In this article, we are going to share our view why BTECH is truly a TOTAL GOOD BUY for you! You do not want to miss this ride as the upside catalyst of this counter (TP: RM0.44) shall help you to hit a jackpot!
1) Who is Brite-Tech Berhad (BTECH) (0011) ?
Brite-Tech Berhad (BTECH, 0011) is listed on ACE Market of Bursa Malaysia with a market capitalisation of RM 80.64 million. The company is specialized in water treatment, purification and water pollution control.
It focus on engineered and formulated chemical products for water clarification, waste water treatment, minimizing waste water sludge generation, steam generation system, and cooling water system.
2) Potential Water Tarrif Hike
A news from The Star on 13 March 2019 titled “Potential water tariff hike to generate more capex” had caught our eyes. As the water tariff hasn’t been revised in the past decades, an increase of the tariffs which definitively will benefit pipe-suppliers and contractors having experience with water treatment plants (WTP) construction.
In this case, we see BTECH as one of the potential beneficiary as they are specialized in water treatment solution provider. WHY?
Maybank IB Research mentioned that water tariff hikes are inevitable. The water industry is in dire need for new capex to ensure long-term supply sustainability, especially in states that have yet to have a review for many years.
3) Where Is Our Water Tarrif Rank in ASEAN Countries?
For example, water tariffs in Pahang had not been reviewed in the past 30 years, which was the main contribution of the state huge operating deficit. Higher water tariff will help in full-cost recovery. Increases in water tariffs will allow for higher lease payments by the state water operators to Pengurusan Aset Air Bhd (PAAB), who is tasked to fund the capex requirements.
When we shift our attention on global water tariffs, we realized that Malaysia water tariffs are standing at the lowest among our ASEAN peers. According to Maybank IB Research, Malaysia’s average water tariff stands at 24 US cents (77 sen) per cubic metre, compared to Singapore at US$1.68 (RM5.40) per cubic metre and Thailand at 27 US cents (87 sen) per cubic metre.
We can ignore Singapore in this comparison as the comparison may not be meaningful due to the higher living cost and the environmental context of singapore.
However, when we compare Malaysia and Thailand, the price difference is sending us a message that we have a 10% to 20% room of hiking for the Minister of Water, Land and Natural Resources to consider.
4) How was BTECH doing financially?
BTECH has been performing consistently in terms of their profitability over the past years due to their persistent revenue line which was driven mainly from their water treatment business. (2018: 86.36% vs 2017: 83.85%).
For YoY profitability, BTECH had registered a net profit of RM4.15 million in FY18 compared to RM4.00 million in FY17 which shows an improvement margin of 3.3% as bulk of their earnings were derived from the works of water and wastewater treatment chemicals.
With consistent revenue-line staying forefront, BTECH also shows an efficient credit management on maintaining a low gearing ratio of 0.28x and 0.15x in FY18 and FY17 respectively.
Overall, BTECH has been managing their balance sheet conservatively. With its stable business model intact, BTECH’s earning visibility could potentially grow in future with the recent development announcement of water treatment plant expansion by the government. Orderbook expansion for BTECH could be their earnings catalyst for FY2019 to push beyond its revenue line with greater margin in hand.
5) Constant Dividend Yield of More Than 5%
BTECH had committed to a constant dividend policy. By announcing total dividend of RM0.016 cent for FY2018 and FY2017 which represents an attractive Dividend Yield of 6.81% and 5.52% in FY2018 and FY2017 based on its low share price, the dividend payouts link with the stable business model of the company.
6) Valuation
We are projecting a 3-year net profit CAGR of 10% to RM 5.52 in FY2021, taking into account of higher water tarrif hike. BTECH could be valued at RM0.44 assuming 22x P/E on 2021 EPS. We believe the stock deserve to trade at a premium over its peers (taliworks P/E 20x), given its outstanding balance sheet and better flexibility to react in the water industry restructuring due to its small business size.
2018
|
2017
|
2018 vs 2017
|
|
RM’000
|
RM’000
|
Variance (%)
|
|
| Revenue |
26,611
|
25,760
|
3.30%
|
| GP |
5,172
|
4,706
|
9.90%
|
| PBT |
5,928
|
5,513
|
7.53%
|
| PAT |
4,152
|
3,996
|
3.90%
|
| EBITDA |
6,623
|
6,783
|
-2.36%
|
| Basic/Diluted EPS (sen) |
1.66
|
1.58
|
5.06%
|
| GP margin |
19.44%
|
18.27%
|
1.17%
|
| PBT margin |
22.28%
|
21.40%
|
0.88%
|
| PAT margin |
15.60%
|
15.51%
|
0.09%
|
| EBITDA margin |
24.89%
|
26.33%
|
-1.44%
|
| Key Financial Ratios | |||
| Current Ratio (times) |
5.26
|
4.73
|
11.21%
|
| Gearing Ratio (times) |
0.28
|
0.15
|
86.67%
|
| ROE(%) |
7.18%
|
7.21%
|
-0.03%
|
| ROA(%) |
5.16%
|
5.77%
|
-0.61%
|
| Dividend Yield (%) |
6.81%
|
5.52%
|
1.29%
|
|
|
