KUB share price had been a great roller coaster from the past 7 years, with the lowest point of RM 0.20 to a high of RM 1.30. Back then, KUB had been very reliant on government infra and constructions projects. However, things had taken to a change when KUB had started to realign the group focus into growing it's agriculture sector, which is the covers from the cultivation of palm oil tree to the processing of the palm oil.
While CPO is set to return back to the economical profitable range, what could be there for KUB in the coming days?
KUB had been actively traded in the 2Q of 2014, starting from 40 cents to a high note of 64 cents in July 2014. However, due to the broad weak market sentiment, KUB had shed off the gains and consolidate at the range of RM 0.38 to RM 0.46 in a lower volume. The consolidation effort is seemingly looking to see saturation, and KUB could be poising above towards challenging above RM 0.46 after a stronger 1st Quarter FYE 2015 release, which feature and EPS of 1.87 cents.
Trending with the El Nino
KUB had a wide perception from the public that the company is mainly involved in the engineering and construction sector. In fact, according to the latest report (2014 Annual Report), the company derived it's strongest profit from the agriculture sector (Palm Oil), with a PBT of RM 15.8 million at the back of a revenue of RM 40.7m, despite a roller coaster CPO prices during the year 2014. With this in line, we can see that KUB is having a 39% profit margin from it's plantation operations.
The recent El Nino effect which had been gradually threatening a lower Palm Oil output had been a turn around game for the CPO prices.
According to the technical reading of the CPO chart, the FCPO had started to break out from a 10 months consolidation range which had been trading around 2100 to 2250. The price break out towards 2350 will mark a bullish journey for the FCPO in the coming days.
To support the view, the FBMPalmOil is seen hitting the long term support line of 17580. The initial rebound that had started could signal a good start for the plantation sector in the coming days.
KUB currently had palm oil plantation in Johor and Sarawak, totaling approximately 8000 hectares of plantation land.
One of the Cheapest Entry for a Palm Oil Mill operator
As KUB had not been classified under the plantation sector, it will be easily miss out for the traders and investor. In fact, KUB will be looking set to put into operation of their new Palm Oil Mill in the coming 3rd to 4th Quarter of 2015. The new 45 metric tonne per hour FFB palm oil mill will be looking set to generate an additional RM 130million of turnover per annum for the agriculture sector of KUB. At the current pace, the mill is already in it's 70% completion.
Based on the current high operation profit margin in their plantation division, should KUB be able to reap 30% from the RM 130million annual turnover, that will translate to an additional PBT of RM 39 million in the bag, or 7 cents of EPS before tax.
The palm oil mill will be situated in Sarawak, as KUB will continue it's plantation expansion in the East Malaysia, with much focus in the Sarawak. KUB had allocated a total of RM 48 million as capex for the expansion as the group had identified a few areas in Sarawak and will boost it's plantation land to more than 10,000 hectares in the coming 2 years.
Top and Bottom Restructuring
KUB had went through a series of restructuring, which include the newly appointed CEO, Dato Zainal Abidin Salleh on April 2014. Under the lead of Dato Zainal, the group had started to see restructuring in it's F&B outlets as well as it's PEC division. A&W which had been swimming on red inks had finally took a turnaround in FYE 2014 to put in a profit before tax of RM 76,000.00.
The PEC sector had also managed to reduce it's losses from RM 14.5million in FYE 2013 to RM 7.4 million in FYE 2014. The group had also took a takeover exercise on KUB Precast Sdn Bhd and returned the subsidiary operation to the black. The PEC division is eying several infra projects in Johor, which is specifically on the power sub station in the fast growing industrial of Johor.
Beside this, KUB will also be adding in more cash flow from it's on going sale for it's office in Oasis Square, Ara Damansara. KUB will be looking to beef up it's cash flow by RM 25 million in the coming quarters after the completion of the on going sales process.
While KUB doesn't adopt a scheduled revaluation policy, some of it's land and property are still carrying old school valuation, with the oldest carrying a value based on the year of 1988 for a 143,609sf freehold plant in Tebrau, Johor that with a book value of only RM 953,000.
Summary
KUB had nothing to hide, but everything to show in it's coming quarter results. With the on going asset disposal, improving CPO price and the commissioning of the oil palm mill in 2015, we would be able to see a higher EPS of probably 8 to 10 cents for FYE 2015, which can be translate to a price of 60 cents based on EPS 10 x PER 10. The coming company share buy back process will also help to enhance the value of the company to the shareholders. KUB should be a good long term haul with a possible target of RM 1.00 in the future.
Show down on KUB? You decide
Bone's short term TP: RM 0.60
Cheers and have a nice day
Regards,
Bone
KUB (6874) - June Special on KUB - Nothing To Hide
http://bonescythe.blogspot.com/
