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Thursday, March 18, 2010

Cepatwawasan (RM0.96): The cheapest plantation stock in KLSE?

From: KWF

I have just done a search on Cepatwawasan. The Mah family of Taiping bought a controlling stake of 32% or more than 65m shares, at a price of $1.77 in yr 2005 through their company called MHC Plantation Bhd, another listed company in KLSE. This means that they bought this company share at very high price of $1.77 as compared to its current price of 96cts!! I also found out that MHC has been buying Cepatwawasan shares in the market for quite sometime and has increased its stake to more than 35% now.

Now, let see why Cepatwawasan is undervalued at current price of 99cts while its net asset backing per share is $1.60 currently and why MHC continues to accumulate this share in the market!!

The following is the net profit of Cepatwawasan...
In yr 2005....$15m
In yr 2006... $20m
In yr 2007....$31m
In yr 2008... $40m
In yr 2009... $17m

Total net profit made for 5 yr = $123m and most of the money was used in replanting and building Biogas plant (using their palm oil waste as fuel) to produce electricity for own use as well as selling the rest to Sabah Electricity Board just like what Kim Loong or TSH have been doing. Cepat is building one Biomass plant costing $60m and one Biogas Plant costing $20m now with the help of a European company. Both of the plants will be completed in yr 2011 and return is expected to be 15%, translating into earnings of $12m yearly to the company.

It is a small Sabah oil palm plantation company with 10,000ha of which more than 80%% is matured. In terms of acres (as shown in its website), it has 19,000+ acres matured now as compared to 10,000 acres matured in year 2005 when MHC bought the company in year 2005, an increase of almost 100% in mature land!!

Thus we can see that its production of FFB will increase a lot in this year as well as years to come. Coupled with the high price of CPO now at $2600++/MT and its new Biogas plant, it will definitely show a great improvement in its profit this year.

Its market cap is only $214m as its paid-up capital is only $215m while Kim Loong has 13,000ha of land and has a market cap of more than $600m while its profit is not much higher than Cepatwawasan. In addition, it has a very low net gearing of only 10%. Thus, Cepatwawasan is worth much more than the current price of 96cts.

Recall that Kim Loong (another small Sabah oil palm plantation company,) share price was very undervalued when it was around $1.00++ just 2 or 3 yrs ago before it shot up to more than $3 in a few months time. It has since increased its paid-up capital to more than $300m now and trading at more than $2 currently. Therefore, will Cepatwawasan follow the footsteps of Kim Loong?

Good Luck. Happy Investing..

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

Dufu Technology Corp (RM0.58) - A super undervalued gem riding on recovery and expansion



Dufu Technology, a manufacturer of HDD components, is a gem waiting to be unleashed as this counter remains very underpriced and largely gone unnoticed by the market, despite its massive surge in earnings by riding on the recovery in global demand for HDD and more importantly its expansion into China.

It is operating in a 120K sq ft factory in Bayan Lepas Free Trade Zone, Penang, producing mainly HDD components such as disk clamps, disk spacers, hexagon nuts etc which contributed about 80% of its revenue. The company also manufactures components for industrial safety and sensor, telecommunication, computer peripheral and computer electronics. Its main customers are Western Digital, Seagate and Hitachi Global Storage Technology, which are some of the largest HDD manufacturers in the world. It is understood that Dufu commands a market share of 20-30% of the disk spacers and disk clamps globally while its closest competitors are Disk Precision Industries, Global Primax of China and Notion Vtec.

Ok. The main story is that it has acquired a Chinese company named Futron Technology Limited in 1Q2009 which is complementary to the company's business as Futron also manufactures and trades components of HDD and computer peripherals. About 70% of its revenue comes from South East Asia while the remaining is from China. Its factory is located near Guangzhou and has a size of 90K sq ft which allows Dufu further expansion. The beauty of the acquisition was that Dufu acquired it at a very cheap price of RM20mil which is about PE '09 of 4x. As at 9 months ending Sept 2008, its revenue was about RM20mil with net profit of RM2.5mil. This was about 1/3 of Dufu's earnings. In addition, the acquisition also came with a profit guarantee of RM5 mil for 2009 where any shortfall from the profit guarantee will be compensated.

Currently, utilization rate of its factories is about 90% in Penang and 100% in China. It has planned RM20mil for expansion in 2010 of which about half of it will be used by 1Q2010. With the acquisition of Futron coupled with the recovering market, Dufu's earnings and margins have been expanding significantly and even breached its historical peak. Its latest net profit and net margin reached RM5 mil and 14.2% respectively in 4Q09, surpassing its height of RM3.4mil and 13.5% respectively back in 3Q07.

Assuming that its latest performance will be maintained for the rest of 2010, though I believe that HDD market demand will continue to trend upwards, its net profit will come up to RM20mil in 2010, translating into EPS of 16.7 sen. Consequently, PER for 2009 and 2010 will only be at 6.0x and 3.5x respectively!!!!!!!!! Therefore, even if PER of 6x is attached, the stock price could reach RM1.00 already from its current level of RM0.58, a hefty 72.4% rise!! Dreaming? Hopefully this dream will come true :)

Stock Price: RM0.58
Shares Outstanding: 120 mil
EPS for 2009 and 2010: 9.6 sen and 16.7 sen
PER for 2009 and 2010: 6.0x and 3.5x

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

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