A Quantum Leap in Earnings – KANGER INTERNATIONAL BERHAD

In KANGER’s recent announcement, the company had struck a deal with China Energy Construction Co Ltd to dispose two parcels of land with commercial buildings located in Ganzhou City for approximately RMB400.0 million or RM258.9 million in ringgit terms.

How would this change KANGER as a whole?

Due to challenge outlook of the sector KANGER previously was in, the company suffered losses on the bamboo business which was in tandem with the industry as a whole. Fortunately, the active turnaround plan for the company to venture into construction might result in – well, as the title of the article suggests, a quantum leap in earnings.

The disposal of the fixed assets will result in one-off earnings for the group, which will be significant but what was more impressive was the cash flow generated from the sale of asset.

For those who do not know, the company had ventured into the construction company, in which they had secured an order book value of RM1.0 billion on 7 different construction projects. They had also bulk-purchased properties from the well-reputed developer Aset Kayamas.

Interestingly, the purchase of assets from Aset Kayamas could establish a good relationship with the developer and given that KANGER is now in the construction business, they could potentially secure business from Aset Kayamas. But there is more to that.

A ground check with employees in Sung Master actually returned that Sung Master top 3 customer consists of the name of Aset Kayamas, so if we link everything up – property acquisition, potential construction projects and supply of building material, does this sound like a synergetic trio-relationship?

I believe so.

Heck, there might even be a chance for Aset Kayamas to takeover KANGER by injecting more assets into the company. Bear in mind that KANGER is only trading at RM299.0 million market capitalization and any big asset injection could easily result in a takeover. A great case study would be with the company NCT ALLIANCE BERHAD (KLSE: 0056).

Nevertheless, it was almost certain for KANGER to return to black in the next few quarters and I believe with NTA doubling the share price, this stock is a valuable gem for those who believe in recovery in inbound travel and construction sector, as the properties “injected” from Aset Kayamas are located in Genting Highland and since 16^th August, construction work had mostly resumed, hence KANGER new construction segment could finally perform.

Based on the latest quarterly report of the company, KANGER is trading at a discounted Price-to-book value of 0.48 times, which we could say that the company is deep in value.

However, we also understand the fluctuation nature of the share price, so only strong holders are recommended to buy at the current discounted level.

Cheers.