Hot Stock Southern Acids jumps 12% on undervaluation

by **Cals** Wed 22 Jan 2014, 19:11

Hot Stock Southern Acids jumps 12% on undervaluation

Business & Markets 2014

Written by Chong Jin Hun of theedgemalaysia.com

Wednesday, 22 January 2014 10:36

KUALA LUMPUR (Jan 22): Southern Acids (M) Bhd (SAB) jumped as much as 12% or 37 sen after analysts said the the diversified entity is undervalued.

At 10.32am, SAB rose to its intraday high at RM3.44 with 249,500 shares done. The stock was the bourse's third-largest gainer.

Public Investment Bank Bhd said SAB is undervalued as its share price has not factored in the group's plantation land in Kota Kemuning, Selangor

In a note today, Public Investment said SAB could be worth at least RM1 billion or RM7.77 a share. This compares with SAB's latest reported book value of RM3.34 per share.

"Southern Acids' (SAB) market cap of RM420m has merely factored in its diversified businesses, namely, plantations, oleochemicals, healthcare and
warehousing & conveying. What investors overlooked is SAB's 258ha (~644.49 acres) of prime landbank worth RM562m in Kota Kemuning, Shah Alam.

"At current share price, SAB's investors today thus get its Kota Kemuning landbank and cash for free. Based on our SOP valuation, we see deep underlying value in the company as it could be worth at least RM1bn or RM7.77 per share," Public Investment said.

According to Public Investment, SAB had previously guided that the company may unlock the value of the land via property development.

Public Investment's estimates show that the potential gross development value for the tract will not be less than the RM3 billion to RM4 billion range.

"SAB has reported steady earnings growth for the last three years on the back of improved plantation sales contribution while oleochemicals business remain steady. Besides that, the company's balance sheet and operating cash flows are healthy and solid.

"Its net cash position currently stands at RM148m with zero borrowings while net operating cash flow was about RM30m-RM80m for the last three years," Public Investment said.

From a technical viewpoint, Kenanga Investment Bank Bhd said SAB shares' immediate support and resistance are seen at RM2.90 and RM3.09 respectively.