exchange). Carotech’s focus is currently on the phytonutrients side of its business as the high CPO prices do not promote palm biodiesel as the renewable energy fuel. Carotech’s 3 main phytonutrients products are tocitrienol products marketed under the brand name Tocomin, carotene products marketed under the name Carimin, and phytosterol products, its 2 co-products are palm fatty acid methyl ester and crude glycerine.
LATEST DEVELOPMENT
Hovid was placed under PN17 after its subsidiary, Carotech Bhd, triggered GM3 status on 23/10/2010 when the latter’s auditor expressed a disclaimer opinion on its financial statements for the FYE 30/6/2010. (On 1/7/2010, Carotech triggered GN5 status after it defaulted on the loan repayment due FY2010).
Hovid’s share price has been bashed down as follows:-
Closing price as at 29/10/2010 = RM0.185/share
Closing price as at 1/11/2010 = RM0.135/ share (high = RM0.14 low = RM0.12)
Latest closing price as at 19/11/2010 = RM0.15/share
POTENTIAL PRICE CATALYST
The main obvious price catalyst is exit from the PN17 classification which may help it to retrace its price before being placed under PN17:
Last closing price as at 19/11/2010 = RM0.15/share
Targeted price (i.e. last closing price before announcement of being classified PN17 status) = RM0.185/share
Potential capital gain = RM0.035/share or 23.3%
Hovid and Carotech were among investors’ favourites in 2007 and 2008. At that time, Hovid hit a high of RM0.53/share.
Hovid had taken steps to exit the PN17 classification & to prevent the company from being impacted by the financial problem faced by Carotech as follows:-
1) Sell down its stake in Carotech (some 180 million shares in batches) from almost 60%, previously to 38%-45%. During this period, Lembaga Tabung Haji nearly doubled its interest in Carotech to 9.12% comprising 83.24 million shares from 46.24 million shares in August 2010.
2) Waiting for Q2 financial results to help it achieve its plan to exit PN17 status. Hovid went into PN17 classification due to the impact from financially-troubled Carotech because the latter was then a subsidiary, even though the group’s pharmaceutical business was doing well and growing. The pharmaceutical business makes about RM15 million to RM20 million profit on its own.
By selling down its stake in Carotech to 38%-45%, Carotech become an associate of Hovid instead of subsidiary, and this development will expedite the lifting of the PN17 classification.
Unlike being a subsidiary where all its financial results including the debt will have to be incorporated into the group’s balance sheet, Hovid will now have to take care only of its share of profit or loss in Carotech, and will not be worried by the huge debts of Carotech, estimated to be about RM260 million.
Carotech is no longer a substantial part of Hovid group (with the selldown since August 2010). As a result, Hovid’s gearing has been reduced to 0.5x or about RM50 million from 2.5x when Carotech was a subsidiary.
Hovid’s current investment in Carotech is only RM27 million in the book. Assuming even the worst case scenario where Hovid write off the whole investment of RM27 million in Carotech, this will only involve the book cost and has no impact on the cash flow. Moreover, Hovid has not given any guarantee on Carotech’s operations.
Assuming Hovid make RM18 million in profit and based on an industry price/earnings multiple of 12x, the share price should be higher than the current level i.e. at 28 sen.
BRIEF INFORMATION ON CAROTECH
Carotech’s financial problem was due to external factors beyond its control like the high crude palm oil (CPO) price and soaring oil prices in 2008 and the recession in the United States and Europe at that time. Carotech had also over-expanded when raising its output capacity by some 300% whereas the rise in demand during the recession period was only 15%.
There may be demand in Carotech’s business, which will be driven by phytonutrients if it can successfully restructure its debts. Carotech has sought assistance of the Corporate Debt Restructuring Committee to restructure its debt.
Potential for Carotech’s nutrient products like tocotrienols is tremendous, given the rising demand for natural and beneficial ingredients in therapeutic and beauty products nationwide.
Primary Symbol & Exchange: HOVID
7213 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 19/11/2010 RM:0.15
Mkt Cap RM’m : 114.31
Shares (m): 762.08
Par RM: 1.10
SECTOR CLASSIFICATION
MSEB: Consumer Products
Fox Capital: Chemicals
Executive Chairman: Ho Sue San @ David Ho Sue San
Managing Director: Ho Sue San @ David Ho Sue San
KNOWN MAJOR SHAREHOLDER(S) (as at 7/10/2009)
Ho Sue San @ David Ho Sue San 49.57%
Tel: 05-5060690
Fax: 05-5061215
7803 1126 Fax. No.: (603) 7806 1387
BACKGROUND
Founded some 70 years ago and famous for the natural herbal beverage Ho Yan Hor Herbal Tea which is a concoction of 24 herbs, Hovid has established itself as the leading manufacturer of pharmaceutical and herbal products in Malaysia. Besides manufacturing its own products under the Hovid brand name, the group also manufactures products on contract manufacture basis for private labels.
Besides being involved in pharmaceutical activities, Hovid is also involved in the commercial extraction of nutrients from palm oil fruits through a patented procedure as well as biodiesel through its previously 58.2% owned subsidiary – Carotech Bhd (listed on the ACE Market – previously known as the Mesdaq exchange). Carotech’s focus is currently on the phytonutrients side of its business as the high CPO prices do not promote palm biodiesel as the renewable energy fuel. Carotech’s 3 main phytonutrients products are tocitrienol products marketed under the brand name Tocomin, carotene products marketed under the name Carimin, and phytosterol products, its 2 co-products are palm fatty acid methyl ester and crude glycerine.
LATEST DEVELOPMENT
Hovid was placed under PN17 after its subsidiary, Carotech Bhd, triggered GM3 status on 23/10/2010 when the latter’s auditor expressed a disclaimer opinion on its financial statements for the FYE 30/6/2010. (On 1/7/2010, Carotech triggered GN5 status after it defaulted on the loan repayment due FY2010).
Hovid’s share price has been bashed down as follows:-
Closing price as at 29/10/2010 = RM0.185/share
Closing price as at 1/11/2010 = RM0.135/ share (high = RM0.14 low = RM0.12)
Latest closing price as at 19/11/2010 = RM0.15/share
POTENTIAL PRICE CATALYST
The main obvious price catalyst is exit from the PN17 classification which may help it to retrace its price before being placed under PN17:
Last closing price as at 19/11/2010 = RM0.15/share
Targeted price (i.e. last closing price before announcement of being classified PN17 status) = RM0.185/share
Potential capital gain = RM0.035/share or 23.3%
Hovid and Carotech were among investors’ favourites in 2007 and 2008. At that time, Hovid hit a high of RM0.53/share.
Hovid had taken steps to exit the PN17 classification & to prevent the company from being impacted by the financial problem faced by Carotech as follows:-
1) Sell down its stake in Carotech (some 180 million shares in batches) from almost 60%, previously to 38%-45%. During this period, Lembaga Tabung Haji nearly doubled its interest in Carotech to 9.12% comprising 83.24 million shares from 46.24 million shares in August 2010.
2) Waiting for Q2 financial results to help it achieve its plan to exit PN17 status. Hovid went into PN17 classification due to the impact from financially-troubled Carotech because the latter was then a subsidiary, even though the group’s pharmaceutical business was doing well and growing. The pharmaceutical business makes about RM15 million to RM20 million profit on its own.
By selling down its stake in Carotech to 38%-45%, Carotech become an associate of Hovid instead of subsidiary, and this development will expedite the lifting of the PN17 classification.
Unlike being a subsidiary where all its financial results including the debt will have to be incorporated into the group’s balance sheet, Hovid will now have to take care only of its share of profit or loss in Carotech, and will not be worried by the huge debts of Carotech, estimated to be about RM260 million.
Carotech is no longer a substantial part of Hovid group (with the selldown since August 2010). As a result, Hovid’s gearing has been reduced to 0.5x or about RM50 million from 2.5x when Carotech was a subsidiary.
Hovid’s current investment in Carotech is only RM27 million in the book. Assuming even the worst case scenario where Hovid write off the whole investment of RM27 million in Carotech, this will only involve the book cost and has no impact on the cash flow. Moreover, Hovid has not given any guarantee on Carotech’s operations.
Assuming Hovid make RM18 million in profit and based on an industry price/earnings multiple of 12x, the share price should be higher than the current level i.e. at 28 sen.
BRIEF INFORMATION ON CAROTECH
Carotech’s financial problem was due to external factors beyond its control like the high crude palm oil (CPO) price and soaring oil prices in 2008 and the recession in the United States and Europe at that time. Carotech had also over-expanded when raising its output capacity by some 300% whereas the rise in demand during the recession period was only 15%.
There may be demand in Carotech’s business, which will be driven by phytonutrients if it can successfully restructure its debts. Carotech has sought assistance of the Corporate Debt Restructuring Committee to restructure its debt.
Potential for Carotech’s nutrient products like tocotrienols is tremendous, given the rising demand for natural and beneficial ingredients in therapeutic and beauty products nationwide.
Saturday, November 20, 2010
POTENTIAL BUMPER SPECIAL DIVIDEND FOR LIONFIB SHAREHOLDERS
LION FOREST INDUSTRIES BHD
Primary Symbol & Exchange: LIONFIB
8486 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 19/11/2010 RM:2.44
Mkt Cap RM’m : 562.10
Shares (m): 230.37
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Consumer Products
Fox Capital: Trading/Services
Executive Chairman: Tan Sri William Cheng Heng Jern
Managing Director: -
KNOWN MAJOR SHAREHOLDER(S) (as at 30/9/2009)
Amsteel Mills Sdn Bhd + 53.67%
Lion Industries Corporation Bhd 19.56%
+ 99% owned subsidiary of Lion Industries Corporation Bhd (effective combined interest at ~ 73%)
BACKGROUND
LIONFIB’s prime asset used to be it 97.8% stake in Sabah Forest Industries (SFI) until its disposal in FYE 2007. The disposal for SFI for USD261 million (or RM945 million) cash in FY 2007 altered the profit structure considerably in FYE 2008. Some 45% (or RM421 million) of the hefty cash proceeds was utilized for subsequent capital repayment to the shareholders at RM2.00 each. Part of the proceeds was also utilized to expand its presence in tyre manufacturing. On 28/11/2008 (or 2QFY2009), LIONFIB acquired Silverstone via issuance of 19.93 million new shares which lifted the capital base by 9.4% in FY 2009.
LATEST DEVELOPMENT
Lion Forest Industries Bhd (LIONFIB) is selling local tyre business, Silverstone Bhd, to Toyo Tire & Rubber Co Ltd, Japan’s fourth largest tyre manufacturer, for RM462 million. The Japanese tyre maker will buy over a 100% equity stake in Silverstone Bhd. Lion Forest Industries Bhd (LFIB) owns an 84.16% stake in Silverstone. The deal values Silverstone at 1.62 times its consolidated net assets of RM285.67 million as at June 30 2010, and 13.76 times its net profit of RM33.57 million. It is learned that Silverstone has minimal borrowings of about RM20 million.
The proposed divestment is expected to boost LIONFIB’s cash pile to RM869.4 million, or RM3.77 gross cash per share. LIONFIB’s share price closed at RM2.44 on 19/11/2010 which gave the company a market value of RM562.1 million. Its net asset per share was RM4.68 as at June 30 2010. LFIB was holding RM407.38 million in cash as at June 30 2010, against total borrowings of RM36.58 million.
Nonetheless, a portion of its current cash pile is being held in an escrow account as a contingency fund for the claims sought in several legal suits filed over the timber concession it held previously in Sabah.
For LIONFIB, the proposed deal is expected to result in an estimated gain of about RM140million for FY2011 ending June 30, which translates to an increase in earnings per share of about 60 sen.
“The Silverstone deal is Toyo Tire’s first ever cross-border acquisition. The timing was right for the company to expand its reach with the strengthening of the yen,” said a source close to the deal.
On the use of the “Silverstone” brand by LFIB’s tyre manufacturing operations in China, the source says Toyo Tire would work out a separate arrangement with LFIB on the matter. LFIB’s tyre operation in China is held under a different subsidiary,
Shandong Silverstone LuHe Rubber & Tyre Co Ltd. The China business is not a part of Silverstone that is being sold to Toyo Tire.
Both LFIB and Toyo Tire expect the Silverstone deal to be completed by the end of January next year.
Following the disposal of Silverstone, LFIB will be left with its tyre manufacturing operations in China, trading and distribution of building materials such as steel bars, cement, roofing and wall tiles, and distribution of petroleum-based products and automotive components.
LFIB posted a net profit of RM163.75 million or 65.38 sen a share for FY2010, on revenue of RM873.62 million.
POTENTIAL DISTRIBUTION OF SPECIAL DIVIDEND OR CAPITAL REPAYMENT
Recent examples for share price boost after announcement of distribution of Special Dividend:
1) Eurospan Holdings Bhd (Eurosn) - 7094
- Surprise of a special single-tier dividend of 40 sen/share given its strong cash hoard of RM30.5 million or 75 sen/share @ August 2010.
Announcement date: 25/10/2010
Ex date: 6/1/2010
Pay out date: 24/1/2010
Closing price as at 25/10/2010 : RM1.16
Closing price as at 26/10/2010: RM1.41 (open: RM1.50, high: RM1.50, low: RM1.39)
Gain: 25 sen/share or 21.6% from previous closing price
2) Fraser & Neave Holdings Bhd (F&N) - 3689
- Announcement of special dividend of RM1.10/share + final single tier dividend of 38 sen. The proposed special dividend payment arose from sale of its glass container business – Malaya Glass Products Sdn Bhd that boosted its cash coffer to > RM1 billion.
Announcement date: 8/11/2010
Ex date: 8/12/2010
Pay out date: 6/1/2010
Closing price as at 8/11/2010 : RM14.62
Closing price as at 9/11/2010: RM15.70 (open: RM15.30, high: RM16.00, low: RM15.30)
Gain: RM1.08/share or 7.39% from previous closing price
Per OSK Research’s analysis, potential special dividend is at RM1.38 per LFI share. In order to gauge the potential dividend payout by LIONFIB, we must first compute the potential net cash proceeds that LFI may receive upon completion of the disposal. SCB has issued bonds, for which the Net Present Value (NPV) stood at approximately RM320m and are currently fully owned by LIONFIB. Thus the bond will obviously be redeemed prior to any cash distribution by SCB.
The remaining cash will also be used to pay for advisory fees and other expenses before being distributed back to its shareholders. Adding the proceeds from the bond redemption by SCB to LIONFIB and a 84% share of the balance, the possible amount available for distribution would be about RM400m.
Tracking the disposal of Sabah Forest Industries SB (SFI) by LFI in 2007, the subsidiary made a total dividend payout of RM2 per share, or 78.8% of the total proceeds, after excluding the RM363.4m set aside in an Escrow account for the litigation claims against SFI.
Assuming a payout of 80% from the cash proceeds received from LIONFIB, the special cash dividend may come to RM1.38 per share, with a dividend payable to Lion Industries of as much as RM233.6m. The remaining 20% will likely be retained for SCB and LIONFIB to search of a new core business as the group will left with its tyre manufacturing operation in China and trading of building material plus petroleum based products, which only generate nominal earnings.
Taking the similar positive effect on Eurosn & F&O after announcement of special dividend payout, LIONFIB share price is expected to achieve gain of at least RM1/share if special cash dividend of RM1.38/share is declared
Primary Symbol & Exchange: LIONFIB
8486 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 19/11/2010 RM:2.44
Mkt Cap RM’m : 562.10
Shares (m): 230.37
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Consumer Products
Fox Capital: Trading/Services
Executive Chairman: Tan Sri William Cheng Heng Jern
Managing Director: -
KNOWN MAJOR SHAREHOLDER(S) (as at 30/9/2009)
Amsteel Mills Sdn Bhd + 53.67%
Lion Industries Corporation Bhd 19.56%
+ 99% owned subsidiary of Lion Industries Corporation Bhd (effective combined interest at ~ 73%)
BACKGROUND
LIONFIB’s prime asset used to be it 97.8% stake in Sabah Forest Industries (SFI) until its disposal in FYE 2007. The disposal for SFI for USD261 million (or RM945 million) cash in FY 2007 altered the profit structure considerably in FYE 2008. Some 45% (or RM421 million) of the hefty cash proceeds was utilized for subsequent capital repayment to the shareholders at RM2.00 each. Part of the proceeds was also utilized to expand its presence in tyre manufacturing. On 28/11/2008 (or 2QFY2009), LIONFIB acquired Silverstone via issuance of 19.93 million new shares which lifted the capital base by 9.4% in FY 2009.
LATEST DEVELOPMENT
Lion Forest Industries Bhd (LIONFIB) is selling local tyre business, Silverstone Bhd, to Toyo Tire & Rubber Co Ltd, Japan’s fourth largest tyre manufacturer, for RM462 million. The Japanese tyre maker will buy over a 100% equity stake in Silverstone Bhd. Lion Forest Industries Bhd (LFIB) owns an 84.16% stake in Silverstone. The deal values Silverstone at 1.62 times its consolidated net assets of RM285.67 million as at June 30 2010, and 13.76 times its net profit of RM33.57 million. It is learned that Silverstone has minimal borrowings of about RM20 million.
The proposed divestment is expected to boost LIONFIB’s cash pile to RM869.4 million, or RM3.77 gross cash per share. LIONFIB’s share price closed at RM2.44 on 19/11/2010 which gave the company a market value of RM562.1 million. Its net asset per share was RM4.68 as at June 30 2010. LFIB was holding RM407.38 million in cash as at June 30 2010, against total borrowings of RM36.58 million.
Nonetheless, a portion of its current cash pile is being held in an escrow account as a contingency fund for the claims sought in several legal suits filed over the timber concession it held previously in Sabah.
For LIONFIB, the proposed deal is expected to result in an estimated gain of about RM140million for FY2011 ending June 30, which translates to an increase in earnings per share of about 60 sen.
“The Silverstone deal is Toyo Tire’s first ever cross-border acquisition. The timing was right for the company to expand its reach with the strengthening of the yen,” said a source close to the deal.
On the use of the “Silverstone” brand by LFIB’s tyre manufacturing operations in China, the source says Toyo Tire would work out a separate arrangement with LFIB on the matter. LFIB’s tyre operation in China is held under a different subsidiary,
Shandong Silverstone LuHe Rubber & Tyre Co Ltd. The China business is not a part of Silverstone that is being sold to Toyo Tire.
Both LFIB and Toyo Tire expect the Silverstone deal to be completed by the end of January next year.
Following the disposal of Silverstone, LFIB will be left with its tyre manufacturing operations in China, trading and distribution of building materials such as steel bars, cement, roofing and wall tiles, and distribution of petroleum-based products and automotive components.
LFIB posted a net profit of RM163.75 million or 65.38 sen a share for FY2010, on revenue of RM873.62 million.
POTENTIAL DISTRIBUTION OF SPECIAL DIVIDEND OR CAPITAL REPAYMENT
Recent examples for share price boost after announcement of distribution of Special Dividend:
1) Eurospan Holdings Bhd (Eurosn) - 7094
- Surprise of a special single-tier dividend of 40 sen/share given its strong cash hoard of RM30.5 million or 75 sen/share @ August 2010.
Announcement date: 25/10/2010
Ex date: 6/1/2010
Pay out date: 24/1/2010
Closing price as at 25/10/2010 : RM1.16
Closing price as at 26/10/2010: RM1.41 (open: RM1.50, high: RM1.50, low: RM1.39)
Gain: 25 sen/share or 21.6% from previous closing price
2) Fraser & Neave Holdings Bhd (F&N) - 3689
- Announcement of special dividend of RM1.10/share + final single tier dividend of 38 sen. The proposed special dividend payment arose from sale of its glass container business – Malaya Glass Products Sdn Bhd that boosted its cash coffer to > RM1 billion.
Announcement date: 8/11/2010
Ex date: 8/12/2010
Pay out date: 6/1/2010
Closing price as at 8/11/2010 : RM14.62
Closing price as at 9/11/2010: RM15.70 (open: RM15.30, high: RM16.00, low: RM15.30)
Gain: RM1.08/share or 7.39% from previous closing price
Per OSK Research’s analysis, potential special dividend is at RM1.38 per LFI share. In order to gauge the potential dividend payout by LIONFIB, we must first compute the potential net cash proceeds that LFI may receive upon completion of the disposal. SCB has issued bonds, for which the Net Present Value (NPV) stood at approximately RM320m and are currently fully owned by LIONFIB. Thus the bond will obviously be redeemed prior to any cash distribution by SCB.
The remaining cash will also be used to pay for advisory fees and other expenses before being distributed back to its shareholders. Adding the proceeds from the bond redemption by SCB to LIONFIB and a 84% share of the balance, the possible amount available for distribution would be about RM400m.
Tracking the disposal of Sabah Forest Industries SB (SFI) by LFI in 2007, the subsidiary made a total dividend payout of RM2 per share, or 78.8% of the total proceeds, after excluding the RM363.4m set aside in an Escrow account for the litigation claims against SFI.
Assuming a payout of 80% from the cash proceeds received from LIONFIB, the special cash dividend may come to RM1.38 per share, with a dividend payable to Lion Industries of as much as RM233.6m. The remaining 20% will likely be retained for SCB and LIONFIB to search of a new core business as the group will left with its tyre manufacturing operation in China and trading of building material plus petroleum based products, which only generate nominal earnings.
Taking the similar positive effect on Eurosn & F&O after announcement of special dividend payout, LIONFIB share price is expected to achieve gain of at least RM1/share if special cash dividend of RM1.38/share is declared
Monday, November 1, 2010
HWGB - Speculative buy due to bullish tin prices
Ho Wah Genting Bhd (HWGB) [9601] (RM0.36 sen/share @ 1/11/2010) which is involved in mining activities saw its share price surging by 80% to 36 sen on November 1 2010 from 20 sen at the start of the year.
Recently, its unit HWG Tin Mining Sdn Bhd was awarded a 10-year mining lease in 2008 to mine tin and other minerals on a 202ha in Pengkalan Hulu with a potential for a further 202ha as work on the initial area progresses.
According to the Companies Commission of Malaysia, HWG Tin Mining is 51% owned by Ho Wah Genting, 35% by Jiwa Seribu Sdn Bhd, 10% by Majuperak Holdings Bhd and 4% by Multi Prolific Sdn Bhd. A check by StarBiz revealed that the Perak royalty directly owns a 35% stake in HWG Tin Ming through Jiwa Seribu Sdn Bhd,which is a 100% wholly owned subsidiary of Ras Sdn Bhd.
HWGB also has 35% stake in a magnesium company called CVM Mining which is listed in HKEX and is worth at about RM110m. The current market cap of HWGB is worth less than this sum (~ RM99m). Thus, its 100%-owned factory in Indonesia producing copper cable/wire and 100%-owned HWGB Tin Mining company as well as some properties coupled with tour bus business are not priced into its share price yet. In other words, if you buy its shares at 36 cents, these businesses are basically free!!
Nonetheless, aside from this, the main impetus is actually tin mining. The boss said that it has reserve of 50,000 ton of tin which is worth about 50,000 x RM 80,000/ton = RM4 billion at current price of tin. But how true the statement is remains unknown. Assuming that it's half true, the tin beneath could worth RM2 billion which is shocking.
Recently, its unit HWG Tin Mining Sdn Bhd was awarded a 10-year mining lease in 2008 to mine tin and other minerals on a 202ha in Pengkalan Hulu with a potential for a further 202ha as work on the initial area progresses.
According to the Companies Commission of Malaysia, HWG Tin Mining is 51% owned by Ho Wah Genting, 35% by Jiwa Seribu Sdn Bhd, 10% by Majuperak Holdings Bhd and 4% by Multi Prolific Sdn Bhd. A check by StarBiz revealed that the Perak royalty directly owns a 35% stake in HWG Tin Ming through Jiwa Seribu Sdn Bhd,which is a 100% wholly owned subsidiary of Ras Sdn Bhd.
HWGB also has 35% stake in a magnesium company called CVM Mining which is listed in HKEX and is worth at about RM110m. The current market cap of HWGB is worth less than this sum (~ RM99m). Thus, its 100%-owned factory in Indonesia producing copper cable/wire and 100%-owned HWGB Tin Mining company as well as some properties coupled with tour bus business are not priced into its share price yet. In other words, if you buy its shares at 36 cents, these businesses are basically free!!
Nonetheless, aside from this, the main impetus is actually tin mining. The boss said that it has reserve of 50,000 ton of tin which is worth about 50,000 x RM 80,000/ton = RM4 billion at current price of tin. But how true the statement is remains unknown. Assuming that it's half true, the tin beneath could worth RM2 billion which is shocking.
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