Growth Stock with Net Cash Position - Part 1

Bright Packaging
Bright Packaging is in a healthy position. The group is debt free with a net cash balance of rm19.94 million as at Aug 2013, while net assets per share stood at 0.62.

Dayang
It provides maintenance, fabrication, hook up and commissioning and chartering services for the oil and gas sector.

It has an order book of rm1.2 billion that will keep the company busy until 2016.

It is poised to secure more jobs as Petronas is expected to dish out rm10 billion worth of HUC jobs for the Pan Malaysia cluster.

It is also the front runner for these HUC contracts. Meanwhile expect the company to land more tenders for brownfield services in 2013.

It had a strong balance sheet. As at Sept 2012, it was in net cash position of rm106 million or 19 sen per share.

Expectations hat Dayang will raise its stake in Perdana Pet to over 20%, making Perdana Pet an associate company. This is positive move because Dayang will be able to account for equity earnings in Perdana Pet.

Uchi Tech
It stands above the rest in a volatile environment where high yields are highly sought after. The Taiwanese base dfirm has been paying out between 80% and 90% of its net profit as dividends in the past few years, signaling solid financial foundation and a firm commitment to rewarding shareholders. Uchi is an ODM that produces electronic control modules used in high end coffee makers that are mainly used in Europe and biotech equipment.

Uchi Tech shifted its product mix from coffee machines to biotech equipment, which commands higher margins.

The company is also in a net cash position of rm124 million with no borrowings but downside risks include its liquidity and a future fall in earnings.

Top Glove
It will increase its glove prices by between 3% and 5%, triggered by escalating labour costs due to the introduction of the minimum wage policy. The policy, which took effect on Jan 1 2012, was likely to cause the glove producer's labour cost to rise by some 50%. Labour cost made up 9% of Top Glove's production costs for the September-to-November quarter 2012.

A capital expenditure of RM200mil had been set aside for FY13, largely to be used for capacity expansion.

With the completion of the acquisition of the 95% equity stake in PT Agro Pratama in Indonesia , the group was in the process of land preparation and was projected to commence its first rubber tree-planting cycle by the middle of 2013.

Top Glove remained in a net cash position of RM345.9mil following such upstream plans.

It remains open to mergers and acquisitions.

Top Glove has just completed the purchase of Malacca-based GMP Medicare Sdn Bhd, a producer of medical and examination gloves.

Mudajaya
Power plant and highway construction specialist Mudajaya Group Bhd will start

developing phase one of its for US$750 million (RM2.3 billion) coal-fired power plant project in Myanmar in the second half of 2014.

It is understood that the special purpose vehicle (SPV) set up by Mudajaya and IJM Corp Bhd co-founder Datuk Koon Yew Yin will build the plant over several phases.

Phase one will supply up to 500 megawatts (MW) of electricity to the Mandalay region.

Mudajaya has a 70 per cent stake in the SPV while Koon holds the rest. Both parties last year inked a memorandum of understanding with the Mandalay government to set up two independent power plants in the Mandalay region and other suitable areas.

The first is a coal-fired plant and the second will be a solar-powered plant.

For the nine months ended September 30 2012, Mudajaya's profits rose to RM189.9 million from RM164.5 million a year earlier.

Its revenue increased by 47.5 per cent year-on-year to RM1.35 billion, compared with RM916.4 million previously.

Mudajaya's balance sheet remained healthy with a net cash position of RM419.5 million, shareholders funds of RM1.09 billion and net asset per share at RM2.

The improved performance was driven by its construction division on the back of higher recognition of revenue and profits on work done.

Mudajaya is now bidding for projects worth more than RM5 billion in Malaysia.

Its construction order book as at September 30 2012 stood at RM2.8 billion.

Hai-O
Hai-O has a dividend payout policy of at least 50% of net profit.

The dividend payment is also supported by a strong balance sheet, with the group sitting on a net cash pile of RM118.4mil (or RM0.60/share) as at end-Oct12.

Hai-O's multi-level marketing (MLM) business currently has more than 140,000 registered members and over 40 stockists and branches nationwide. The group's MLM business is mainly targeted at the Malay market, with approximately 80% of its members currently being bumiputras.

This has helped the group's MLM business achieve tremendous growth as the Malay population constitute s67% of Malaysia's total population, with disposable income for the Malay segment expected to grow fastest compared to the Chinese and Indian population.

As of the first half financial year 2013, Hai-O has already achieved a net profit of RM21.6m (+38.5% y-o-y), excluding one-off gain from disposal of freehold land amounting to RM4.8mil, on the back of RM127mil revenue (+18.5% y-o-y).

This is mainly due to stronger performance from its MLM division driven by sales of high-margin foundation garments, series of health food products and a newly-launched health wellness product.

Management has guided that it should be able to post double-digit earnings growth this year and we think the group is well on its way to achieve a strong set of results in FY13.

DIGI
It was still in a net cash position as at Sept 30, 2012 but estimates that its rm1.45 billion cash pile will be whittled down after a rm933 million special dividend declared in Oct 2012. Even so, its net debt to Ebitda levels will be at only 0.2 times.

Market observers opined that embracing the business trust model would allow DIGI to pay dividends from its operating cash flow, which is higher than its account profits due to depreciation charges.

For now (Feb 2013), DIGI has given its commitment to deliver a minimum 80% payout ratio.

It will consider the business trust framework as part of its ongoing assessment of alternative ways to return excess cash to shareholders.

Rather than whether DIGI plans to go shopping, market observers wants to know if DIGI’s parent Telenor would delay rich payouts until it gets clarity on whether it would be allowed to raise its shareholding in DIGI above 49%. Telenor could well use a bigger war chest in its pursuit of a presence in Myanmar.

Maybulk
The bulk carrier has net cash per share of 13.5 sen per share or rm135 million after deducting its debts of about rm116.4 million.

It was still poor earnings visibility at Maybulk with improvements in freight rates expected only towards 2014.

The only bright spot is its business in the offshore market helped by a healthy growth in exploration and production activity in the oil and gas sector. This bright spot is its 21.23% stake in POSH which is controlled by its parent Pacific Carriers. There is intent to list POSH in 2013.

Maybulk has the put option that allows it to demand Pacific Carriers to buy back its POSH shares at a 25% premium of its purchase price of US$6.50 per share if the listing of POSH does not happen within five years from its investment.

It remains to be seen if the intended floatation of POSH would take place in 2013 of it Maybulk would choose to exercise its put option.

Any case, POSH is expanding… In Nov 2012, Maybulk paid US$31.84 million to subscribe to a rights issue by POSH, thus retaining its 21.23% stake. POSH intends to use the fund raised from the RCPS for capex and investment opportunities.

As a holder of the five year RCPS, Maybulk can choose to demand for full redemption of the RCPS upon notification of POSH’s listing or have the papers converted into POSH shares as part of the IPO process.

Pacific Carriers has been growing POSH, including via acquisitions.

Pacific Carriers has a 34.5% stake in Maybulk while PPB Group owns a 14% stake.

POSH is already a sizeable contributor to Maybulk’s earnings as its core dry bulk business remains lackluster.

A propitious listing for POSH would certainly be a boast for Maybulk if nothing else would have to take into consideration the value of Maybulk’s stake in POSH when calculating the former’s worth.

As it is Maybulk is being valued at about 0.7 times book. If the listing of POSH does happen, the value of the company would be valued differently … it will be positive but overall the key re rating catalyst would still be the recovery of the core dry bulk business, which gives most of the revenue while POSH is just an associate.

Market observers are not betting for privatization of Maybulk.