AEM (7146) - Can this company fly up like Connect ?

KLSE:AEM

AEM (7146) - Can this company fly up like Connect ?

Although quite a lot of shares had already gave their last final pushes during the bull market, there are still some companies that had yet to see movement in their share price. As for the latest market trend, we can see a lot of pennies stock being ramp up into the sky. I can refer you to stock like Anzo (previously known as Harvest) being heavily ramp up until over 50 cents, and of course not to mention that the Alibaba theme had cause massive price spike in smallish technology company as well.

In a whole, pennies stock are targeted, and still being targeted. Some went up with solid reason, some went up with a little bit of reason, and some went up without knowing what is the reason at all.

But in the big sea of penny stocks, I would think that this particular stock could be worth a mention at the current level.

This little known company is actually involved in electronic manufacturing, particularly in the PCB (printed circuit board) segment. However, due to volatile business environment, challenging outlook and improvement of technology, it is very costly to keep up with the latest equipment. Because of this, this company had taken the road to diversify into asset that generate long term recurring income, which they had identified through renewable energy.

Actually, if you had been following closely with my recommendation, you would recognized that I had took mentioned on Gunung Capital Berhad (Gunung - 7676) when it is still trending below the 40 cents region in November 2016. Gunung will be one of the major player in the renewable energy sector in Perak through mini hydro electric.

Now this company which is smaller in size will be looking to be involved in the flood mitigation and hydro electric program in Kelantan. This company is call AE Multi Holdings Berhad (AEM - 7146).
In regards to this, I would need to tell you that AEM had on June 2016 put up a HOA to invest in JMT Kelantan Baru Sdn Bhd which is granted by SEDA for 2 x 10MW integrated flood mitigation mini hydro power plant in Kelantan from Joh Labok and Temangan in Machang, Kelantan. (Source - The Star)

Based on normal projection, a 10MW mini hydro power plant at can generate around RM 10 million in revenue for 1 year, based on the FIT rate of 25 cents per kWh for mini hydro up to 10MW. Since AEM is going for 2 x 10 MW mini hydro, that will be around RM 20 million per annum once in full operation mode. However, the condition of the investment is that AEM will only be able to entitle for 80% of the revenue generated from the REPPA.

But what took my interest in looking into AEM is the investment amount. Normally, a 10 MW hydro plant will cost approximately RM 100 million. For this case, AEM is only looking to invest RM 140 million in order to get 2 x 10MW mini hydro plant running. Comparing to industry, a 20 MW hydro power plant will need RM 200 million, and for AEM case, this is almost RM 60 million cheaper, while getting the same FIT price.

Technically speaking, a RM 140 million investment would probably see a 14 MW. Since AEM is getting 80% out of the total 20 MW, we are speaking AEM will get income from 16 MW ( 80% x 20MW), which is worth RM 160 million in initial capital investment on the assets.

As of now, there are still several condition precedent that need to be met out. According to findings, most of the condition from JMT had already been met out, and the pending will only be at AEM side to be met out, which include the financing of the activities.

Although there had been some extension towards the execution of the HOA, the progress is so far encouraging, as AEM had also formed out subsidiary company (AE Resources Energy) with intention to deal with renewable energy in October 2016.

One of the most notable changes in shareholder is the sudden emergence of Mr Chang Choon Ming with more than 10% stake in AEM.

Based on latest reported buy in, Mr Chang had acquired 1.4 million shares at the average price of RM 0.19 in October 2016.

So for now, you could be wondering who is this Mr Chang Choon Ming ? Now I will help you to solve your answer by a little bit.

According to Focus Malaysia, this low profile businessman had been actively buying in huge stake into several other companies as well, namely Connectcounty Holdings Berhad (Connect - 0102) and Tdex. And as you can see below, Connect saw a huge share price appreciation since his buy in. Now I wonder what magic can happen to AEM with his magical touch.

On AEM business wise, the improving sentiment in the PCB sector should be encouraging enough for the company to see a better year ahead. Currently, AEM enjoy around 20% of gross profit margin from their PCB. The successful diversification into the renewable energy sector will be able to put AEM into some long term investor focus again due to it's steady recurring income for the next 21 years.

Now since AEM is at RM 0.17, personally, I would think that if you are up for a little bit of risk, probably this penny stock is one of the penny stock that can be going up with some substantial facts and development in it.

Of course, I had to informed you that the risk into investing in AEM can possible turn sour if the condition precedent failed to be met between the two.

But since Mr Chang Choon Ming had buy in into this company and had been seen increasing his stake, director subscribing to ESOS, and corporate exercises such as private placement are in place, I believe that the deal is very favorable to go through.

Now with Mr Chang Choon Ming, it is your decision again to think if AEM is able to perform like how Connect did or not.

AEM (7146) - Can this company fly up like Connect ? 
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