Weekly Review – 5 November 2017 to 11 November 2017

HEXZA(3298)

Notice of Default to Tembusu Industries Pte Ltd (7^th November 2017)

• Tembusu Industries Pte Ltd failure to make payment of the monthly lease payable under Sale &  Purchase and Lease Agreement.

• Tembusu provided a personal guarantee of one of its director, Mr Tin Maung Kyin

• On 30^th January 2015, HEXZA had enter agreement with Tembusu which HEXZA purchase a 8MW Power Generator in Myamar of total purchase price USD 6.0 Million and Tembusu shall lease back the Equipment from HEXZA for a period of 10 years at a monthly rental of USD 130,205.

• Due to the default, HEXZA impairment loss of RM 28.54 milion in the first quarter for the financial year end 30 September 2017.

HEXZA’s Bottom line to take a hit from RM 28.5 mil provision 

• Tembusu’s failure to make payment on the monthly lease rental payable under agreement dated 30 January 2015.

• HEXZA appointed a law firm in Singapore to advise.

•  Issued letter to Tembusu founder and majority shareholder Pete Tin Muang Kyin.

• Tembusu had reschedule the payment twice.

• Would impact earning per share by 11.1 sen.

LIIHEN(7089)

Corporate Guarantee  (6 November 2017 & 9 November 2017)

• Provide RM 10,000,000 corporate guarantee to HSBC for additional import line facility granted to Favourite Design Sdn Bhd

• Provide RM 7,570,000 corporate guarantee to HSBC for additional import line facility granted to Lii Hen Furniture Sdn Bhd

• Additional loans taken by LIIHEN.

AJIYA (7609)

Memorandum of Understanding (6 November 2017)

• MOU signed with Politeknik Melaka to support, promote mutual understanding and collaboration on programme and activities based on Industrialised Building System (IBS)

• AJIYA to provide technical training to Politeknik Melaka in relation with IBS Technology.

Summary of Stock Reviews

Weekly Review – 29 October 2017 to 4 November 2017

KIMHIN(5371)

Affin Hwang Capital (3 November 2017)

Price Target : 1.73

• Australia moderate property market recover could drive higher ceramic demand
• Plan for upgrading existing plant for RM 10,000,000
• Domestic revenue share growth to 25% in 2016
• A recovery in property transaction volumes and more active secondary home market potential drive higher ceramic demand in FY 2018
• Second largest ceramic manufacturer behind White Horse by domestic revenue.
• Use RM 9.8 Million to purchase a penthouse at Melbourne Square Project
• Top 4 ceramic player

o   White Horse

o   Yi Lai

o   Seacera

o   Kim Hin

HOMERIZ (5160)

The Star (1^st November 2017)

Target Price : 1.18

• Improve cost through effective trainings for workers and continue seeking for automation opportunities.

Dividend payment (30^th October 2017)

• 2.2 sen, subject to the approval of HOMERIZ shareholders
•  Bring total dividend of 4.2 sen for the financial year end 31 August 2017.

Quarterly Report for the financial year end  31 August 2017 (30^th October 2017)

• Current year quarter had 19.2 % profit margin compared to last year 14.48 %. Cumulative quarter profit margin for these year is 21.02 % while last year profit margin is 20.42 %.
• Current year quarter effective tax rate is 19.37 % which is higher than last year quarter which is 17.31 %.  However cumulative quarter effective tax rate for these year is 21.05 % which is lower than last year 22.51 %
• There is an increase of company asset in term of property plant and equipment  by 10.02 %, inventories by 23.92 %, trade and other receivable by 23.56 %, and deposit, banks and cash balances by 6.60 %. These make the total asset increase by 12.40 % for the year
• HOMERIZ liability is increase by 4.26 % for the year 2016.
• HOMERIZ had net placement of RM 16,000,000 for the year 2016

LIIHEN (7089)

Hong Leong Investment Bank (30 October2017

• Price Target : 5.04
• Fire broke out in LIIHEN second premise of one of its subsidiary
• 4 out of 8 blocks production line are affected
• The lines affected are mainly old line cater for small quantity orders
• According to management the fire could affect 5 – 10 % of the November production
• In 2014, fire occurred in LIIHEN main factory and production is able to resumes in 3 days time.

Extraordinary General Meeting (1^st November 2017)

• The EGM had pass the proposal to acquisition of Domain Partners Sdn Bhd.

CHINWEL (5007)

Annual report 2017 (30 October 2017)

• Total asset for 2017 had increase by 1.77 % mainly contributed by inventories increase by16.39 % and trade receivable increase by 3.03 %. There is decrease in property, plant and equipment by 2.25 % and cash and bank balance by 14.33 
• There is increase of share capital by RM 28,162,800 due to new Companies Act 2016. No increase of number of outstanding share.
• The total liabilities had reduce by 17.45 % in 2017, which mainly contributed by other payables and accruals by 40.27 % and borrowing by 20.27%
• The profit margin had decrease from 21.10 % in 2016 to 17.60 % in 2017
• Effective tax rate had increase from 15.28 % in 2016 to 18.13 % in 2017
• There is significant increase in indirect material by 166.96 % in 2017
• Lesser inventories written off in 2017 which is RM 467,551 compared to RM 8,857,230 in 2016

Summary of Stock Reviews

Stock Review – AJIYA (7609) - 4 (AJIYA BERHAD)

Bursa Malaysia - 7609

Bloomberg - AJY:MK
Yahoo - 7609 .kl
Webpage - http://www.ajiya.com/

Company Profile

AJIYA started as manufacturing metal roll products in 1990 and ventured into safety glass productions in1996. AJIYA holds 19 factories / warehouses with office throughout Malaysia and Thailand.

Geographical Location

AJIYA operated in two countries Malaysia and Thailand. Base on 2016 annual report, most revenue are coming from Malaysia operation which is 93.05 %.

The operation in Thailand did not do as well compared to Malaysia as report in 2016 Annual report operation in Thailand had asset turnover ratio of 0.53 compared to operation in Malaysia which had asset turnover ratio of 0.89.

CONS:

è Operation in Thailand had low asset turnover ratio

Financial Statement

AJIYA annual report show that an increase in other investments from RM 205,149 in 2015 to RM 5,069,571 in 2016. This is due to increase in investment on the trust fund of RM 4,914,987 in 2016.

There is an decrease in the amount due from subsidiaries from RM 53,346,219 to RM 31,781,230 in 2016. This is due to the settlement of RM 13,972,818 which carry an interest of 2.90% per annual.

Although the inventories had drop from RM 80,829,535 to RM 70,926,380, there is an increase of work in progress inventories which mean the company is expecting high sales in 2017. The work in progress inventories had increase from RM 352,625 to RM 720,990 in 2016. Besides that, the raw material cost had reduced from RM 71,262,606 to RM 62,695,916.

AJIYA trade receivable past due also had reduce from RM 56,510,388 to RM 48,629,683.

During the financial year, two subsidiaries of AJIYA had enter a sales and purchase agreements for the sales of lands and building for total consideration of RM 13,876,000 which stated in 2016 annual report as asset held for sales of RM 6,895631.

PROS:

è Work in progress inventories had increase by 104.46 % è Raw Material cost had reduce by 12.02 % è Trade receivable past due had reduced by 13.94 %

CONS:

è RM 4,914,987 had invest in a trust fund

AJIYA loan and borrowing had reduce from RM 29,959,973 to RM 9,667,968 in 2016.

PROS:

è AJIYA loans and borrowings had reduced by 67.73 %

Financial Ratio

Description	2016	2015	Different
Gross Profit Margin	0.20	0.21	-0.01
Net Profit Margin	0.05	0.07	-0.02
Interest Coverage Ratio	27.68	18.80	+8.88
Effective Tax	0.22	0.17	+0.05

Warrant

In 2016 AJIYA had issue free one warrant to every 2 shares with the exercise price of RM 0.92. The warrant can be exercised at any time on or after 1^st September 2016 until 2021. As of 21 February 2017 157,292,242 warrant is available.

PROS:

è AJIYA warrant is way out of money compared to current price of RM 0,68.

Dividend and Bonus Issued for the past five year

AJIYA had constant dividend for the past five year from 2012 – 2016 with the average dividend of RM 0.01 after adjustment (2016 stock split) with the dividend yield of 1.47 %.

CONS:

è AJIYA had dividend yield of average 1.47 % for the last five year which is lower than fixed deposit rate of 3 %

Peers

1) CHINHIN

2) ENGTEX

3) WTHORSE

4) SEACERA

5) ASTINO

6) KIMHIN

7) GBH

8) SCBUILD

9) SKBSHUT

10) WOODLAN

Summary of Stock Reviews

Stock Review – HEXZA (3298) HEXZA CORPORATION BERHAD

Bursa Malaysia - 3298
Bloomberg - HEX:MK
Yahoo - 3298 .kl
Webpage - http://www.hexza.com.my/

Company Profile

HEXZA had involved in property development and manufacturing of chemical product. HEXZA had manufacture formaldehyde resins, ethyl alcohol, natural vinegar and beverage (Enchante).

Major Product:

HEXZA revenue mainly come from one major product which is formaldehyde based resin and ethanol. These product contributed 91.66 % of HEXZA revenue.

Financial Statement

Base on 2016 annual report, HEXZA had increase in other investments from RM 46,824,851 in 2015 to RM 63,725,550 in 2016. The major change in other investments is contributed by share quoted outside Malaysia which is RM 22,295,885 compare to RM 2,540,847 in 2015. Other investment in Myanmar experience delays in lease rental collection.

Besides that, in 2016 HEXZA reported RM 26,787,284 in finance lease receivable. These is due to a sale & purchase and leaseback agreement to acquire part of the equipment for a 8 MW heavy fuel oil power generator system worth USD 6,000,000 (RM 24,168,000) from Tembusu Industries Pte Ltd. The lease commencing on July 1 2015 with a period of 10 years and monthly lease rental of USD 130,205 (RM 524,466).

HEXZA had other receivable which had past due more than 120 days of RM 54,537.

There is decrease in other asset from RM 20,014,468 in 2015 to RM 357,579 because in 2015 there is progressive payment made by Tembusu Industries Ptd Ltd to acquired 8MW heavy fuel oil generator which is RM 19,671,600.

Although the cash and cash equivalent had decrease from RM 62,150,011 to RM 51,417,413, HEXZA managed to increase the interest for the cash and cash equivalent which are:

1) Fixed and Short term deposit from 1.20% - 3.60% in 2015 to 2.25% - 6.00% in 2016

2) Money market fund from 2.82% - 5.05%  in 2015 to 2.75% to 5.55% in 2016.

PROS:

è HEXZA receive monthly rental of USD 130,205 from Tembusu Industries Pte Ltd until 2025 for leasing of 8 MW generator. è HEXZA manage to increase the interest rate for cash and cash equivalent.

CONS:

è 36% increase in other investments contributed by share quoted outside Malaysia. è Other investment in Myamar experience delays in lease rental collection. è HEXZA capitalise the rental receive from Tembusu Industries Pte Ltd which woud overstated it asset. è Having other receivable which had past due more than 120 days of RM 54,537.

HEXZA had no borrowing as of 30 June 2016

PROS:

è HEXZA had no borrowing

Dividend and Bonus Issued for the past five year

HEXZAhad constant dividend for the past five year from 2012 – 2016 with the average dividend of RM 0.046 with the dividend yield of 4.81 %.

PROS:

è HEXZA had average dividend yield of 4.81 % over the 5 year period which is higher than fix deposit

Summary of Stock Reviews

Stock Review – FAVCO (7229) (FAVELLE FAVCO BHD)

Bursa Malaysia - 7229
Bloomberg - FFB:MK
Yahoo - 7229 .kl
Webpage - http://www.favellefavco.com/

Company Profile

FAVCO comprise of two international brands, Favelle Favco and Kroll. FAVCO focus on cranes products such as Tower Cranes, Offshore Cranes, Crawler Cranes and Wharf Cranes. FAVCO engaged in designing, manufacturing, supply, servicing, trading and renting of cranes.

FAVCO has seven operating facilities which are Malaysia, Australia, Denmark, USA, China, Singapore and UAE.

Geographical Segments :

FAVCO only split into two geographical segments:

1) Inside Malaysia – 48.47% of 2016 revenue

2) Outside Malaysia – 51.53% of 2016 revenue

Financial Statement

From 2016 Annual Report, FAVCO intangible asset had decrease from RM 1,273,000 in 2015 to RM 323,000 in 2016. From contract work in progress and inventories in 2016, FAVCO is expecting a decrease a sales in near future compared to the 2016.

Of the RM 366,837,000 of cash and cash equivalents, only 30.42% of the cash is kept as cash and bank balance compared to 87.42% in 2015. These might indicated that management might not want to use the money in the near future. Besides that, the fixed deposit in bank is at lower rate in 2016 (0.76% - 1.70% per annum) compared to 3.25% per annum in 2015.

PROS:

è Intangible asset had reduce by 74.62%

CONS:

è Decrease in contract work in progress and inventories for the year 2016. è Large cash place in short term investment and fixed deposit which had low interest rate.

FAVCO had reduces it borrowing from RM 64,011,000 in 2015 to 26,043,000 in 2016. These had brought the interest coverage ratio for 2016 increase to 29.32 from 13.85 (in 2015).

PROS:

è FAVCO borrowing had reduce by 59.31% è FAVCO interest coverage rato have increase by 111.70%.

Dividend and Bonus Issued for the past five year

FAVCO had constant dividend for the past five year from 2012 – 2016 with the average dividend of RM 0.102 with the dividend yield of 3.6 %. Besides that in the past 5 years, FAVCO had constantly increase it dividend pay to investors.

PROS:

è FAVCO had average dividend yield of 3.6 % over the 5 year period which is higher than fix deposit è FAVCO had constantly increase it dividend pay to investor.

New Issue of Securities

FAVCO had implemented new share up to 10% of the total issued shares for eligible directors and employees.

CONS:

è New shares insurance to directors and employees would dilute the share of FAVCO

Market Research

MIDF Research (6 October2017)

Price Target : 2.92

• FACVO intends to acquired 70 % stake in:

a)    Exact Automation Sdn Bhd

Providing integrated industrial automation solution of plant instrumentation and maintenance services.

b)   Sedia Teguh Sdn Bhd

Trading of specialised equipment in oil and gasindustry.

c)    Exact AnalyticalSdn Bhd

Providing related engineering services

d)   Exact Oil & Gas Sdn Bhd

Trading and engineering of specialise item used in oil and gas industry. Awards license from PETRONAS.

MIDF Research (25 August2017)

Price Target : 2.92

•   Lower cost of sales and lower tax rate
• Decreasing orderbook

MIDF Research (30 June2017)

Price Target : 2.92

• Decline in demand for offshore cranes is cushions by increasing demand in tower cranes
• Should there any M&A exercises which involves cash, lower dividend payout ratio might be expected.

Summary of Stock Reviews