TSM GLOBAL BHD (formerly JUAN KUANG)
Primary Symbol & Exchange: TSM
8842 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 28/9/2010 RM:3.20
Mkt Cap RM’m : 177.22
Shares (m): 55.21
Par RM: 1.00
SECTOR CLASSIFICATION
MSEB: Trading/Services
Fox Capital: Auto-parts maker
Executive Chairman: Dato’ Wan Malek Bin Ibrahim
Managing Director: Dato’ Lim Kheng Yew
KNOWN MAJOR SHAREHOLDER(S) (as at 29/05/2009)
Dato’ Lim Kheng Yew (indirect interest) 16.09%
Lim Tze Thean (direct & indirect interest) 11.75%
Koperasi Polis Diraja Malaysia Bhd 6.73%
BACKGROUND
TSM Global Bhd (TSM) [formerly known as Juan Kuang (M) Industrial Bhd] is an investment holding company with its subsidiaries principally involved in the manufacture and supply of wiring harnesses for vehicles, automotive accessories, high tension ignition cable sets and polyvinyl chloride (commonly referred to as “PVC”) wires and cables.
Using the technology from Sumitomo Wiring Systems Ltd of Japan, TSM is one of the leading domestic suppliers of wiring harnesses used in motor vehicles and motorcycles trading under the names of Perodua, Nissan, Toyota, Honda, Daihatsu, Inokom, Hyundai, Ford, Suzuki and Kawasaki as well as automotive component companies such as listed APM Automotive Holdings Bhd, Nippondenso, Sanden and Autoliv.
TSM’s main manufacturing facilities are located in Tebrau, Johor and Tapah, Perak. TSM also has a 15% stake in China-based Fujian JK Wiring Systems Co Ltd which is also involved in the manufacture and supply of wiring harnesses for motor vehicles and automotive accessories.
On 3/3/2010, TSM proposed to diversify its manufacturing business into the hard disk drive industry via the proposed acquisition of an 85.47% interest in Kenseisha (M) Sdn Bhd for a purchase consideration of RM15.08m to be satisfied by the issuance of 6.50m new TSM shares.
WHY WE FEEL TSM IS UNDERVALUED?
1) Prior to this week, price has been hovering between RM3.00 to RM3.10/share since reaching peak of RM3.36/share on 29/7/2010.
2) The most under-valued auto related counter in Bursa.
3) Net cash in hands (including TSM's quoted investments) of RM117.15m or RM2.10 per TSM share as at 30/4/2010 (1Q for FYE 2011). Hence, the market is currently valuing this company at net cash of only RM1.10 i.e. only 10 sen premium over its par value for the viable and profitable business.
4) 1Q 2011 ended 30/4/10 at EPS of 15.58 sen / share. 2Q 2011 results to be announced on 30th September 2010 should be very good. Autoparts manufacturers generally have been having a good run in the past year as the Ringgit appreciates and demand for vehicles improves.
The latest results of APM, the leading automotive autoparts player, is an indication of things to come. In August 2010, APM announced that its net profit doubled to RM36.5m or 18.68 sen /share in 2Q ended 30/6/2010 against RM17.86m or 8.91 sen/share. APM said in its results announcement that it had performed “extremely well” in 2QFY2010 ending 31/12/2010, achieving the “highest ever quarterly revenue and pre-tax profit”.
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6) TSM commands nearly 60% of the Malaysian wire harness market. It supplies wire harness to almost all car assemblers except Korean marque Kia. Perodua is TSM's biggest customer.
7) TSM has recently, secured the supply contract to Proton Holdings Bhd which will be an immediate boost to TSM’s earnings. They will start supplying to Proton in October or November 2010.
8) Potential contribution to its earnings growth from its newly acquired hard disk drive (HDD) maker, Kenseisha (M) Sdn Bhd (KMSB). Judging by the pace of restructuring in the financially troubled KMSB and the strong orders it gets, the Managing Director feels that KMSB can perform even better than the wire harness business in the future. KMSB posted a net profit of RM2.34m and RM1.67m respectively in FY2006 and FY2007 ended 31 December. Brands using KMSB’s products and services include Nidec, Toshiba, Hitachi, NEC and Sony and the current export markets include China, Germany, Hong Kong, Japan, Singapore and the US. The Managing Director who is a former merchant banker, believes that the demand of HDD will always be there unless the world invests something that can replace it.
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 2Q 2011 financial results 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 coupled with strengthening of Ringgit Malaysia..
b) Hopefully, coverage by more research houses / stock analysts.
