Choo Bee Metal Industries Bhd
(Dec 28, RM1.42)
Maintain add at RM1.42 with target price of RM1.60: After a modest growth in demand for 2011, we are more optimistic and expect demand to be more buoyant in 2012. We anticipate more construction and infrastructure works to come onstream then.
This is on the back of ongoing mega projects like the Second Penang Bridge and KLIA 2 and the anticipation of several other mega projects under the 10th Malaysia Plan. As such, we expect the group’s manufacturing demand to grow by 10% in FY12 and 5% in FY13.
For 9MFY11, we gather that domestic demand for Choo Bee’s flat products grew by about 5% year-on-year (y-o-y).
We gather that Choo Bee’s average selling price (ASP) for 2HFY11 hovered between RM2,600 and RM2,700 per tonne. Recall that in 1QFY11, its ASP reached a peak of about RM3,000 per tonne. Entering into 2012, given the moderating external and domestic economic outlook, we do not anticipate any significant pick-up in prices. As such, we maintain a 5% ASP growth to RM2,950 per tonne in FY12, followed by another 5% growth to RM3,100 per tonne in FY13.
With minimal capital expenditure (capex) in the next couple of years, we are confident that Choo Bee can maintain its six sen net dividend per share, which translates into a decent yield of 4%. We gather that capex would likely be between RM10 million and RM20 million in the next couple of years for upgrading of machines and relocation of a plant.
Recall that the group is also looking to develop the remaining 2.4ha land in Kapar, Klang. The proposal includes building a pipe-making production factory. However, this is still in the initial stage. We do not think that there would be any need for a new plant in the near future as the group utilises 50% of its capacity at present. As such, the group has sufficient capacity in the next couple of years to absorb any potential pick-up in demand.We are currently maintaining our earnings forecasts for FY11 to FY13.
Our “add” rating and target price of RM1.60 (based on six times FY12 price-earnings ratio (PER) remain unchanged. At six times, the valuation multiple is still at a one times PER discount to Hiap Teck Venture Bhd’s target PER in order to account for Choo Bee’s lower share trading liquidity. On average, Choo Bee’s daily trading volume is only 12,000 shares against Hiap Teck’s 450,000.
We continue to favour Choo Bee for its decent net yield of 4% and potential growth in demand on the back of the Economic Transformation Programme rollout. Despite the recent pick-up in construction steel demand, we remain cautious on flat product manufacturers as demand for flat products normally lags behind long products. Key risk to our call remains the high raw material costs, which will continue to dampen margins. — Affin IB Research, Dec 28
(Dec 28, RM1.42)
Maintain add at RM1.42 with target price of RM1.60: After a modest growth in demand for 2011, we are more optimistic and expect demand to be more buoyant in 2012. We anticipate more construction and infrastructure works to come onstream then.
This is on the back of ongoing mega projects like the Second Penang Bridge and KLIA 2 and the anticipation of several other mega projects under the 10th Malaysia Plan. As such, we expect the group’s manufacturing demand to grow by 10% in FY12 and 5% in FY13.
For 9MFY11, we gather that domestic demand for Choo Bee’s flat products grew by about 5% year-on-year (y-o-y).
We gather that Choo Bee’s average selling price (ASP) for 2HFY11 hovered between RM2,600 and RM2,700 per tonne. Recall that in 1QFY11, its ASP reached a peak of about RM3,000 per tonne. Entering into 2012, given the moderating external and domestic economic outlook, we do not anticipate any significant pick-up in prices. As such, we maintain a 5% ASP growth to RM2,950 per tonne in FY12, followed by another 5% growth to RM3,100 per tonne in FY13.
With minimal capital expenditure (capex) in the next couple of years, we are confident that Choo Bee can maintain its six sen net dividend per share, which translates into a decent yield of 4%. We gather that capex would likely be between RM10 million and RM20 million in the next couple of years for upgrading of machines and relocation of a plant.
Recall that the group is also looking to develop the remaining 2.4ha land in Kapar, Klang. The proposal includes building a pipe-making production factory. However, this is still in the initial stage. We do not think that there would be any need for a new plant in the near future as the group utilises 50% of its capacity at present. As such, the group has sufficient capacity in the next couple of years to absorb any potential pick-up in demand.We are currently maintaining our earnings forecasts for FY11 to FY13.
Our “add” rating and target price of RM1.60 (based on six times FY12 price-earnings ratio (PER) remain unchanged. At six times, the valuation multiple is still at a one times PER discount to Hiap Teck Venture Bhd’s target PER in order to account for Choo Bee’s lower share trading liquidity. On average, Choo Bee’s daily trading volume is only 12,000 shares against Hiap Teck’s 450,000.
We continue to favour Choo Bee for its decent net yield of 4% and potential growth in demand on the back of the Economic Transformation Programme rollout. Despite the recent pick-up in construction steel demand, we remain cautious on flat product manufacturers as demand for flat products normally lags behind long products. Key risk to our call remains the high raw material costs, which will continue to dampen margins. — Affin IB Research, Dec 28
