LNG Resources

Talking about Mesdaq Counter which has consistent profit earning , high dividend and also low PE, LNG Resources will be one of them.

LNG Resources is a company that involve in precision engineering ( design & manufacture of high precision moulds, tools and dies - connectors) and plastic injection ( precision engineering plastic injection mouldings & sub assembly)

They manufacture precision moulds, tools, dies, jigs and fixtures for the semiconductor , electronics & electricals, computers and peripherals and telecommunication industries.

What attracts your view is not on the field they in, but on the profit earnings that consistent grow since their listed in 2003. Net Sales grow from year 2003 15millions to year 2006 27.76millions while net profit grow from year 2003 4millions to year 2006 7.15millions.

During these 4 years, ROA is ranging from 17% until 20% with ROE ranging from 18% until 21%. It manages to achieve 4 years continous positive cash flow and most importantly, has a very low debt level with 0.5 millions only.

But still, we need to understand more on the company before we invest on the company. Precision engineering profit is accounted for 80% of company net profit on year 2003 but has decrease to year 2005 65% with precision plastic injection taking another 35%. This is a good sign as it shows company can diversify the source of income.

And also, company has ventured into design & fabrication of precision connector moulds for connectors used in plasma television, SIM card holders for hand phone and other precision connector products. This is a good sign. Connectors is estimated has a compound average growth rate of 8.3% from 2004 USD11.4 billions until 2009. This is another good signs. And in year 2005, they decide to venture into automotive connectors command the largest of connectors sold worldwide. And further more, a new factory will be completed and started on 3rd Quarter of 2007 is expected to expand the company production by 20% at that time. All these convince us that LNGres might be able to expand and grow on fiscal year 2007.

Focusing on customer , they have ST Microelectronic (10years)、Taiko Electronics(10years),National Semiconductor(4 years) , FCI Connectors(7 years),Hirose Electric(6 years) Tyco Electronic(3 years). This shows that customer is willing to maintain long relationship with LNGres as usually MNC companies request supplier(like LNGres) to design the connector that specifically suit their product. For country export, USA(5 millions sales on year 2005) and Germany(1 millions sales on year 2005) is their major export country.

Finally, LNGres has announced that it has put in place a dividend policy where a minimum of 50% of its net profits will be returned to its shareholders in the form of dividends. For year 2006, it has distributed 3 sen nett for dividend. Taking the share price i bought which is 0.295, the dividend yield is 10% with PE 7.7. It has declared a 1 sen final dividend for this quarter and expected to be pay on June ( According to previous year record). Since it has around 18 millions cash on hand on the latest quarter, we could expect them to pay good dividend in future too.

The company is valued at lower PE might be due to small size ( with earning profit around 7millions only), diluted share price as LNGres has issue additional share to bumiputera investors recently with lower share price. and also,the bad side is US economic slows down might affect the company in future.

Anyway, base on the excellent ROE,ROA, good dividend payout and good management (Salary range about 0.5 millions only), this counter should value at PE10, with this year 3.8 eps, it should worth 38sen.If the company manage to grow with 10%-20% for the next 2 years, i believe this counter will be revalue with at least PE12. Long term target price 52sen. It will be a best buy with market price 0.31 below.

ACB worth for Parkson Deal

On September, LionDiv has announced a news on structuring plan for ACB, LionCorp and Parkson. Parkson will be injected into ACB and listed in Malaysia too.

A. Restructuring Steps
1. LionDiv values its 55.5% stake in Parkson Retail Group (PRG) and Parkson Malaysia operations (collectively known as Parkson operations) at RM4.3 billions.( Based on the average 5 tradings days of HK29).

2. ACB issues 3.8 billion new shares at RM1.00 par value each.

3. ACB issues RM500 million worth of redeemable convertible secured loan stocks (RCSLS). So,3.8billions new shares + 0.5billions RCSL = 4.3billions.

4. LionDiv injects the Parkson operations into ACB in return for the 3.8 billion ACB shares and RM500 million RCSLS.

5. LionDiv buys another 42.32 million ACB shares from LionCorp. (Total ACB shares is 74.71 millions)

6. LionDiv ends up with 3.84 billion ACB shares (99.16% stake) ( The remaining 0.84% is 32.39millions)

7. ACB undertake capital reduction (merger of 4 ACB shares into 1 new ACB share)

8. LionDiv now holds 960.51 million new ACB shares which still represents 99.16% stake in ACB

9. LionDiv distribute all 960.51 million ACB shares to LionDiv shareholders on the basis of 1.3 ACB shares for 1 LionDiv share held. (Through this, lionDiv will benefit by having lionDiv and ACB share together.)

Here i will not talk about LionDiv value should worth after the restructuring successful but on ACB.

Here is the calculation for ACB (Assumption for the plan is approved):
Total number of share for ACB = 968.5millions.While Parkson is value at 4.3Billions,The Parkson stake that can be attributed to shareholder equity (upon transfer to ACB) is RM3.8Billion ( RM4.3B – RM 500 million loan stocks).

Since ACB is actually a holding company for PRG, a 20% holding company discount will be applied to the stake. so, each share worth = ( 3.8b* 0.8 )/ 968.5m = RM3.14.
Upon completion of the restructuring the 1000 shares will become only 250 shares (capital reduction from par RM1.00 to RM0.25 and 4 shares combined to become 1).
So, RM3.14/4 = RM0,785

Current Value of ACB share = RM1.38( Current KLSE price)

Comparing both, which market in klse is trading for RM1.38 for a share RM0.785(After proposal), can we say that it is very highly overvalue?

No! We forgot that the share price is HK29 when it is proposed, on last Friday(30/3/2007), it is trading at HK51, which is already 75.9% higher,where we must consider this factor in. So, each share before consolidated worth = (3.8b * 1.759 * 0.8) / 968.5m = RM5.52. Thus, 5.25/4 = RM 1.3125, which is quite close to KLSE price RM1.38(Which is a bit higher).

Assuming better case, if we take 10% discount for holding company status, each share worth = (3.8b * 1.759 * 0.9) / 968.5m = RM6.211. after restructuring, 6.211/4= 1.552.The upside for ACB is 1.552/1.38 which is 12.5% upside.

Since there are many uncertainties on the proposal (Might be get rejected), and ACB is trading overvalue, i think its a SELL in a right price. (Target price RM1.55)