Stock Focus Rewarding month for Insas

by **hlk** Fri 06 Dec 2013, 16:56

Business & Markets 2013
Written by Afiq Isa of theedgemalaysia.com
Friday, 06 December 2013 14:30
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NOVEMBER was a rewarding month for Insas Bhd, which is controlled by
Datuk Thong Kok Khee, who is the CEO. The values of the company’s
investments in three firms, namely Ho Hup Construction Co Bhd (10.79%),
Formis Resources Bhd (11.29%) and Inari Amertron Bhd (36.51%), have
reached multi-year highs.
The rally on these companies’ stocks has drawn interest in Insas, whose share
price has also climbed substantially from 44 sen last year-end to a 13-year high
of 94.5 sen last Thursday.
Consequently, Thong’s shareholding in Insas has seen tremendous gains.
Based on his 24.48% equity interest in Insas, the value of his shareholding has
increased from RM104.06 million on Oct 31 to RM152.03 million on Nov 27,
translating into a paper profit of about RM48 million.
Nonetheless, the rise in share price has raised eyebrows, considering the
company’s core earnings have been less than stellar.
According to Insas’ latest annual report, the shares owned by Thong and those
linked to him amounted to a 32.38% stake in the company as at Oct 28.
The company has bought back 9.56 million shares this year, raising the number
of shares kept in the treasury to 29.13 million.
The continued share buybacks will result in the reduction in the number of
shares outstanding as well as increase the major shareholders’ interest in the
company. However, Insas has indicated that it does not intend to breach the
33% mandatory general offer threshold.
In terms of earnings, Insas posted a net profit of RM62.04 million for the financial year ended June 30, 2013, compared with RM12.6
million the year before. Revenue also came in higher at RM297.32 million, compared with RM235.38 million previously.
The improved earnings were mainly due to the recovery of its investment holding and information technology operations, which posted
substantial losses in FY2012.
In fact, Insas’ earnings have been rather inconsistent in the past five years. From FY2009 to FY2011, Insas reported annual net profits of
RM75.86 million, RM54.84 million and RM103.03 million respectively.
In its annual report, the group notes that its biggest portfolio in terms of market and intrinsic value is Insas Technology Bhd (ITB), which
has businesses ranging from the manufacture of semiconductors to the marketing of consumer multimedia products. In FY2013, the
technology division contributed a net profit of RM15.17 million to the company, compared with a loss of RM4.37 million in the previous
financial year.
Meanwhile, Insas’ investment holdings and trading operations contributed RM43.24 million or 70% of its net profit for the year. This
division reported stronger earnings because of higher trading gains and a recovery in equity prices.
This was a stark contrast to the net loss of RM7.89 million in FY2012, which was attributed to a weak
financial market.
The rise in the share prices of the companies that Insas has invested in has boosted the group’s value.
Inari Amertron Bhd, a 36%-owned associate company, has seen a staggering 511% increase in its share
price since Dec 31,2012. The stock closed at RM1.59 last Thursday, making it the best performing ACE
Market counter so far this year.
The jump in Inari’s share price bodes well for Insas’ stake, which has roughly increased six-fold in value
this year. Based on the closing price of RM1.59, Insas’ 36.51% stake in Inari is now valued at RM264.71
million, which is equivalent to 42% of the former’s market capitalisation of RM627.67 million.
Inari has steadily gained investor interest after a high-profile acquisition of Amertron Inc (Global) Ltd, a
key player in the optoelectronics manufacturing sector. Amertron is expected to contribute an additional
US$100 million (RM321 million) in revenue to Inari’s earnings in FY2014, according to Inari vice-chairman
Dr Tan Seng Chuan.
Also, Insas has continued to accumulate shares in Ho Hup, which is sitting on a large
parcel of prime land in Bukit Jalil, Kuala Lumpur. Based on last Thursday’s closing price
of RM1.09, Insas’ stake in Ho Hup is worth nearly RM12 million.
Ho Hup has formed a joint venture with Malton Bhd to develop a piece of prime land in
Bukit Jalil, which is expected to be a key earnings driver for the company in the coming
years. Following the corporate restructuring exercise, Ho Hup may soon exit its PN17
status by next year.
The spike in Insas’ share price has sparked speculation that a corporate exercise may
be on the cards. Investors certainly share the same sentiment, based on the run-up in
Insas shares throughout November. No one would rule out such a possibility, and only
Thong, a seasoned stockbroker, knows for sure what is actually brewing in Insas.