Leon Fuat Berhad (Leonfb - 5232) had primary activities in trading of steel products as well as processing of flat and long steel sheets. The company started it's debut into the KLSE stock exchange in June 2014 at an IPO price of RM 0.60. With the continuous challenges in the competitive steel industry, Leonfb is considered a well managed company that had been able to scale towards profitability and paying 3 cents dividend for the past 2 financial year.
With the continuous robust development in Malaysia, there is always a strong demand for steel in order from various industry such as properties, construction, manufacturing and industrial use. The local steel industry is currently undergoing a strong reshape after MITI had imposed anti dumping duties from producer and exporters from China and Vietnam, with the highest tariff at 52.1%. The anti dumping duties will be in force for 5 years starting 24th January 2016. The anti dumping duties is aim at pre-painted, painted or color coated steel coils.
This major event will be going to see a steep drop of supply in steel coil, which had saw local player rushing to fulfill the demand gap. Below are some of the share price movement of established major steel player in Malaysia that had reacted towards the imposition of the anti dumping duties.
AnnJoo
CSC Steel Holdings Berhad
Masteel
SSteel
The above steel player had saw investor interest in the local steel industry.
With most of the bigger steel player started to roll, the effect will soon to be felt to medium and smaller steel player that is listed in the KLSE, such as Leonfb.
Leonfb had been trading at the range of RM 0.46 to RM 0.52. Albeit a challenging 2015, the company had been able to pull through a revenue of RM 505 million with cumulative EPS of 5.96 cents. The latest NTA of the group is RM 0.76 per share.
Technically, Leonfb will be a good trading target due to the increase participation in the recent days, as well as the rising steel industry sentiment in the market due to the anti dumping duties imposed towards China and Vietnam.
Leonfb will be targeting to handle more volume with the completion of their new processing plant in Shah Alam on a 130,680 sqft freehold industrial land on April 2016. The plant will enable Leonfb to double up it's current capacity in the manufacturing division. Aside from that, Leonfb will also be targeting to explore the export market pending approval from local authority to operate it's new warehouse in Port Klang Free Zone.
On possible private placement
The group had saw strong expansion during the last couple of years, with land acquisition and construction of new factory and warehouse. Although Leonfb had an outstanding share issue of 310million, Leon Fuat Holdings Sdn Bhd had controlled 70.87% of shares, and LTAT 5.5%, which leaves a 25% float in the public market.
With the new factory in Shah Alam waiting to double up production capacity as well as new warehouse to handle export market, Leonfb could call for a 10% private placement to pare down debts to reduce interest payment and enhance shareholder return. A call for private placement will see a minimum RM 0.50 subscription per share.
Conclusion
Leonfb should be a good look out as a second liner in the steel industry, given the current strong sentiment in the steel industry. Leonfb is looking to see a stronger revenue in FYE 2016 through the new factory and warehouse operation that will possibly see revenue growing 20%.
Currently, the stock is also under the radar of local prominent investor, Fong Si Ling, dubbed as "Cold Eye", sitting on the top 10 shareholder list with 2million stock invested.
Leonfb short to medium term outlook should see a break above RM 0.50, and trading towards RM 0.60 based on valuation of PER x10 on FYE 2015 EPS of 6 cents.
LEONFB (5232) - LeonFb - A Steel Too Hot
http://bonescythe.blogspot.my/2016/03/leonfb-steel-too-hot.html
