Hi to all fellow investors and traders !
Today I would like to share my thoughts the following counter:
EG INDUSTRIES BHD or EG (Code 8907, MAIN Market, Industrial Products & Services, Food & Beverage)
EG - UNDERVALUED STOCK - FOR THOSE BARGAIN HUNTERS (EPF A SHAREHOLDER) !!!
1. EPF As A Substantial Shareholder As of 2019 Annual Report - 10.023 Million Shares (3.89%)
Below is the list of 30 largest shareholders as at 24th October 2019 (taken from Annual Report 2019).
As we can see, EPF is one of the major shareholder holding 10.023
million shares or 3.89%. I believe EPF made an investment into this
company, due to its long term profitability potential and asset
positioning in Malaysia.
EG operates mainly in Kedah, Penang.
2. Stock Price Is Way Below Its NTA of RM 1.33 & Low P/E Ratio At 6.3X
Below is the latest quarter result summary of EG. A few observations:
i. Revenue has been consistent since last 3 quarters at RM 277 - 284 million per quarter
ii. Net profit ranged between RM 1.7 - 3.8 mil in the last 4 quarters
iii. NTA value stood between RM 1.25 - 1.33 in the past 4 quarters. The
current closing price of 29c, is way below its NTA value of RM 1.33 as
of latest quarter. Longer term investors might be looking for such a
bargain in the market.
iv. Current 2 quarter Earnings Per Share (EPS) stood at 2.3c. If this
performance is maintained for the following 2 quarters, the full year
EPS will stand at 4.6c. This means that the current closing price of
29c, is only a 6.3X PE Ratio for this company. Considering a company in
manufacturing sector, this is quite low as compared to a few peers below
in same category:
BOILERM, P/E RATIO 10
DANCO, P/E RATIO 9.7
FPGROUP, P/E RATIO 29
3. Prospects Which Might Boost Earnings In Upcoming Quarters As Commented by The Board
As mentioned in the Annual Report 2019 and Latest February 2020 Quarter
Report (links provided below), the below prospects of the company look
promising:
i. Group anticipates global electronic manufacturing services to
continue to shift out from China to South East Asia (the effect from
US-China trade war). Thus factory expansion Malaysia will be ongoing as
the Group had received more enquiries from several multinational
companies and several new projects successfully launched in 2019
ii. The newly-acquired land and factory is the Group's first fully
automated manufacturing facilities has commenced operations in November
2019, enabling the Group to take on more jobs and expected to contribute
positively in coming quarters
iii. Group will continue its effort towards adoption of Industry 4.0
and factory automation to improve its overall cost-efficiency, quality
and reduce reliance in human labor
iv. Group to continue to enhance product mix to focus on high margin
operations and constantly look for ways to enhance production efficiency
v. Group will target more on medical and automotive industry, as these 2
industries are seen to continue rapid phase of growth in technology.
These 2 industries will be relying heavily on Internet of Things (IoT)
in the future. Group will actively engage sector players, to offer high
quality standards and broad range of solutions.
February 2020 Quarter Report link:
https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=208808&name=EA_FR_ATTACHMENTS
2019 Annual Report link:
4. TECHNICAL ANALYSIS - Trading At Historical Low Price, With Sellers Volume Diminishing
Let's take a look at the monthly chart of EG:
A few observations below:
i) EG is now trading at historically low prices since its listing. The
previous historical low was 32.5c, during the 2008 financial crisis. It
seems the selling has been overdone, considering the strength in company
revenue and prospects, coupled with improving economic conditions, do
not indicate that we are in any financial crisis
ii) Stock is now trading at lower BB, indicating a bargain hunting opportunity for long term investors
iii) Selling volume is diminishing, and buyers are rejecting lower prices
iv) RSI and stochastics also indicating oversold positions
Let's take a look at the daily chart:
A few observations:
i) Stock touched a low of 28.5c and refused to drop further. Volumes of buyers are starting to support it
ii) Stochastic and RSI indicating oversold condition
iii) Volume of sellers are diminishing
5. Lower Entry to EG via EG-Warrant C (EG-WC)
For investors with lower capital, may consider entry into the company warrants.
Let's take a look at profile of EG-WC:
A few observations:
i) Maturity in November 2020, another 8 months to go till expiry
ii) Strike price of 42c, which is considerably ok considering the amount of time left until expiry
iii) Premium of 55%
If we look at the mother share price, EMA14 is at 40 cents. Should the
mother shares see rebound in price soon, the warrants will also see
potential gain of price as there is sufficient time for price
appreciation and the strike price is reasonably within the range of
achievement within 8 months.
CONCLUSION
Based on my opinion, I believe EG is undervalued and should be given attention, based on below:
i. EPF as a substantial shareholder in EG at 10 million shares (3.89%)
ii. Stock trading way below its NTA of RM 1.33 and Low P/E Ratio at 6.3X
iii. Prospects Mentioned by The Board On Improvement of Earnings In Coming Quarters
iv. Chart Shows Buyers Rejecting Lower Prices, And Stock Is In Oversold Condition
Thanks for reading and see you in the next post.
THE ABOVE IS NOT A BUY OR SELL CALL AND IS ONLY A PERSONAL OPINION ARTICLE AS A SHARING TO BSKL COMMUNITY MEMBERS.
Yours Truly,
INVESTHOR
https://klse.i3investor.com/blogs/InvesthorsHammer/2020-03-03-story-h1484688911-UNDERVALUED_STOCK_FOR_BARGAIN_HUNTERS_EPF_A_SHAREHOLDER.jsp
https://klse.i3investor.com/blogs/InvesthorsHammer/2020-03-03-story-h1484688911-UNDERVALUED_STOCK_FOR_BARGAIN_HUNTERS_EPF_A_SHAREHOLDER.jsp
