MULTI-CODE ELECTRONICS INDUSTRIES (M) BHD
Primary Symbol & Exchange: Multico
7004 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 26/7/2010 RM:0.515
Mkt Cap RM’m : 22.869
Shares (m): 44.405
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Industrial Products
Fox Capital: Auto-parts maker
Executive Chairman: Tai Lam Shin
Managing Director: Lim Ming Kee
KNOWN MAJOR SHAREHOLDER(S) (as at 31/07/2009)
Dr Goh Kar Chuan 14.843%
Contact Info
Company Address: No. 2 & 4, Jalan Waja 7, Kawasan Perindustrian Pandan,
81100 Johor Bahru Tel: 07-3553787 Fax: 07-3552689
BACKGROUND
Multi-Code which was founded in 1990, is one of the leading manufacturers of electronics parts and accessories for the automotive industries. The factory is located at the Pandan Industrial Area, Johor Bahru, with approximately 500 employees. The company supplies and markets a broad range of Original Equipment Manufacturers’ (OEM) products to the local and overseas automobile manufacturers for on-line and off-line installations, as well as for distribution to the local and export after-sales market.
The main products manufactured by the Company are car alarms, central locks, power windows, doors regulators, stop lamps, immobilizer, ignition switches, auto door locks, reverse sensors, alarm sensors, siren horns, switches and other OEM products.
History
1990
• MCE Founded
• Established the Company to manufacture alarms, siren horns, central locking and power window systems
1994
• Became Tier 1 supplier to Perodua (Daihatsu joint venture in Malaysia)
1997
• Became Tier 1 supplier to Proton (Mitsubishi joint-venture in Malaysia)
• Listed in Kuala Lumpur Stock Exchange (Now known as Bursa Malaysia Securities Berhad)
• Certified under ISO 9001:2000
1998
• Started production of interior switches
• Started production of parking sensor systems
• Established Warehouse & Llogistics facility in Klang
2003
• Became Tier 1 supplier to Honda and Kia in Malaysia
2004
Started production of ignition key sets
2007
• Became modular system supplier for anti-theft systems
2008
• Certified under ISO/TS 16949 from IATF, Hong Kong
• Shifted Warehouse and Llogistics facility to Shah Alam, Selangor
2009
• Established technical collaboration with Hella Australia Pty Ltd for automotive exterior and interior lightings
• Entered Technical Assistance Agreement to provide technical assistance to Mayur Industries Ltd, India
• Obtained OEM business for fog lamps
• Became supplier to Ford Australia
2010
• Established technical collaboration with Hella Shanghai Electronics Co Ltd for body control modules, remote control systems,
rain & light sensors and other electronic parts
• Certified under ISO 14001
• Obtained OEM business for rear combination lamps
WHY WE FEEL MULTICO IS UNDERVALUED?
1) Multico's performance have been improving tremendously since last financial year end of 31/07/2009 as follows:-
……………..EPS @ total no. of shares = RM40.405m ‘
1Q2009……2.99 sen
2Q2009……1.20 sen
3Q2009……-1.24 sen
4Q2009……-2.43 sen
………….. -----------------
………………0.52 sen
………….. ==========
1Q2010……3.34 sen
2Q2010……4.32 sen
3Q2010……5.65 sen….13.31 sen
4Q2010……****
………….. -----------------
……………
………….. ==========
**** 4Q results for FYE 31/7/2010 to be announced latest by end of September 2010
EPS for the first 3 quarters of FYE 31/7/2010 is already at 13.31 sen. We envisage that based on the encouraging sales demand, Multico should be able to achieve EPS of at least 5 sen for the 4th quarter, thereby resulting in a full year estimated EPS of 18 sen/share.
2) Trading below 3x P/E
Based on above estimated EPS of 18 sen/share, PER for Multico for closing price as at 26/7/2010 of RM0.515 is only 2.86x which is extremely undemanding as compared to other autopart makers as follows:-
Stock………Price*………Mkt Cap………EPS+……….PER(x)
EPMB……..RM0.52…….RM86.3m…….5.00 sen……10.40
NHFATT…..RM2.24……RM168.4m…..38.00 sen……5.89
DELLOYD…RM2.79…..RM247.9m……28.61 sen……9.75
HIRO………RM1.07……RM190.8m…..16.00 sen…….6.69
Average PER : 8.18x
Average PER (inclusive of Multico): 7.12x
+ Prospective EPF for FYE 2010
* as at close of 26/7/2010
Though Multico has disadvantage of being an illiquid counter, we believe that the current depressed valuation at below 3x P/E and at below par value (RM1.00) is not justified!
Even if we ascribe an 6x PER, Multico should be priced at least RM1.08/share
3) Its balance sheet can be considered quite strong in net cash position of RM0.1774/share and NAB/share of RM1.0635.
At 51.5 sen/share, 34.4% of price is actually backed by net cash!
Hence, at net cash basis, the P/E would have been even lower at only ~2x.
4) Recent catalyst – increase in vehicle sales which should increase demand of Multico’s products
June’s Total Industry Value (TIV) or vehicle sales of 54,005 vehicles sold were the 2nd highest YTD after March which was probably boasted by pre-festive season buying. This represents a m-o-m and y-o-y growth of 6.2% and 19.36% respectively (YTD: 19.8%) despite the hike in hire purchase (HP) rates across the board from 1/6/2010 by 25 basis point which did not deter buyers from buying big ticket items with borrowed funds.
OSK Research had raised 2010 TIV forecast by 2.2% to 585,719 units (9% y-o-y growth). They expect 2H to continue to be strong on the back of new model launches by Proton (Waja), Nissan (Teana), Hyundai (Sonata), spurred by on-going promotions such as discounted interest rate, giving away freebies and extended warranty services.
Hence, auto-part maker - Multico is expected to benefit from the higher output of vehicles.
5) Additional acquisition of shares in Multico by its substantial shareholder
Its largest shareholder – Dr Goh Kar Chuan has on 7/7/2010 acquired additional 220,000 shares in Multico.
As a result, he has increased his shareholdings in Multico to 8,093,540 shares (18.226%) from 6,355,540 (14.843%) as at 31/07/2009.
This is definitely, an indirect reflection of its major shareholder on his strong confidence in the company.
CONCLUSION
We strongly feel that the depressed valuation for this small-cap auto-part maker stock is not justified, and the catalysts may come from:-
a) Announcement of 4Q 2010 financial results latest by end of September 2010 which should be even better than 3Q given the significant increase in vehicle sales recorded over the past few months.
b) More acquisition of shares by its largest shareholder – Dr Goh Kar Chuan who has been gradually accumulating its shares.
c) Hopefully, coverage by more research houses / stock analysts.
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