TECFAST (0084) – A Fund Manager’s Favourite!
Recently, a fund manager friend of mine told me that he had identified this interesting company named after TECFAST. He told me that TECFAST, as long as you are buying below 50 cents, you are almost guaranteed to make money!
However, being a prudent investor myself, I had decided to have a look on the company’s background first before deploying my capital into the company. What I found was “interesting”, the company was trading at 75.37 times PER and only 2.53% dividend yield. So what’s so special about TECFAST?
I was going to give up looking further into the company.
But wait. Is my fund manager stupid? No. I believe someone who manages over 500 million of a fund size couldn’t be this ignorant, hence, I decided to study deeper into the company. From what I see, TECFAST’s stock price movement in the past week has been truly “interesting”.
As you can see, upon announcing a share split of 1 to 1 and cash call with rights issue, the company’s share price tanked as low as 30.5 cents. However, within a week’s time, the company had rebounded strongly and rewarded daredevils more than 30% in ROI. So how does the story go, and why is it safe to buy below 50 cents? And the most important question – are there still potential upside in TECFAST?
Background Story
TECFAST is principally involved in the provision of management services. The company’s subsidiaries are involved in manufacturing of self-clinching fasteners, electronic hardware, precision turned parts, mould cleaning rubber sheets and LED epoxy encapsulant materials. The company also had some small businesses in double end standoffs, hex jack screws, captive panel screws and turn parts.
As you may have already know, these products are mainly used in the electrical and electronics sector – and they are not for advanced consumer electronics. Hence, the demand for the company’s product has been decreasing, not to mention there are aggressive China man coming into Malaysia to tackle the market share. It is not a wonder why TECFAST’s financials are backing off.
Just for your reference, TECFAST’s profit is approximately 3.9 million in financial year 2018, and had decreased to 2.1 million in the latest 4 trailing quarter. The profit margin had decreased significantly from 13.08% to 6.27%.
Fortunately, the management are fully aware of the challenges they are in and are proposing to dispose 2 of their subsidiaries in exchange for cash.
But what comes next after their disposal?
Turning Point
The truly interesting part about TECFAST is the changing of core business from manufacturing supplementary items for the E&E sector to oil bunkering business. So what is oil bunkering, and how is it lucrative?
Let me ask you this question. Had you ever imagined how offshore freights, ships or vessels receive their fuel? Is it only through ports, where they need to reach the ports in order to get fuels? I believe this statement is not realistic – what would happen if they run out of fuel in the middle of the ocean? And how about offshore vessels that are required to float in certain area for crude oil offtaking? This, is where oil bunkering comes into the picture (no pun intended).
As you can see, oil bunkering is crucial for offshore logistics throughout their business time. This is especially true when IMO 2020 forced all freights, ships or vessels to apprehend to the sulphur cap of the fuel they consume – where it decreased significantly from 3.5% content of sulphur to 0.5%. This had resulted in a shift of focus on the oil bunkering business.
Historically, these ships are using cheap but high sulphur content oil as a source of fuel. However, it was very damaging to the environment, and hence the capping on the sulphur.
On 15th March 2021, the company had received a major contract of up to 2.2 billion to supply bunker oil to Wise Marine in Singapore. If you had the time, you may go through the note as it will specifically tell you that TECFAST – after acquiring 35% stakes in CCK Petroleum – would supply mainly low sulphur content oil to the market.
Booming Demand
On 23rd April 2021, the star of gloves – Walter Aw from CGS-CIMB issued a buy call report on FREIGHT titled “All Aboard!”.
In the report, he mentioned that the demand for freight services, or maritime activities would see a spike in the next 1 – 2 years. Do you know what does this mean to TECFAST?
High maritime activities = more fuel consumed = more fuel demand = higher revenue for TECFAST!
Ultimately, the current busy offshore activities would benefit TECFAST. Even without the current ultra-high demand, just take a simple calculation on the profit TECFAST would receive from the 2.2 billion contract! Let’s take the assumption where the contract last for 3 years and profit margin would be 5%.
2.2 billion * 0.35 (35% stake in CCK Petroleum) * 0.333 (3 years of contract) * 0.05 (5% profit margin) = 12.8 million in net profit
The 12.8 million in net profit is calculated excluding the recent 540 million contract the company receive as well as other profits from their E&E business and profit of oil bunkering business with other clients. By using a conservative PER of 15 times, the company should at least worth 48.5 cents – more or less equal to what my fund manager told me!
If
you had missed your opportunity on FREIGHT, this is the next gem in the
pipeline. Double consider it, before you missed out another limit up
opportunity!
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