New stocks to look at Saturday, 6 June 2015 By: BIZWEEK TEAM

by **Cals** Mon 08 Jun 2015, 03:35

New stocks to look at

Saturday, 6 June 2015
By: BIZWEEK TEAM

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FUND managers’ picks
Yeoh Keat Seng
Senior fund manager
Kumpulan Sentiasa Cemerlang Sdn Bhd
EVERGREEN FIBREBOARD BHD
Current share price: RM1.24
THERE are a number of reasons to the appeal of Evergreeen Fibreboard, one of the top five producers of medium density fibreboard (MDF) in Asia.
The MDF sector is turning around after suffering from over-capacity over the last five years, the consequence of massive capacity build-up following the Chinese government’s unprecedented 4 trillion yuan stimulus in 2008. It is not only Evergreen that is turning around (3Q and 4Q returned to the black after seven consecutive quarters of red ink) but the sector-wide recovery is also reflected in the financials of peers; Vanachai of Thailand and Dongwha Enterprise of Korea, both of whom have turned profitable since 1Q14. Their share prices have skyrocketed by 5x to 6x from their December 2013 low, while their FY15 valuations have rerated sharply to ~16x PE and 9x – 12 EV/EBITDA.
Evergreen’s stellar RM20.1mil 1Q15 earnings (4Q14 RM14.6mil, 3Q RM10.1mil) confirmed that it is firmly on the road to generating a level of profitability more commensurate with the scale of its operations. The main contributors to the recovery were: improving average selling prices, lower raw material costs, better plant efficiency after upgrades, and the benefit of a weak ringgit. We estimate that the company is currently trading on FY15 PE of only 8x.
We believe the timing of entry into Evergreen is good, as the company’s significant lag behind the sector’s recovery means that earnings momentum is still going strong. Its cost of rubberwood, the main raw material, was substantially inflated by its high-priced logging concession acquired during the peak of the last cycle. However, with the cost of the concession fully written down last year, raw material cost has normalised, enabling the company’s margins to belatedly benefit from the sharp drop in rubberwood prices over the past few years. Industry recovery aside, management has also undertaken measures to enhance the group’s profitability, including upgrading the Segamat and Batu Pahat plants, and relocating the Johor Baru plant to Palembang, Indonesia. Coupled with the benefits of a strengthening US dollar vs the ringgit (the group has net exposure to the US dollar in which 70% of its sales are denominated), we project earnings will surge from breakeven in FY14 to RM77mil, RM102mil and RM120mil in FY15, FY16 and FY17 respectively.
The main risks of investing in Evergreen are: a downturn in the MDF industry due to over-investment or other reasons, a surge in raw material price, and management failure to execute plans to further improve profitability. The upside though will be a sharp decline in competition should the China producers drop out if the tax rebates that subsidise their exports is not renewed.

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Choo Swee Kee
Chief investment officer
TA Investment Management Bhd
CYPARK RESOURCES BHD
Current share price: RM1.81
CYPARK manages waste landfills and solar farms in Negri Sembilan, Perlis, Pahang and Johor. There are various synergies in the company businesses. Treated landfills supplies feed stock at practically “zero-cost” for its renewable energy ventures.
The landfill grounds that are not suitable for other uses are ideal for the placement of solar panels to harvest sunlight. Methane gas emissions from rubbish decomposition, meanwhile, can be channeled toward the powering of a gas turbine while bio-degradable organic solid waste can be used in a biomass plant.
Cypark is one of the best proxies for renewable energy (RE) exposure in Malaysia. It has commenced the construction of its waste-to-energy (WTE) project, the SMART WTE, in Ladang Tanah Merah, Negri Sembilan, Malaysia while continuing its journey to bring economic transformation to remediated landfills.
It has obtained approval to operate a 20MW + 5MW waste to energy power plant which will be fuelled by waste from its landfill. This concession is for the period of 25 years at a tariff of RM0.455/kwh. The power plant will start producing power in 2017 but in the meantime, we estimate it will receive RM15mil from its landfill annually.
The cost of the project is RM400mil, which explains the high gearing currently. However, a simple discounted cashflow calculation shows that this project’s value is equivalent to that of its current market cap, and investors are obtaining other projects and assets for “free”.
With the current market volatility, we prefer stocks that are defensive and have secured business model like Cypark. The company has proposed a private placement of new shares to raise up to RM70mil with a substantial portion to be taken up by its co-founder and group chief executive officer Datuk Daud Ahmad.
We are comforted that its group CEO is confident to put about RM35mil of his own money into the company. We like companies where management’s motivation and our investment objective are aligned.
StarBizWeek’s writers’ pick
TUNE INS HOLDINGS BHD
Current stock price: RM1.84
TUNE Ins Holdings Bhd counts as an attractive growth stock as there are several factors working in its favour.
For one thing, Tune Ins’ core business of travel insurance is expected to gain stronger traction in the second half of the year, as it rides on the growth of its sister company AirAsia Bhd. Airasia, which is also a substantial shareholder in Tune Ins, will likely record higher passenger volume towards the latter part of 2015, partly driven by its aggressive marketing campaigns.
For another, the completion of Tune Ins’ acquisition of Indonesian company PT Asuransi Staco Mandiri in the middle of this year is set to further boost the group’s earnings in the second half of 2015.
Already, the group has started reaping good results from its ventures in Thailand and the Middle East since the first quarter of this year. With its aggressive plan to seek new partners in the Middle East to market its travel insurance schemes, Tune Ins is setting up itself for stronger growth momentum in the months ahead.
At its close of RM1.84 yesterday, Tune Ins was traded at a forward price-earnings of 17 times. – By Cecilia Kok
CAB CAKARAN BHD
Current stock price: RM1.07
POULTRY company CAB Cakaran Bhd may not appear exciting on the surface.
At its price, the stock is trading at a trailing price earnings (PE) ratio of 12 times and a 2015 PE of 10 times.
Nonetheless, all this is based on earnings from its existing core business of integrated poultry farming and processing.
It has 10 breeder farms and 140 broiler farms throughout Peninsular Malaysia, with a capacity of 3.6 million birds per month currently
However, this is set to grow by some 20% this year, as it recognises contributions from its new Singapore-based subsidiary Tong Huat Poultry Processing Factory Pte Ltd.
As of FY14, CAB Cakaran has already achieved revenue of RM672mil. It will likely hit RM900mil this year, with Tong Huat’s contribution.
The company will continue to buy up chicken farms to increase its capacity every year.
Secondly although on a longer term basis, CAB Cakaran has potential for a new revenue stream from its biomass power generation business. In March, it signed an MoU with New Chemical Trading Co Ltd from Japan and Seri Kedah Corp Sdn Bhd to venture into the biomass project.
It will incinerate chicken droppings for the biomass project and also produce fertiliser and calcium as a by-product.
Under this MoU, New Chemical Trading and Seri Kedah would set up a joint-venture company for the licensing of specific technology and know-how related to biomass power generation.
The joint venture parties are now looking in the northern region for a 30 acre to set up the facility.
Lastly, CAB Cakaran has 227 acres of investment properties worth RM64.81mil as of Sept 31, 2014, mostly located in Bukit Metajam and Penang.
Out of the 52 parcels of land measuring 227 acres in Penang, Kedah, Selangor and Perak, some 59% of the land are empty lots. The other 41% are plantation land, vegetable farms, apartment and building lots which are now being rented out.
It recently also purchased 28 acres of land in Kedah and 168 acres in Johor. Some are convertible for development. -
MALAYSIA BUILDING SOCIETY BHD
Current stock price: RM1.86
MALAYSIA Building Society Bhd (MBSB) traded at RM1.77 – its lowest level this year. The stock is up by 4.5% to close at RM1.86 yesterday. But at this price, the stock is still down by about a quarter year-to-date. It is also the cheapest finance stock with a price to book (P/BV) of 1.02 times.
Eight months ago, the company was valued at a P/BV of 1.91 times or RM2.82 under a proposed three-way merger.
But this alone is not good enough a reason to consider the stock for one’s portfolio. Business-wise, MBSB is being transformed into a different entity that will reduce its reliance on personal financing loans that it is historically associated with.
Early this year, the company kicked off a five year business plan (to run from 2015 to 2019) where it hopes to achieve a corporate financing ratio of 30% from 15% now. Retail financing, meanwhile, will be brought down to 70% from 85% . This strategy will cushion the expected slowdown in personal financing, which has been hit by a slew of tightening measures.
It has revived plans to convert into a full-fledged Islamic bank after the proposed merger with CIMB Group Holdings Bhd and RHB Capital Bhd was aborted early this year.
For this, it has made known that the preferred way is a merger with an existing Islamic financial institution.
According to reports quoting its chief executive officer Datuk Ahmad Zaini Othman, a corporate exercise could take place as early as this year or next. MBSB, in which the Employees Provident Fund (EPF) has a 64% stake, is understood to be keen on Bank Islam Malaysia Bhd as a merger partner.
To prepare itself for a potential merger and acquisition, the company is planning a capital-raising exercise of about RM3bil, to be announced sometime in the middle of this year. It is adopting a stricter coverage standard for loan impairments as it prepares to become an Islamic bank.
It is working towards a 100% financing loss coverage, from 80% now, matching the level most banks have in the country.
The downside is that earnings will remain weak for the short-term. – By Gurmeet Kaur
DAGANG NEXCHANGE BHD
Current stock price: 26.5 sen
E-COMMERCE service provider Dagang NeXchange Bhd (DNeX) which has since ventured into the energy and oil and gas industries for long-term investment purposes has a few things going for it, including potential contracts and a possible private placement to a group of investors.
This year, the company, formerly known as Time Engineering Bhd, will go full steam ahead to get business, riding on its relationship with the newly-launched Pan Asia e-commerce Alliance to expand on its end-to-end, comprehensive e-commerce services for trade facilitation here and regionally.
The alliance is a collaboration between 11 customs service providers within the Asian region.
In the medium to longer-term, DNeX expects its proposed acquisition of a 51% stake in Forward Energy Sdn Bhd (FESB) and the entire equity interest of OGPC Sdn Bhd and OGPC O&G Sdn Bhd, a provider of equipment and services for oil and gas, petrochemical and power industries to contribute to the group.
Acquired by accounting software firm Censof Bhd in 2013, DNeX returned to the black in the financial year ended Dec 31, 2014, turning in a net profit of RM12.2mil against a net loss of RM6mil for the same period a year earlier helped by the provision of professional services for the implementation of GST integrated logistics portals.
Notably, Censof, its parent company is quite dependant on government contracts and counts over 100 key government-related agencies and ministries as its clients.
DNeX shares are trading at a trailing 12-month price-to-earnings ratio of about 18.66 times.
At the current price of 26.5 sen, it is also trading at a 37% discount to its recent high of 42 sen reached in November last year. – By Yvonne Tan