a good counter no need promotion. handover pom pom girl status to my friend, f22raptor.. kikikiiii im busy in esceram, kgb and axx - while holding seacera tight to my chest kekekekee
Seacera - Too many catalysts await? I have to tell you that, I have actually completed 90% of my research yesterday. Seeing the price goes up a lot today, I do not have the answer why, probably you can get some answer here. Please read my disclaimer again on my blog.
Key recent events (i) On December last year, Seacera sold its packaging business Seacera Polyfilms to Scientex Bhd for RM40m. Thus, Seacera, now will focus in Tiles/ Construction and Property divisions. (ii) On January 2014, Seacera acquire SPAZ Sdn Bhd, a construction company for RM3m. This deal is pending completion within 2 months. (iii) On June 2014, Seacera signed a MOU to jointly construct Menara Warisan Merdeka (118-storeys) with Sinohydro Corporation Ltd, Shanghai Construction Group and SPAZ. (iv) On June 2014, Seacera entered into a MOU with Intelligent Fence (M) Sdn Bhd to participate in the tender to build, operate and transfer an electric security fence along the national border of Malaysia and Thailand which is approximately 506 kilometres.
We will talk about each event in more detail below. TP: RM1.90 Current price: RM1.14 Market cap: RM191m Upside: 66%
(A) Company Background -Seacera was listed in Bursa on 1999, with its core business focusing on tiles manufacturing -Today, Seacera has 3 different divisions:
(1) Tiles division -Seacera is the only bumiputra of homogenous tile manufacturing company in Malaysia. Currently, their production capacity is 2million sqm per year. -The company will shift to the new Kamunting Plant on 3Q2015 and its capacity will double to 4million sqm per year. With the new machineries, Seacera would be able to reduce reliance on human capital and this would result in more cost savings and economies of scale. AEON, Mydin, Maybank, University Malaya and Petronas Stations are clients of Seacera for it business segment. -You think that 4million is the max that they can do? That is just only phase 1, with phase 2 and 3, capacity will quadruple to 8million sqm per year!
(2) Construction division (i) SPAZ Seacera has announced to invest RM3m in exchange of 60% new shares in SPAZ. SPAZ has a backlog of more than RM180m currently, mostly contributed by the job awarded by Malaysia Airports to design and construct its Academy. You could refer to the chart below, where I have generated potential revenue for FY2014 and FY2015. Assume also annual winning of RM50m worth of construction jobs, where I believe Seacera are tendering other construction jobs besides the Warisan Merdeka and electric fence project.
(ii) Warisan Merdeka The whole project’s cost is about RM3-5b. According to internal sources, the part that Seacera is bidding together with its partner could range between RM1.5-2.0b. 60% will be shared by foreign partners and 40% will be shared by the local partners, set by PNB.
Ok, there are so many larger players in the lights of IJM, Sunway or WCT which might be bidding for Warisan Merdeka Project as well, what is Seacera’s competitive advantage then? I am pretty confident that Seacera will secure this project due to valid reasoning as follow:
a) Imagine our Prime Minister, on his visit to China on May, had signed multiple agreements to renew friendship between Malaysia and China post the MH370 incident. One of the agreements signed is this particular MOU!! Is Seacera politically-linked? Do take a look at the clients that awarded the projects to SPAZ, then you would know what I mean here. b) Partnering with Shanghai Construction Group and Sinohydro. The former is one of the high rise building construction expert in China, with track record of completing more than 10 high rise towers in China, and one of them is the tallest building in China, the Shanghai Tower with 121 floors. Sinohydro, has more than 400 international projects with contract value close to USD35b should speak its fame itself. Even some of our MRT bored piles works are done by Sinohydro. It has also built a number of high rise in China, Africa and Abu Dhabi. c) As you would know, China leads all the countries in the world in terms of cost competitiveness. The rivals from Japan/Korea would not be able to compete with China in terms of cost. d) Seacera’s JV has the complete package. They can even provide tiles for the buildings! 118-storeys with more than 10,000 sqm for each floor, work out yourself how much tiles can Seacera sells! That is close to their current annual production volume.
Seacera’s stake Assuming RM1.5b worth of project value, Seacera’s effective interest is 32% (12% through SPAZ) which is about RM500m worth of project value for the next 3 years, which will increase RM125m worth of revenue annually until FY2018.
(iii) Electric fence The government apparently has lost more than RM5 billion of revenue from illegal smuggling on the Thailand borders. Intelligent Fence is the authorized distributor in Malaysia to market and install the intelligence fence technology derived from South Africa. Successful implementation of the electric fence will also open to much more opportunity in Sabah and Sarawak borders which can add up to 2,000 km.
Seacera’s stake Assuming a project value of RM1b here, with potentially RM1m contract value per kilometer, at a 50:50 JV basis, the project is expecting to be completed in 3.5 years and Seacera will register revenue worth of RM140m annually for the next 3.5 years, assumed to start from July 2015. http://www.intelligentfence.com/
(3) Property division Seacera is not well known for its property projects. Previously, most of their projects are completed on a JV basis, where they will pull in other developers, like OCR Land or Duta Skyline for a profit guarantee, I would expect a margin of more than 10% GDV, where they will just sit back and do nothing. In this type of business model, Seacera would not be worrying about its cash flow to fund its project as it will be funded by its partner.
(i) Crown Jewel – Kajang Land (500 acres) Seacera has purchased 250 acres of acres (cost at RM10/psf) so far with an option to purchase the remaining 250 acres in the future. Currently, they are exploring to either have an outright land sale or JV with an established developer on this piece of land. 2 scenarios can happen here:
A.Outright sale would result in an estimated cash inflow about RM275m before paying off their remaining payments, and Seacera will have a net gain of about RM175m based on land price at RM25/psf. B. If they enter into JV for a mixed development project, which I expect to be RM6b GDV, Seacera could generate more than RM80m net profit per annum.
(ii) Sri Alai, Melaka (37.6 acres) Seacera has announced to acquire this piece of land for RM32.8m to be satisfied by RM6m cash and the rest by shares. The planned development GDV assumed to be RM250m will consist of resort, hospital and service apartment. I expect this project to kick start end of next year or FY2016.
(B) Shareholders Zulkarnin Bin Ariffin (CEO) – 24.4%, increase his stake on end of May 2014 Datuk Mansor Bin Masikon – 17.1% Perbadanan Kemajuan Negeri Perak – 6.2% Utusan Mewah Sdn Bhd – 6.2%, subscribed through private placement
Utusan Mewah, which is owned by Gan Hai Toh and Mohd Akil Mohd Yusof, took up a placement of 6.24% Seacera shares at RM1. This is a very positive indicator for the stock, where related parties are willing to take up shares at RM1.
(i) Revenue Revenue has been largely contributed by tiles production and packing business, both contributing about 50% of the sales generated last 4 years. However, from the latest Q1 2014 result, RM13.7m only consists of tiles division. Therefore, it is understood that Seacera’s FY2014 revenue will decrease close to 50% without the contribution by SPAZ.
FY 2015 - With the completion on acquisition of SPAZ, MAHB project alone will generate more than RM50m revenue for the year and I am expecting another RM50m jobs win for FY2015. Here, SPAZ will generate about RM100m while tiles division is expected to contribute a minimum of RM70-80m revenue for FY2015. Thus, Seacera’s revenue is set to double or triple for FY2015.
(ii) PAT PAT on FY2012 and Q1 2014 are one-off, that is why PE multiples might be distorted here. In actual, you have to look at EBIT to have a real glance at their operating profit.
FY2014 - PAT for FY2014 will certainly exceed FY2013, my forecast is about RM30m minimum (RM11.5m one-off gain by OCR Land and RM15m gain from Kayu Ara’s property development gain, the rest would be contributed by tiles as they have change their printing machine to save more cost). In terms of SPAZ, probably RM1-2 m contributions on Q4 2014 as the acquisition have not been finalized.
FY2015 will be an interesting year to watch. Without Warisan Merdeka Project and electric fence, I expect tiles division to contribute at least RM8m to the group as they move into the Kamunting Plant that will double their capacity, improve their cost savings, etc. while SPAZ will generate RM6m, which is only 6% PAT margin against their RM100m revenue for FY2015.
(iii) Dividend Seacera has been paying 3 cents dividend, which works out to be about 2.9% yield. That is pretty consistent. The dividend will be ex on 9 September 2014.
(iv) Net Gearing or (Debt –Cash)/ Equity Net gearing has been improving to below 20%. However, the Kajang Land has not been fully paid currently. As the transaction is about RM100m, I assumed half of it has not been paid, and Seacera might raise additional debt to pay, given that they had been planning developments on this piece of Land.
(D) Valuation Since Seacera has 3 different types of business, Sum-of-parts (SOP) is a better choice to value this company.
i) Tiles: In Indonesia, Arwana could trade up to 20x forward P/E due to their position as the lowest cost producer and market leader. In Malaysia, you have peers like White Horse (9.5x P/E), Yi-Lai (14x P/E) and KimHin (40x P/E). Being fair, I am using 10x forward P/E here. (ii) Property: Using estimated value of the land, and applying a 30% discount against RNAV as usual (iii) Construction: Peers like Gamuda/ WCT/ Muhibbah/ Eversendai are trading at 10-14x forward earnings. A 10x forward P/E if justified for Seacera.
Without Warisan Merdeka, electric fence project and Kajang Land Parcel 2’s development rights, Seacera has a value of RM1.90. Of course, winning each of the projects would require more funding, thus, I expect a rights issue, with a potential of issuing 50% more shares from its current share capital should Seacera wins both projects and develop Kajang Land Parcel 1&2.
(E) Technical analysis Seacera is on a short term consolidation mode now. As you can see, its volume has decreased significantly since the last huge rally happened last month. Look at the similarities boxed in red. It just shot up today based on this indicator, but I believe there are more to come.
Nevertheless, the stock is still riding on long term uptrend mode. I foresee RM1.24 to be tested soon, testing RM1.61 as more news flow comes. Given that the price has shot up, any small price correction is a chance to accumulate, please plan your entry/exit wisely. (F) Risk reward ratio (i) Upside return of 66% - As it is, using my SOP target, with my forecast of Seacera’s FY2015 earnings, it could trade up to RM1.90, not even factoring Warisan Project, electric fence and the remaining 250 acres land in Kajang that Seacera has the rights to develop. (ii) Downside risk of 18% - 3% below RM1, which is also the entry price of Utusan Mewah Sdn Bhd (Do you think they will want to make a loss here? Certainly, they will be in the money, but question is when?)
R/R ratio: 3.7 times.
Mind you, this TP did not factor in the winning of Warisan Merdeka/ electric fence project! I expect each winning to boost another 20-30 cents to its fair value, and with the development of Kajang Land Parcel 2 coming in, maybe, my potential upside is RM3.
For reference only, as there are too many factors and catalysts that are in play now: 1 - 2 month TP: 50% discount to Kajang Land Parcel 1/Sg Buloh @ RM1.50 3 - 6 months TP: 40% discount on RNAV to Kajang Land Parcel 1/Sg Buloh @ RM1.70 6 - 12 months TP: 30% discount on RNAV to Kajang Land Parcel 1/Sg Buloh @ RM1.90
(G) Rerating factors/ Catalysts (i) Winning the pre-qualification of Warisan Merdeka Project will boost up more than RM500m orderbook for Seacera and SPAZ, to be announced within Q3 2014. (ii) Winning the intelligent fence project which might be announced after Budget 2014. (iii) 250acres of Kajang Land Parcel 1 acquired at RM10/psf. Value it yourself. (iv) No research house covers this stock yet at the moment. (v) Tiles division to double capacity in Kamunting Plant next year. Potentially more than 20% cost savings and improvement in margins due to economies of scale. (vi) RM6b GDV from Kajang Land (Parcel 1 & 2) where Seacera has the first rights of refusal
Cheers. There are too many information to digest for Seacera and I hope you understand Seacera better now. Seacera has an ambitious target to achieve RM1b market cap in 5 years that would certainly mean a price of more than RM5 assuming small dilution ahead. For me, it is too ambitious, but if they were to secure Warisan Merdeka/ Electric fence project, achieving RM1b market cap before the next election maybe, is not a dream. I will update more on Seacera if they happen to win those mega projects.
Ayam Tua, I just mentioned it and you are so "Keng", did you push it up to prove that not mati? Hahaha... so what is the first TP Ayam Tua? Or should I sell and buy back. My cost is 1.04-1.06.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
KCChan2708
33 posts
Posted by KCChan2708 > 2014-08-04 23:37 | Report Abuse
waiting