KFM (8303) : November Highlight - KFM - A New Season

November Highlight - KFM - A New Season 

KFM (8303) : KUANTAN FLOUR MILLS BHD

The global equity sentiment had taken another solid step after seeing a series of encouraging economic data from the US and a huge 80 trillion yen (USD 726billion) monetary easing from Japan. With the European Zone likely to announce the European stimulus in the coming days, the bears are likely to see no chance for the coming period of time. On the Halloween Friday, DJIA climbed another 195 points to end at a record high of 17390.52 while S&P 500 conquer above the 2000 mark, putting a notch at 2018 points as Nasdaq took a foothold at 4630.

With the bullish state of economy, the equity market confidence is back stronger now after seeing the previous plunge as a correction in the midst of a bullish run. While most of the company are going to report in their 3rd quarter earnings, it is definitely another interesting journey to hunt on company with on going corporate development, for this month - Kuantan Flour Mills (KFM - 8303)

Am I going to talk about Flour market? Let's see.

Let's have a quick look at the latest price chart of KFM.

KFM had recently saw some noticeable volume with more than 8m shares exchanging hand in a single day back then in the period of March to April 2014. However, KFM had took a 6 months consolidation which had saw a lower transacted volume during that period. As the consolidation came to a saturation, KFM is now on the way to test the new heights in the coming days. A quick resistant at RM 0.60, once broken, will see KFM trading into the uncharted territory.


KFM - A Brewing Season

KFM had been involved in the manufacturing, milling and trading of flour products. However, due to the intense competition in the flour market due to the product being a controlled item by the government, KFM will need to look out of the box for the on going prospect of the company in the future. KFM, currently a listed company with a market capitalization of RM 31 million with 67,229,084 shares and 21,299,926 warrants with almost no noticeable long term debts notes in the company balance sheet could be just another interesting target that is being eyed upon from tycoon to make a quick debut into the listed market.


The emergence of Dennis Tow Jun Fye as one of the substantial shareholder in KFM with 9.251 million shares (14.2%) is a confirmation that will see KFM looking to expand into other sector in the coming days. Dennis Tow Jun Fye is the son of Mr Tow Kong Liang (right inset), who owns and operate the well known Seasons Apartment Hotel Group under the listed entity IEQ which is listed in the Australian Stock Exchange.

Mr Dennis Tow Jun Fye, young and vibrant graduate from Deakin University with a bachelor degree majoring accounting and finance, he currently held various directorship and senior management position in Seasons Apartment Hotel Group and IEQ (International Equities Corporation Ltd).

With the latest stint of open market purchases of KFM shares, Dennis Tow had certainly ready to bring his expertise of property development and hotel management into KFM.


Brewing the Warrants
The latest conversion of KFM-WA warrant with an exercise price of RM 0.51 had put the game into an even exciting manner.

The massive conversion of the warrant (Currently 2,082,500 warrants converted) with an exercise price of RM 0.51 with an average purchase price of RM 0.125 on the warrants had put a total acquisition cost of RM 0.635 for KFM mother share, which is around 25% premium from the market price of the mother share.

To recap, KFM had earlier noted that the company will be placing out 10% of the total issued share for private placement in a Fund Raising Exercise. In order to get the maximum effect of the 10% private placement, KFM must increase it's total shares issued through the conversion of the warrants. Should all the warrants be converted, KFM will be able to place out 10% private placement based on 88,529,010 issued shares, which will be issuing 8,852,900 of private placement shares, enabling the company to raise more fund with more shares issued.

Now, one might be wondering what will be the fund raising activities lead to in the coming days? To expand their current business dealing with flour, or a new business direction in the coming days?

According the the prospectus of the private placement, KFM will be changing their business direction and to be largely dependent on it's future corporate exercise which will include the undertaking of new potential business venture.

The emergence of the Tow family member (Dennis Tow) in the KFM shareholding is going to earmark KFM into future business prospectus which will be looking at
- Property Development
- Hotel Operation and Management

Apparently, IEQ had recently saw some activities in their recent share price which had jump more than 400%, putting the possibilities of IEQ joint venture with KFM into property development and or hotel operation and management.

The Upcoming Event

KFM will be going to conclude and finalize the fund size to be raised, and hence will be putting a price tag for the private placement.

According to familiar sources, KFM will be looking to raise around RM 7million, which will be looking to see the group acquiring new assets and also to strengthen the balance sheet in order to secure a bigger financial lending in the coming days.

Should KFM be looking to raise RM 7 million from the maximum placement of 8,852,900 shares, KFM private placement will be going to see at least RM 0.80 in order to reflect the fund raising amount.

Private placement price = RM 7,000,000 / 8,852,900 shares
                                          = RM 0.79



I believe KFM will be a very interesting company to look at in the coming days with more corporate exercise that is to be unfolding soon. With the bullish sentiment, entry of strategic shareholder, KFM will be worth to be invested for a medium to long term based on :
- Emergence of Dennis Tow Jun Fye as substantial shareholder in KFM, which is related to the famous and well known Seasons Apartment Hotel Group in Australia
-  Massive conversion of KFM-WA with exercise price of RM 0.51, and average collection cost of RM 0.125, putting up the insider accumulation price at RM 0.635
- KFM indicated for a change in business direction in the coming future
- Familiar sources indicating KFM to be looking to raise RM 7 million for new asset purchase and reinforcing the balance sheet, hence reworking to a placement price of approx RM 0.80.


Limit with KFM ? You decide!
Bone's short term TP: RM 0.80 (Potential Limit Up)

Cheers and have a nice day.

Regards,
Bone

Bonescythe Stock Watch
 http://bonescythe.blogspot.com