My Latest Value Investing Stock Pick – TECFAST (0084)
In order to be successful in stock investment, one must always be the friend of the trend. So the one question I always have in mind is – what is the next trend in the market? Based on my observation, recently shipping themed counters have some movement or accumulation activities on their shares. Company such as MAYBULK might see a huge turnaround in earnings due to market prices in Supramax and Panamax charter rates had recovered strongly.
The last time that this happens would be in the year of 2007 to 2009, where charter rates has broken through the roof – now coupled with another blockage in Suez Canal, I believe demand for container and dry bulk shipping would spike even further, and so would company’s earnings!
A simpler translation to the said matter is – E&E sector’s shipping activities or maritime activities is booming, and earnings would follow soon. I suspect the Dry Bulk shipping rates could recover to at least 50% - 60% of 2007 – 2008’s peak following the supply strain of vessels. But let’s be realistic, the share price of MAYBULK and TASCO had already moved quite substantially and finding a good chance to enter is difficult.
Note: Price movement chart for MAYBULK.
Note: Price movement chart for MAYBULK.
As an investor, we must always think one step ahead of the general market. Who are the beneficiaries of huge heavy shipping activities apart from ports, which we do not have strong counters in Malaysia? Once again, the answer don’t have to be complex, it would be:
Supplier of fuels for these shipping giants – Marine Gas Oil.
The latest IMO 2020 sulphur cap requires shipowners to reduce the maximum sulphur contents in the fuels from 3.5% to 0.5%, which are mainly Low Sulphur Fuel Oil (LSFO) that would be in demand for them. Traditionally, this industry has been using “dirty” and cheap, but environmental damaging illegal oil. Now shipowners or operators are left with 2 choices:
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Purchase LSFO with approximately USD 500 per MT, which is on average 60% - 70% more expensive than High Sulphur Fuel Oil (HSFO).
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Install capital extensive exhaust gas system.
Seeing how busy the shipping industry is currently, I believe these vessels do not have the leisure to stop and install an exhaust gas system to comply with the IMO sulphur capping. The easier solution around would be purchase LSFO straight and achieve the 0.5% capping easily.
What is so special about TECFAST then? Well, TECFAST had recently announced to acquire 35.0% stakes in an oil bunkering company. I’m amazed by the foresight of the management to venture into this sector even before the Suez Canal incident, which is prone to happen every time when vessels are highly loaded into the most important route in the world, where 15% of maritime activities would need to use this passage.
Following the acquisition, a wholly owned subsidiary of TECFAST had also received a MGO supply agreement from one of the industry giants in Singapore – Wise Marine Pte. Ltd. The contract sum was RM 2,222,856,000.00. To be fair, the contract would not contribute fully onto TECFAST’s revenue and most likely would be recognized under a share of associate profit. Historically, the industry was seeing a acceptable margin for costs-plus business model of 2 – 3% net margin. Now, due to the high demand for LSFO, the price gap had increased substantially.
As for now, the LSFO would be easily enjoying a premium over high sulphur contain oil. I believe the net margin would increase to 4% - 6% (double) easily based on the current global increase in demand!
Do note that in Bursa Malaysia, the only direct peer for TECFAST would be STRAITS. In my opinion STRAITS do not have huge contract on hand for now – comparatively with TECFAST who had 2.2 Billion worth of contract on hand, I think the winner is clear in this case.
*Note: Price movement chart for TECFAST.
By studying the chart pattern of TECFAST, one could easily tell it was on a downtrend, right? But that might not be the case. For value investor like me, I’m looking at market mispricing on value and price. Imagine this – TECFAST’s share price is performing even worse prior to the announcement. What on earth is wrong with the market?
I can only say so much on the share price movement. However, from multiple angles of studying TECFAST, this company is definitely a solid “BUY” for its current undervalued price of RM 0.405 per share!
https://klse.i3investor.com/blogs/valuefinder2021/2021-04-12-story-h1563277758-My_Latest_Value_Investing_Stock_Pick_TECFAST_0084.jsp
