HWANG - Super Undervalued

Background:

Hwang Capital (Malaysia) Berhad or HWANG is previously known as Hwang-DBS (Malaysia) Berhad. I will skip HWANG’s history but roughly it has sold its assets (stockbroking, investment banking, investment management and commercial banking) and distributed dividend per share of RM2.50 previously. What’s left with HWANG now is money lending business and “others – (likely to be property investment)”. For FY14 (ending 31 July 2014), money lending business contributed RM18.0m Profit Before Tax (PBT) or 99% to the Group’s PBT while “Others” contributed RM0.1m or 1% to Group’s.

Continuing operations doing well with PBT +77% to RM17.9m

In the latest quarterly announcement to Bursa on 25-Sep-2014, HWANG mentioned that its continuing operations PBT is up 77% YoY to RM17.9m. This is due to: i) increase in income arising from investments of proceeds from disposals of core financial businesses, ii) net gain on disposals of securities and iii) lower loan loss impairment. This is positive as it shows that HWANG earnings is sustainable even after the disposal of its asset. Book value improved to RM3.07 from RM3.03 in 3Q14.

Proposed dividend of 2.5 sen

HWANG recommended final single tier dividend of 2.5 sen. However, this is subject to approval in next AGM (likely to be passed). Assuming the 2.5 sen is paid every half yearly, total dividend is 5.0 sen representing 2.5% yield. This is the basic assumption only as the Company has lots of cash and can easily afford to give more.

Sitting on huge pile of net cash RM372.2m

On the asset side, HWANG has Cash and short term funds – RM81.2m, Securities Available For Sale (mostly unit trusts in Malaysia) – RM321.8m. On the liability side, it has borrowings of only RM30.8m.  Based on all these, the Company is sitting on net cash of RM372.2m

Theoretical Target Price of RM2.43

HWANG need to maintain its listing status for 2 years from the date of the Sale Purchase Agreement (SPA) signed to sell its asset previously to AFFIN. As the SPA date was 22 January 2014, this means HWANG should maintain its listing status until 22-Jan-2016 (not very far away as it is only 1 year and 4 months away).

Assuming the scenario that HWANG is unable to find new business, shareholder is likely to get more capital repayment. This valuation is super conservative as biggest assumption is only 80% recovery for the loans it gives out. Under this scenario, it is worth RM2.58 or 30% upside.

In normal case, at 95% recovery HWANG is worth RM2.81 or 41% upside from current share price of RM1.99.

Most conservative scenario at 80% recovery:

Details	From Balance Sheet	Recovery	Amount (RM m)
Cash & Short Term Funds	81.2	100%	81.2
Securities Available For Sale	321.8	100%	321.8
Loans, Advances & Financing (Assume 70% recovery)	393.9	80%	315.1
			718.1
Less:
Borrowings			30.8
Other Liabilities			29.0
			658.3
No of shares (m)			255.2
Fair Value (RM)			2.58

Normal scenario @ 95% recovery:

Details	From Balance Sheet	Recovery	Amount (RM m)
Cash & Short Term Funds	81.2	100%	81.2
Securities Available For Sale	321.8	100%	321.8
Loans, Advances & Financing (Assume 70% recovery)	393.9	95%	374.2
			777.2
Less:
Borrowings			30.8
Other Liabilities			29.0
			717.4
No of shares (m)			255.2
Fair Value (RM)			2.81

Coastal Contracts Berhad - The Golden Coast?

Background:

Coastal Contracts Berhad (COASTAL) is mainly involved in Shipbuilding and Ship Repair (SSR) and Vessel Chartering (VS). The Company’s clients are mainly from offshore oil & gas industry, mining sector, commodities sector, marine traders and national navy. In FY13 (ending December), SSR division contributed RM146.9m Profit Before Tax (PBT) or 97% of the Group's total PBT of RM150.9m. VS division PBT contribution is RM4.0m or 3% of Group’s.

1H14 earnings jumped 54% YoY to RM97.4m

Key driver behind the good earnings growth is SSR division which saw its PBT +69% YoY to RM99.2m. SSR division benefited from higher vessel sales which surged 54% YoY to RM464.6m. Based on the Company’s Bursa announcement, the Company delivered 9 units of vessels in 1H14 against 7 units in 1H13.

Net Cash of RM574m or RM1.08 cash

This is based on its 2Q14 total cash of RM580.1m, short term loan RM2.0m, long term debt RM3.8m and equity of RM196.2m. Comparitively, many other Oil & Gas company is in net gearing position. As interest rate is expected to increase further in 2015, COASTAL stand to be least affected due to their net cash position.

In the right business of shipbuilding industry

SSV division PBT margin of 21.3% in 1H14 is better than 1H13’s 19.5%. Such high PBT margin is considered super good against many other business.

Theoretical Target Price of RM6.38 sen based on 13x FY15 Fwd. PE.

The 13x PE is in line with mid cap Oil and Gas valuation. FY15E EPS should reach 49.0 sen assuming 20% earnings growth in FY15E and 30% in FY14E EPS. Such high growth estimate is not excessive as its 1H14 earnings growth is already at 54%. Based on latest share price of RM4.62 as of 23-Sep-2014, this means 38% upside.

YTLPOWR - Charging Ahead

Background:

YTL Power International (YTLPOWR) need not further introduction as it is a FBMKLCI member and has been long covered by many analysts in Malaysia. To refresh our memory, YTLPOWR made RM1.19b in FY14 (ending Jun) representing 12% increase YoY. Biggest earnings contributor is Water & Sewerage (W&S) segment which generated RM794m PBT or 54% of the Group’s PBT in FY14. Details of W&S division is listed at the end of this page. Other earnings contributors are: i) Multi Utilities Business (MUB) with RM494m PBT or 34% of Group’s PBT, ii) Power Generation with RM185m PBT or 13% of Group’s PBT. Mobile broadband network division is still making loss at RM170m Loss Before Tax.

Positive surprise from the recent 10 sen dividend

On 28-Aug-2014, YTLPOWR unexpectedly announced an interim single tier dividend of 10 sen with the ex-date on 29-Oct-2014 and payment date 14-Nov-2014. This is a major positive surprise as there has been absence of dividend for almost 2 years since 22-Nov-2012. With this dividend of 10 sen, it is likely that the Company should start its regular dividend payment going forward.

Potential catalyst if its expiring Power Purchase Agreement is extended

It has been reported by media that YTLPOWR PPA may be renewed due to potential shortage of power in Malaysia over the next few years. Note that YTLPOWR owns a 800MWcombined cycle gas turbine (CCGT) plant in Paka, Terengganu and  400MW CCGT plant in Pasir Gudang, Johor.

Very attractive dividend yield of 6.4%.
Based on its latest share price of RM1.57, the 10 sen dividend works out to be 6.4% which is among the highest provided by any counter in FBMKLCI. We think the dividend is likely to continue in the future due to the very strong cash flow generated by YTLPOWR.

Theoretical Target Price of RM2.00 sen based on 5% target yield

This means 27% upside and 6% dividend, hence overall 33% total return. The 5% yield is conservative as it is higher than FBMKLCI yield around 3.0% to 3.5% and is usually the minimum required by investors for stocks perceived as dividend stock.

Details of W&S segment (from YTL Power website)
Source: http://www.ytlpowerinternational.com/our_business/water-sewserv.asp?catName=our_business
Wessex Water, a wholly-owned subsidiary of YTL Power International, is a regional water and wastewater services company in the UK.
Wessex Water serves an area encompassing 10,000 square kilometres in the south west of England, including Dorset, Somerset, Bristol, most of Wiltshire and parts of Gloucestershire and Hampshire. It supplies about 350 million litres of water to 1.3 million customers, and treats 490 million litres of sewage from 2.7 million customers daily.
Wessex Water is recognised by the UK water industry regulator, Ofwat, as one of the most efficient water and sewerage companies in England and Wales. It has also earned distinctions such as The Queen's Awards for Enterprise 2008 in sustainable development, as well as an Excellent Environmental Assessment Award and the UK Government's award for Customer Service Excellence.

SYCAL - Small but profitable

Background:

Sycal Ventures Berhad (SYCAL) is mainly involved in i) construction specializing in civil and building construction works and ii) property business. In FY13 (ending December), construction division contributed RM12.2m Profit Before Tax (PBT) or 52% of the Group's total PBT of RM23.4m. As for property, PBT contribution is RM8.5m or 36% of Group’s.

Strong orderbook of RM640m

As of 30-Jun-2014, SYCAL’s construction division has orderbook of RM640m and this means the Group has earnings visibility of 3 years. Note that SYCAL construction division revenue is RM211m. Such a long earnings visibility of 3 years is considered very good for construction companies which usually have earnings visibility on average 2 years only.

SYCAL construction projects are concentrated in Taiping, Ipoh and the hotel project in Jalan Pantai Kuala Lumpur. Historically, SYCAL has delivered more than RM1.5b worth of projects for the government and private sector including low-rise and high-rise housing, infrastructure, landmark buildings, universities, hospitals and commercial developments.

Property division backed by RM500m GDV projects in Cheras KL

Its property projects are mainly in Cheras (Kuala Lumpur), Sitiawan (Lumut and Segari), Taiping and Ipoh. Some of previous completed projects in Cheras include Town Villas and Vista Harmoni Condominium.

Strong earnings growth (1H14 EPS + 38% to 2.66 sen).

Key driver behind the good earnings growth is construction division which saw its PBT +37% YoY to RM4.3m. Construction division benefited from the increase billing of shopping mall construction at Klebang Ipoh. Property division also did well with its PBT improved 91% YoY to RM4.26m which we think is due to better property prices in KL and Perak.

Almost Zero Net Gearing

Net gearing is only 0.3%. This is based on its 2Q14 total cash of RM6.4m, short term loan RM1.2m, long term debt RM5.8m and equity of RM196.2m. Comparitively, many other construction company has high net gearing exceeding 10%.

Trading at only 40.5 sen or 35% below Book Value of 62.1 sen.
This could mean the stock is extremely undervalued as its earnings visibility is good at 3 years, strong balance sheet and high earnings growth in 1H14 at 38% YoY.

Theoretical Target Price of 52 sen based on 9x FY15 Fwd. PE.

The 9x PE is in line with mid cap construction valuation. FY15E EPS should reach 5.75 sen assuming 8% earnings growth to FY14E EPS of 5.32 sen.

LONBISC 4Q14 Result +28% YoY

1.       4Q14 EPS jumped 20% to 2.14 sen as net profit increased 28% YoY to RM3.16m. The higher net profit is caused by better PBT margin at 6.0% against 4Q13’s 2.4%. This should be caused by lower commodity prices globally in the current quarter. As for full year, FY14 EPS gained 8% to 9.68 sen as revenue is up 24% to RM360m.

2.        Positive outlook for FY15 given the increase in production line (confectionery segment). This should allow new business opportunities to be secured.

3.        Book value increased to RM2.11 from RM2.10 on Jun-2013. Current share price of RM0.845 means there is still 60% discount to the full book value of RM2.11.

4.        Theoretical Fair Value of RM1.05 based on 10x FY15 Fwd. PE. Assuming LONBISC can deliver same performance for FY15, its FY15 EPS should be 10.5 sen (+8% YoY). Based on 10x Fwd PE (similar to Small Cap PE), this stock is easily worth RM1.05 or 24% upside from current price.