(NEW COVERAGE) Giant Leap For a Small Malaysia Company with Huge Potential
Country and market: Malaysia (MK), Emerging market
Industry/sector:
Current price: 0.12 (MK)
Target price: 0.545 (MK)
Upside potential: 350%
Risk: Low to Medium
Initiative coverage on Hiap Huat Holdings Corporation (0160, HHHCorp) with BUY at target price of 0.545 (MK) based on 15x Year 2017 EPS, representing an upside potential of 350%. 15x Price Earnings ratio is applied due to multi year growth in the industry the company operates.
Company background
The company is specialized in producing a wide range of lubricants for both consumer and industrial use. Lubricating oil product are design to deliver excellent and reliable performance for passenger vehicle, commercial vehicle and industrial machinery. Lubricants are designed to maximize your equipment efficiency and reduce down time. The company's own in-house brand of lubricants includes Top Up, and AF1.
Being specialize in the petroleum industry, the company is well verse in producing some of the most quality petrochemical product in the market. Utilizing state of the art facilities, the company is able to produce high purity of petrochemical for both industrial and commercial use.
Research outlook and industry focus
Our in house research reports that the company's potential is under appreciated by investors due to lack of research coverage.
We continue to believe that investors had overlooked on the company's multi year triple digit growth potential, based on the company's aggresive financial turnaround plan in a multi year growth industry of Waste to Energy (WTE) market.
According to research by Global Market Insights, the WTE Market size is expected to reach USD 35.5 billion by 2024.
Depleting fossil fuel along with the correction in crude oil prices is anticipated to fuel the need for finding petroleum substitutes for power generation. Furthermore, rigorous research activities towards technological development for power generation by substituting natural gas, oil, and coal is enduring, which in turn is anticipated to lay massive environmental benefits and technical feasibility to catalyze the waste to energy market growth from 2016 to 2024.
The company is poised to benefit from the world wide industry growth. The company reported a massive financial turnaround in its last two quarterly financial results consecutively, a YoY increase of 677% and 180% in both 3Q and 4Q results. We strongly expect the company to repeat its triple digit growth in the upcoming 1Q17 results.
Financial projection
Based on channel checks and our in house research calculation, we expect the company to report a profit of 2.3million (MK) in 1Q17 results and full year 2017 profit of 12.1million (MK). We forecast profit to double in 2018 as we gather that the company is in the midst of negotiation of
We believe this is achievable, owing to the factors:
a.) Securing large recurring orders from main and new customers over the last two quarters will propel multi year triple digits earnings growth.
b.) State of the art petrochemical recovery and refining facilities that secured large orders from recurring main customers.
c.) Capitalizing on multi year growth in worldwide petrochemical industry.
d.) Dominant position due to high market share of 53%.
e.) High barrier of entry of other players, due to high entry cost.
f.) High favorable tax regime in the industry that the company operates in allows for the company to capitalise on tax incentives and credits.
g.) Possible windfall one off gain from monetization of online automobile network platform, Auto360.my, estimated to be worth 29.3million (MK), is a bonus.
Conclusion
BUY at target price of 0.545 (MK) based on 15x Year 2017 EPS, representing an upside potential of 350%. 15x Price Earnings ratio is applied due to multi year growth in the industry the company operates.
http://klse.i3investor.com/blogs/chinteck/119520.jsp
