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Sunday, 21 May 2017

(Tradeview 2017) Value Pick No. 9 : Peterlabs Holdings Bhd. (0171)

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Dear fellow readers, 

This is my No. 9 Value Pick for 2017. 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :


Website / Blog : http://www.tradeview.my/

or Email me to sign up as private exclusive subscriber : [email protected]
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Value Pick No. 9: Peterlabs Holdings Bhd. (Initial Valuation RM 0.40) 

While we are familiar with many stocks in the KLCI, however, there are times some stocks will just slip our radar. We manage to catch hold of this only because one of our subscriber picked this up and asked us about it. 

Once again, we will give an upfront warning, as this is a small cap stock, this stock has higher risk compared to our other value picks. So for those who have low risk tolerance, you can skip this.  Peterlabs is in the business of manufacturing varieties of animal health products, animal nutritional feed additive and veterinary pharmaceutical to serve the livestock industry. It has its own R&D facilities and team which develop award winning products in this sector. 

We like Peterlabs for its track record of over 30 years and market leading position on supplying animal nutrition and health products to the poultry farms locally and abroad such as Pakistan and Taiwan. Due to its niche sector, the barriers of entry is higher as it requires technical expertise and experienced veterinarians. 

For the past 5 years, Peterlabs has consistently delivered continuous growth in revenue and positive bottomline. Looking at the revenue trend, the trajectory has been amazing with growth of more than 10%+ per annum. However, despite the growth in revenue, it did not translate to the bottomline due to the narrowing profit margin every year. The latest  financial year, Peterlabs delivered RM83 million in revenue but only RM3.3 million in net profit which is lesser than even 5 years ago. As you are reading, you must be wondering why would we call Peterlabs as our value pick then? This is because the key is in the details, not what meets the eyes. 



Looking at the profit trend, one would be depressed. Because no matter how strong the revenue grew, the profit could not follow in tandem. However, this is in part due to capacity as well as FOREX. The company has been consistently expanding their plant and facilities to manufacture more, incurring higher expense as well penetrating new regions through marketing activities. While it was time for them to reap some rewards, the weaker MYR affected their bottomline as their raw materials required import. The company faced eroding margin, but at least it is still a decent 4%. We believe with the MYR finding a bottom and the new plant coming on soon, the company should be able to improve its profit margin for this coming financial year. 



Nonetheless, this respectable management continue to declare dividend to reward shareholders through the ups and downs. No matter how bad things are, they will still declare dividend. This is a rare feat among listed companies these days where many has no respect for the company's dividend policy. The latest dividend declared was 0.7 sens which is equivalent to a Dividend Yield of 2.5%. For a penny stock that is still growing, this is very generous of the company. Some bigger caps stock cant even declare 2.5% dividend.




We like Peterlabs for many reason. Firstly, it has a management which is professional and competent. Although they faced many challenges including higher operating cost, FOREX exposure, they still manage to maintain profitability throughout the years. Secondly, it is in a sector with high barriers of entry and shows actual revenue growth. So long they can rationalise their operational cost, they should be able to improve their bottomline. Thirdly, the company is expanding with a new factory and looking to penetrate new markets. Hence, we believe the future prospect is intact. We are cautiously optimistic for it to improve its profitability in the coming QR. The 2017 prospects by Peterlabs looks promising as well. Given the management confidence of being able to deliver a positive performance to FY 2017, I think it is worthwhile to consider investing in the company for the long term basis. If Peterlabs successfully pulls it off, there may be a re-rating to the stock. 




Another point to note is a substantial shareholder recently bought back a huge position. http://www.fatfish.co/





With the latest QR, it is now consolidating at near the 52 week high. If Peterlabs can maintain their growth, there is no reason it cannot challenge it's 52 week high. Currently at 28.5 sens, it is trading at a multiple of 17.7x. It's NTA stands at 19 sens with ROE of 8.53% for the past year. We believe in the mid to long term growth trajectory of Peterlabs and estimate the coming full year result with EPS between 1.8 to 2.2 sens. Applying a multiple of 20x (factor in the net cash position and the 2.5% DY), there is a possibility that it can move towards 40 sens. For now, this will be the initial TP pending observations of coming quarter results. 

*Please note this is a penny stock with erratic earnings. Hence the risk is higher. For those who do not have such appetite, feel free to skip.
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Food for thought: 
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Sunday, 7 May 2017

(Tradeview 2017) Value Pick No. 8 : Red Sena Bhd. (5270)


Dear fellow readers,  

This is my No. 8 Value Pick for 2017. 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :



Website / Blog : http://www.tradeview.my/


or Email me to sign up as private exclusive subscriber : [email protected]

______________________________________________________________________

Value Pick No. 8: Red Sena Berhad (Initial Valuation RM 0.50 - RM0.55 sens) 

This is the first time we called for a SPAC related counter. SPAC stands for special purpose acquisition company. RedSena primarily is in the sector of F&B. The reason we are interested in RedSena is due to the arbitrage opportunity play. 

This is a rather safe investment. The risk to reward ratio is there with limited downside. For those feeling jittery about the market conditions, we think it is a good idea to look at Red Sena. Based on our calculations, investors stand to earn ~6.4% return p.a., assuming an entry price of 45sen.

Date
Share Price /
Fair Value
Total Return
Annualized Return
Apr-17
0.450
Dec-17
0.488
8.4%
9.7%
Dec-18
0.503
11.7%
6.4%


Do recall, the IPO price for Red Sena was 50sen and 92% of the IPO proceeds (i.e. 46sen) was set aside into a trust account to acquire a suitable F&B business over a 3 year period (Dec 2015 - Dec 2018). In the event that management fails to identify any potential target within this timeline, the money in the trust account, including interests earned, will be distributed back to investors.

On the flip, if Red Sena develops a liking for an F&B business and propose for an acquisition, investors can still get back their money by voting ‘NO’ during the EGM. To note, the quicker that this event occurs, the annualized return to investors is higher as well. On a per share basis, we estimate that the cash amount is 48sen and 50sen at Dec-2017 and Dec-2018 respectively.

We think this is a relatively safe investment strategy to adopt, especially for yield seeking/risk adverse investors. That said, if the company identified by Red Sena provides an entry into an exciting/high growth F&B business, we believe further share price upside is possible.

Overall, we advise investors not to jump into the bandwagon by simply buying Red Sena at the market offer price as it would lower your total return - every 0.5 sens could potentially lower your total return by 1%. Hence, one should patiently look to accumulate this stock.

From the management, side the company consists of a team of F&B professionals with substantial experience in their respective fields. From how we look at it, the team running the company is very professional. For SPAC, because it is in effect a shell company, the management team is crucial as they are the one who will determine the direction of the acquisition and path of the company. Having a strong management, will set it on strong footing compared to other SPACs.






Based on the latest news flow, Red Sena is looking to acquire the business in Vietnam and currently have made a list of 50 potentials. The management is looking to close the deal by early 2018.  You can refer to the relevant news here:

http://www.thestar.com.my/business/business-news/2017/02/15/red-sena-sets-its-sights-on-vietnam/

*Please note this is a SPAC stock. For those who do not have such appetite, feel free to skip.
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Website / Blog : http://www.tradeview.my/


or Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: