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Sunday, April 11, 2021

[Humbled Investor] Recovery play: Maybulk!

The Malaysian Bulk Carriers Berhad (MBC) Group is the largest drybulk shipowner in Malaysia engaged in international shipping. The MBC Group presently owns and operates a fleet of vessels which includes dry bulk carriers and product tankers.

Let's see what are the prospects and risks for Maybulk.
Do we have a trading opportunity here?

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All information provided here should be treated for informational purposes only. It is solely reflecting author's personal views and the author should not be held liable for any actions taken in reliance on information contained herein.

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Sunday, March 21, 2021

[Humbled Investor] Turnaround story – Scope Industries Berhad

Scope Industries Berhad (“Scope”) is mainly involved in Electronic Biz, specifically in printed circuit board (PCB) assembly for more than 25 years (contributed 67% of FY2020 total revenue). Over the years, PCB division has expanded into completed electrical and electronics product assembly for reputable OEM manufacturers and MNC companies.

Scope also involved in cultivation of palm oil business but its not so profitable so we will not be focusing on palm oil segment today.

What is so interesting in Scope? Scope has seen a drastic change to its major customers from FY2019 to FY2020. (Pic 2) Scope lost most of its key customers in FY2019 but substituted with one customer that contributed RM8.7mil to its FY2020 revenue.

Coincident or not, revenue from Taiwan also contributed the same amount of revenue as Customer A of RM8.7mil in FY2020. (Pic 3) So who is this big Taiwan customer anyway?
If we drilled down into the top 30 shareholder list, we will find the emergence of a new shareholder in FY2019 annual report, namely Inventec Appliances Corp (“Inventec”) with 32mil shares, being top 5 major shareholder.

Who is Inventec? Inventec is public listed company in Taiwan with market capitalization of about RM14bil (equivalent to the size of QL Resources, its big..). Inventec is an ODM manufacturer involving in making AirPods, notebook computers and mobile devices.

Why Inventec is interested in Scope? Due to trade war, Scope (who might be the new OEM manufacturer to Inventec) stands a good position in Malaysia to be benefited from US-China trade war. In any case, Scope has been expanding its capacity since FY2019 where it has done a private placement in 2019 and invested RM13.8mil and RM6.09mil in FY2019 and FY2020 to upgrade its production facilities, including purchase of new machinery and construction of additional production area in existing factory.

Scope also changed its strategy to focus more on high quality products and started to manufacturer box-build products for new customers which complements their PCB business. It is likely the change in strategy is because of the newly secured customer – Inventec.

What are the benefits of Inventec joining the party? With more incoming orders, Scope has recently announced a private placement in September 2020 (with an issue price of RM0.175) where part of the placement of RM7mil is earmarked for capacity expansion which involves setting up a new factory for its PCB business. However, Scope only predicted that the expansion will only cost around RM10mil from the September 2020 announcement. But the new factory is actually cost more than that and this is where 19 March 2021 announcement (Friday) came in.

Proposed rights issue and ESOS – Scope has announced a 2 for 1 rights issue at an issue price of RM0.175, represent a discount of 32.35% to TERP based on 5 day VWAMP! (last private placement only represented about 9.5% discount) This is a huge discount for existing investors.

But who are the main beneficiary? – In the announcement, Inventec has actually entered into an SPA whereby Inventec will buy out all the right issue shares from the 2 major shareholders which will then raised Inventec major shareholdings from existing 4.2% to 10% (minimum scenario) or 7.3% (maximum scenario) without accounting for ESOS dilution. Besides, understand from theedge articles back in February 2019 that the Inventec’s cost to acquire Scope’s shares is at RM0.15 per share. (Pic 4) Therefore, we can say that the entry price for Inventec is around RM0.15 to RM0.17 per share.

With Inventec new undertakings to subscribe the rights shares in full, this will further boost existing investors’ confidence in addition to the expansion plan that Scope is going to embark on. Scope is currently constructing a new factory building to increase its existing production floor space by 154,000 sqft from 145,200 sqft to 299,200 sqft on a 2.5 acres land in Parit Buntar, Perak which is next to its existing factory. Scope Group envisages that the cost to put this production facility in operation, including the machinery and equipment, is approximately RM36 million.

Will there be further rights issue going forward? Given that the issue price has been fixed at RM0.175, it is likely that all existing shareholders will subscribe the rights shares to enjoy the upside now as it is currently trading at RM0.295, representing more than 60% guaranteed gain if the price stay unchanged. Under the maximum circumstances where RM50mil could be raised, together with the existing RM7mil private placement that has been raised previously, it is unlikely that there will be another cash call going forward with the new factory cost of about RM36mil. In the short term, investors might react negatively like usual to rights issue announcement, but long term wise, Scope will be another interesting counter to monitor although the valuation is not cheap at the moment.

The commitment for expansion can be seen in the increase in labour worker. Since July 2020, Scope has employed additional 453 workers for PCB business from 720 workers to 1,173 workers as at 28 Feb 2021 (an increase of 63%).

What are the other upside of Scope? Scope has also hired experienced managers to improve production flow and reduce production cycle time (production efficiency could be improved). Besides, if we look at historical financials, we can observe that 2 quarters revenue in FY2021 has already surpassed FY2020 revenue and FY2019 revenue by 25% and 57%. (Pic 5) This shows that despite pandemic, Scope revenue has actually improved yoy and even better in FY2021.

What are the risks? Moving forward, Scope Group expects more supervisors and assembly workers are required in line with its Electronic Business expansion. Staff costs and operational expenses need to be controlled to sustain or improve the profit margin. Scope has been loss making since FY2019 and could return back to profit in FY2021. 
Another risk would be the high concentration risk from increased Inventec orders.

What are your thoughts?

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All information provided here should be treated for informational purposes only. It is solely reflecting author's personal views and the author should not be held liable for any actions taken in reliance on information contained herein.

No buy call. No sell call. No bullshit. Only content.

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Sunday, March 7, 2021

[Humbled Investor] SCH Group Berhad ("Hextar Industries Berhad")

By renaming to Hextar Industries Berhad recently, SCH (which is 31% owned by Hextar Holdings Sdn Bhd) is in a better position to market their products under Hextar brand.

With the issuance of new shares through rights issue, the proceeds of RM155mil will be used for repayment of borrowings (21% of proceeds) and working capital use (78%) in the expansion of fertilizers business (Peninsular Malaysia and Sabah) as well as purchase of industrial products such as forklifts, batteries, inverters and solar panels.

Even though SCH Group has diversified their business into fertilizer and equipment rental business, profitability of the group has not seen a significant improvement mainly due to MCO which impacted the heavy equipment and equipment rental services. Despite fertilizers business being an essential services, the profit margin of this segment is still below average which dragged down overall margin of the Group.

With the support of Hextar brand (being the market leader with 30% market share in the agrochemical market) and high barrier of entry into this market due to stringent process for product certification, SCH or Hextar Industries seems to be in a good position to expand bigger especially with the placement exercise.

Stock price has been rather stable since September 2020 with minimal discount to NTA.

What's your take on this stock? Let me know in the comment below.

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All information provided here should be treated for informational purposes only. It is solely reflecting author's personal views and the author should not be held liable for any actions taken in reliance on information contained herein.

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Sunday, February 21, 2021

[Humbled Investor] Malayan Cement Bhd - MCEMENT

[Why MCEMENT is considered a deep value stock that worth your second look?]

[Upside]

1. M&A Synergies (operational, distribution and logistical synergies) resulted in improvement in profit margin. The cost synergies should reflect better than current valuation in the future.

2. Economy recovery would revive property and construction sectors which will then increase demand for cement.

3. Cement has a short shelf life of 3 months. Better inventory management will help to accomodate with incoming demand from the revival of various big infra projects.

4. Cement price will be better managed after sector consolidation (with MCEMENT remains as the market leader with 60% market share).

5. Technical chart wise, the 20-years chart showed a huge support at RM1.80 level and YTL acquired Lafarge (nka MCEMENT) at RM3.75. MCEMENT currently trading at RM2.36.

6. Potential to turn net profit in the next few quarters.
 
[Downside]

1. Demand remains sluggish if MCO continues
with further delay in property/infrastructure projects

2. Coal price has increased from 10-year low of RM210/MT to RM350/MT. However, MCEMENT might be able to transfer the increase in production costs to customers as MCEMENT now has better bargaining power against its customers after sector consolidation.

3. Market risk and volatility risk due to low public shareholding spread at 22.95% (excluding ASB).

4. Huge amount goodwill contributing 35% of total assets which are subject to annual impairment review. However the risk of further impairment is relatively low. This is because the goodwill arising from the acquistion of Lafarge Aggregates back in 2004 amounting to RM9mil has been impaired downwards to RM1.4mil as of June 2020 (-85% impairment) due to the lack of synergies to the existing business.

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All information provided here should be treated for informational purposes only. It is solely reflecting author's personal views and the author should not be held liable for any actions taken in reliance on information contained herein.

No buy call. No sell call. No bullshit. Only content.

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Sunday, February 7, 2021

[Humbled Investor] Malaysia Smelting Corporation - MSC

[Humbled Investor] Malaysia Smelting Corporation - MSC

[10 Key reasons on why you should relook at MSC]

1. Even without the participation of institutional investors, MSC has surged 230% with minimal selling pressure. When big insti funds starting to notice MSC, potential gains might further be unleashed.

2. Straits Trading, the parent company of MSC (with 54% shareholdings in MSC) has gained more than 80% in less than 3 months.

3. MSC is also dual listed in Singapore. Current share price surged to 71sen. Arbitrage can be applied here.

4. Production curb and output cuts by Top 1 and Top 2 refined tin producers in the world (PT Timah and Yunnan Tin) back in 2019 and first half of 2020 has successfully balanced out the oversupply situation in 2020. Smelters in Yunnan Tin have also taken maintenance downtime to compensate for the shortfall of raw material.

5. Recently in 2021, Myanmar military coup + LME market dwindling tin inventories might have just squeezed the tin supply even further and resulted in tin shortage/deficit. Hence, tin prices could possibly stand above 20k as supply is struggling to meet resurgent demand.

6. Global tin demand is recovering, due to the rising electronic sales as more people stay at home due to the pandemic. With the rollout of 5G networks and EV which require at least 25% more chips and hence demand for tin soldering (which is the biggest use of tin) in order to connect components.

7. China's internal supply dynamics seem to be struggling to keep up with current demand, let alone finding sufficient mine resource to meet future soldering demand.

8. Tin remains as the metals most impacted by new technology with its wide application and storage capability in terms of battery storage. Tin improves conductivity and tin foils could be used instead of copper anode in replacing lithium-ion batteries.

9. MSC Tin Mining segment is expected to contributed positively which is attributed by its new mine at Sungai Lembing and increased daily average production at existing mines. Both are currently operating at full capacity.

10. Both Butterworth and Pulau Indah smelters of MSC are in operations (albeit at 25% capacity for new smelter but refurbished with better efficiency) which will increase refined tin output to meet current high demand.

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All information provided here should be treated for informational purposes only. It is solely reflecting author's personal views and the author should not be held liable for any actions taken in reliance on information contained herein.

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Sunday, January 17, 2021

[Humbled Investor] Weekly Discussion: JCY, Kobay, PIE, MMSV, VIS, Semiconductor industry

💥[JCY]💥
Following JCY’s announcement on 14 January, it is noted that JCY’s major customer will stop purchasing JCY’s component products which will have negative impact to its financials and possibly result in impairment. But at the same time, JCY has commenced realignment in its customer base by injecting new capital and resources in order to welcome new customer and are ramping up production for certain new range of products.

There are 2 interpretations/doubts in our opinion.
(1) Was the termination of orders from existing major customer due to cancellation/reduction in orders by the customer? Or JCY made the first move and willingly terminated this customer due to its bad track record?
In our view, the answer is unlikely the former because there is no signage that the HDD demand is shrinking in the near term.

(2) On the other hand, it is more likely that JCY made the move to terminate its customer after securing new customer in order to recoup their losses throughout the past few years.
If that is the case, JCY would be undergoing a major transformation in terms of their HDD supply chain. From the removal of customers with bad track record, JCY might be heading towards a bright future with existing and future 'healthy' customers.
Besides, JCY also mentioned that they are preparing for the new entry of customer by ramping up their production. This might indicate JCY is in the process of securing new orders from new customers and therefore has the courage to terminate this big customer with bad track record. Therefore, in the near future, JCY might be the black horse in this tech space.

💥[KOBAY, PIE, MMSV & VIS]💥
Recently, the boom market is back. And if you take a look at the recent spike in those stocks, there is a similarity in those stocks like Kobay, Pie, MMSV and VIS. Why stocks like JHM, OCK ATAIMS hard to get a push although those 2 categories are in the theme of EV, 5G and EMS?
The reason might be due to the variation in the number of shares that are liquid in the market between the 2 categories. The recently-spike stocks has a total number of shares of less than 500mil respectively but stocks like JHM OCK and ATAIMS has a huge number of shares and therefore it is not easy to push up the share price. Stocks like VIS and Kobay which has only less than 200mil shares can be fire up easily because there is not much liquidity in this stock.

💥[SEMICONDUCTOR INDUSTRY]💥
Another theme no doubt is the semiconductor theme where the Electric vehicles sector boom and 5G incoming NFCP project to be awarded by MCMC that have spur some sparks in these sectors. Another catalyst that we have seen is the record high results achieved by TSMC.

TSMC has achieved an outstanding result with the return on equity of 30%. Management also predicted that the operating profit margin is to be maintained in 1Q 2021 and range between 39.5% - 41.5%.
Automotive sectors and DCE sectors (Digital consumer electronics) has also seen an increase in revenue by 27% and 29% QoQ which signals the strong recovery and sector boom in EV vehicles and electronics products.
Moving forward, TSMC expects richer semiconductor content requirement driven by EV, ADAS (Advanced Driver Assistance System) and Infotainment systems to fuel the demand for processors, sensors, analog and power ICs. TSMC offers various automotive process technologies to help customers win the automotive market.

This astonishing result by TSMC continue to provide confidence in the stock market which resulted in the resilient in technology index in Bursa Malaysia as compared to broad KLCI index.
In terms of the potential for growth, Mi Technovation which specialized in ATE machines has yet to see its share price breakout to new high while others like Frontkn, UWC, MPI and Unisem has recorded an all-time high market capitalization.
Inari also stands a good chance to be the best candidate as a 5G beneficiary. Revenue Group which is undergoing expansion mode to create a cashless ecosystem is also relatively cheap.

Automation specialized such as Greatech and Pentamaster continued to be the favourite to trend investors with their competitive advantages in automation sectors. Despite Greatech’s rich valuation, the recent secure of new customers in EV space and catalyst of bonus issue continue to boost up the share price and the positive market sentiment in Greatech.

Technology stocks will continue to be one of the sectors that will outrun KLCI Composite index in 2021 due to the supply shortage in chips and the incoming demand from electric car factories.

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All information provided here should be treated for informational purposes only. It is solely reflecting author's personal views and the author should not be held liable for any actions taken in reliance on information contained herein.

No buy call. No sell call. No bullshit. Only content.

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[Humbled Investor] How much do you know about MYEG?

If you still go to brick-and-mortar centres to renew your driving license and road tax, you better have a look in this post.

This post is going to refresh your perception towards government services!💥💥

Just drop us any comments if you have any ideas or opinions to share.

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_________________________________________________________________

All information provided here should be treated for informational purposes only. It is solely reflecting author's personal views and the author should not be held liable for any actions taken in reliance on information contained herein.

No buy call. No sell call. No bullshit. Only content.

If you think the article / information is useful to you, you can <SHARE> this article and support us by <LIKE> and <FOLLOW> our Facebook page "Humbled Investor". Thank you so much for supporting. 😄