Developments since our last update on 25 January 2015 (link)
Our Views
The profit after tax of RM69.3 million is largely due to a one-time gain from the sale of its security seals business. As ABRIC is currently a cash company (PN16), the profit recorded from this sale is immaterial going forward.
Based on the latest announced balance sheet, the Company has cash of RM126.1 million. Adjusting for dividend payments of RM42.1 million, full proceeds from warrant conversion of RM13.8 million (RM1.1 million had been recognised as at balance sheet date), and conservatively subtracting all borrowings of RM8.1 million and payables of RM14.8 mil, net cash is around RM74.8 million or RM0.50 per share, substantially the same as we previously estimated. Revised NAV estimate is slightly lower at RM 0.62.
Note that some variations in subsequent quarters to these two estimates are to be expected due to ongoing corporate expenses, rental and interest income.
As for Pui, we do not wish to speculate on his intentions. However, we note that with him holding a 18.4% stake in ABRIC and stepping up his interests rapidly, any future use of the company's large cash reserves such as for an acquisition may eventually require his buy-in. For comparison, the controlling Ong Family holds around 35% of ABRIC's total outstanding shares.
Recommendation
At the closing price of RM0.505 on 19 March 2015, ABRIC's share price is already up by 25% since our first report 2.5 months ago, adjusted for the special dividend of RM0.30. While the margin of safety at this level is considerably lower than at RM0.405, we still see ABRIC as a low risk value play. We expect good support at its net cash level of RM0.50. Further upside will depend very much on what happens over the next 9 months. If ABRIC does not acquire a new business within this period, shareholders will likely be returned an amount close to its estimated NAV of RM0.62. Any potential acquisition could boost the returns even more.
- On 27 February 2015, ABRIC announced that it had recorded a profit after tax of RM69.3 million for the FY ended 31 December 2014.
- Substantial shareholder, Pui Cheng Wui, has been steadily increasing his stake through open market purchases. As at 13 March 2015, Pui owned about 18.4% of ABRIC's total outstanding shares, almost doubling his stake in 2 months.
Our Views
The profit after tax of RM69.3 million is largely due to a one-time gain from the sale of its security seals business. As ABRIC is currently a cash company (PN16), the profit recorded from this sale is immaterial going forward.
Based on the latest announced balance sheet, the Company has cash of RM126.1 million. Adjusting for dividend payments of RM42.1 million, full proceeds from warrant conversion of RM13.8 million (RM1.1 million had been recognised as at balance sheet date), and conservatively subtracting all borrowings of RM8.1 million and payables of RM14.8 mil, net cash is around RM74.8 million or RM0.50 per share, substantially the same as we previously estimated. Revised NAV estimate is slightly lower at RM 0.62.
Note that some variations in subsequent quarters to these two estimates are to be expected due to ongoing corporate expenses, rental and interest income.
As for Pui, we do not wish to speculate on his intentions. However, we note that with him holding a 18.4% stake in ABRIC and stepping up his interests rapidly, any future use of the company's large cash reserves such as for an acquisition may eventually require his buy-in. For comparison, the controlling Ong Family holds around 35% of ABRIC's total outstanding shares.
Recommendation
At the closing price of RM0.505 on 19 March 2015, ABRIC's share price is already up by 25% since our first report 2.5 months ago, adjusted for the special dividend of RM0.30. While the margin of safety at this level is considerably lower than at RM0.405, we still see ABRIC as a low risk value play. We expect good support at its net cash level of RM0.50. Further upside will depend very much on what happens over the next 9 months. If ABRIC does not acquire a new business within this period, shareholders will likely be returned an amount close to its estimated NAV of RM0.62. Any potential acquisition could boost the returns even more.
Figure 1: ABRIC's share price has gone up by 25% since our first report was released.
RSS Feed