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GPHAROS (5649) - GPharos - Logging The Limit

Golden Pharos Berhad (Gpharos - 5649), a little known company that is based in Terengganu which is involved in the upstream log harvesting, midstream saw milling, downstream timber processing, manufacturing and distribution of wood based and glass products. However, the core activity that contributes most of the revenue in the group is on the upstream log harvesting, saw milling and klin drying operation.

Situated in the north eastern side of the Peninsula Malaysia, Golden Pharos is largely owned by the state of Terengganu, with a stake of approx 64% being held by Terengganu Incorporated Sdn Bhd.

As of late last year, Malaysia had encountered one of the worst flood in the Malaysian history. With the heavy than expected monsoon rain during the rainy season, Terengganu had experienced a severe flood that had left more than 100,000 homeless, with neighboring state such as Kelantan and Kedah not been spared as well.

The massive flood had caused massive disruption in the economic activities in the northern Peninsula, which includes all kind of harvesting and logging activities. However, with aftermath done by the flood, what is there for Golden Pharos in the coming days ahead?


GPharos had been consolidating at the lower range after a spectacular report from it's 1st Quarter 2014 result, which had saw the company chalking up huge profit after a record log harvest activity for the month of January (2525 hpt), February (4680 hpt) and March 2014 (4625 hpt), bulking up the company EPS to 14.84 cents in a single quarter with a total harvest of 11830 hpt for period. (*HPT refers to Hoppus Tonne)

While log harvesting had been low during the rainy season at the 4th quarter of the year, GPharos log harvesting activity began to pick up in a huge manner for the 1st quarter of 2015 with January taking 1756 hpt, February shooting up to 5695 hpt and March 4345 hpt, totaling 11796 hpt for the 1st Quarter of 2015.


The Aftermath Driver

With the massive flood in the northern Peninsula Malaysia, the coming days will be looking on the reconstruction of the homes and infrastructure.



The condition of the flood speaks for itself through the pictures and video in the media, with massive housing area submerge underwater, and fatal water level that rises to the roof, with some area totally submerged in the water. There are much to do in the reconstruction in the flood hit states. Even state administration offices are not spared in the flood.

GPharos exposure towards the reconstruction and refurbishing phases in the flood hit area at the northern Peninsula of Malaysia due to it's proximity will definitely be a blessing in disguise. In order to back this up further, the Terengganu state owned company had been supplying indoor furnishing to the most of the state government in the north.


Driving a European Boost

After  a series of quantitative easing from the US, the first series of the European Stimulus had finally taken off from 1 March 2015. With 60 billion Euros a month targeted to stimulate the European market until September 2016, things had started to see a better growth in 1 month after the ECB gradual bond buying program.

With the current stronger US economy and a growing European side, things had forged out to be a much better condition for the raw material producing counter, such as Malaysia's logging industry. The mega construction and improving housing activity in the international market favors towards Malaysian Timber products such as sawn timber, MDF and furniture.

The improving international market had been seen through a stronger pick up in the local furniture company that had saw revenue growth hitting ceiling after ceiling.


Latitude, a local furniture manufacturer, is a good proof in reflecting the better state of economy in the international market. Latitude had saw it's extensive growth starting middle of 2014, which saw it's share price climbing up steadily from 90 cents to the current range of RM 6.20 with a dividend of approx 15 cents in between.


A Log and Wood Story

After the strongly hyped up property theme in the 2014, came the furnishing of the property, which brought a strong wood based theme, ranging from furniture to boards and logs.

For Gpharos, it will be more incline towards the upstream wood sector, which is the harvesting of logs. Ever since Myammar putting up a ban towards the export of their logs in April 2014, it had left a very big gap to be filled up by the rest of the South East Asian player since Myammar is rank no.2 for it's timber export in the region.

The large gap had put a double blessing towards neighboring country such as Malaysia. The exit of Myammar in the timber export will directly result to
- Lesser timber supply in export market
- Lesser price war due to reduce player




With round log timber traded in USD, the stronger USD will put act as the 3rd booster in a greater forex gain.


Summary
GPharos will be a superb interesting company to be look out at in the coming days due to
- 1st Quarter 2015 result could bang above 15 to 17 cents in EPS from it's total 11796 hpt harvested log.
- Strong exposure towards the rebuilding of the flooded area due to close proximity in the supply and demand area.
- Strong European stimulus program and a better US economy, driving more international demand.
- Better forex gain from stronger USD.
- Net cash position with approx RM 15 million in cash.
- Laggard in the strong timber theme play.
- Certified by FSC (Forest Stewardship Council), hence able to penetrate into the developed country's market that support environment friendly products.





Log to the limit up? You decide

Bone's TP : RM 0.90

Cheers and have a nice day

Regards,
Bone

http://bonescythe.blogspot.com
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