Tuesday, October 06, 2009

3A Resources, Distinctions All The Way With Their 20% Placement

You can't hit all the balls pitched to you, I guess. A good friend asked me to look up 3A two weeks back. I said, I don't even know what they did. I did looked it up, its principal activities were manufacturing and selling of food and beverage ingredients. That didn't look too exciting, although I did note that it was a growth based company, having been moved to the Main Board from Mesdaq.

But without further information, the stock was looking quite expensive at 80 sen. Now that the news is out, you wished you had some at 80 sen. Gawd, they placed out 20% new shares to Wilmar International. What a platform!!! I think that is like placing shares to Warren Buffett, seriously. Wilmar has done so well in palm oil, and has made waves moving to China with an upcoming listing in HK. Their China vehicle will focus on food, water and related industries. It will take a huge person to bet against Wilmar. But, you cannot hit all balls pitched to you, particularly when you have no idea what was happening. Good job on those who managed to buy early.

3A Resources Berhad was incorporated in1977 as a family business producing soy sauce. In 1989, the family business was incorporated into San Soon Seng Food Industries. 3A listed on the on MESDAQ on 13/8/2002 and subsequently moved the Main Board of the Bursa Malaysia on 18/6/2008.

3A is one of the leading ingredients manufacturers in the food and beverages industry. All the products manufactured by the subsidiary have been certified as HALAL by the Islamic Development Department of Malaysia. It is also ISO9001 certified by the Standard Industrial Research Institute Malaysia for its quality management system.

Aside from its main products, the company also has two additional products, namely caramel powder and hydrolyzed vegetable protein powder. Currently, the group exports approximately 30% of its group sales to 25 countries. Three A's latest product is glucose-based powder, maltodextrin, which is used in infant milk powder and 3-in-1 instant beverage. This product was previously imported from the US, Thailand, China and Europe. Its customers include multinational corporations in Malaysia such as an American supplier of chili sauces to food chains in Malaysia and Hong Kong based Lee Kum Kee group which produces oyster sauces.

The new glucose plant is already running at about 40-50% capacity, since its
completion in 4Q08. Aside from additional external sales, the availability of
glucose means the company is now running its maltodextrin plant at almost
full capacity. Previously, limited feedstock had kept production at just about
half of its 1,200 tonne per month capacity.

3A has made very good inroads into this relatively new market. Its
maltodextrin plant is the only one in Malaysia and has been operational since
mid-2007. Maltodextrin is a white powder with little sweetness, has a bland
taste and is widely used as fillers or bulking agent.

In particular, the company has been quite successful in tapping into the 3-in-
1 dry beverage mixes market segment. Prior to 3A’s entry into the market, all
of the maltodextrin consumed locally is imported. The company’s proximity to
end-user companies gives it a strong home ground advantage. Its
maltodextrin is also competitively priced against those imported from the US
and Europe.

Aside from 3-in-1 mixes, 3A is also eyeing other segments of the
maltodextrin market, such as the infant milk powder industry. Following
positive feedback from end-users, both local and in the region, the company
is now planning to set up another maltodextrin plant capable of producing up
to 2,000 tonne per month.

If all goes to plan, the new plant will be operational by 4Q2010 – and will
underpin growth in 2011-2012. As a stopgap measure, 3A intends to upgrade
its existing maltodextrin plant, which would boost output up to 1,500 tonnes
per month, to cater to rising demand.

Additional feedstock requirement for the new maltodextrin plant was already
taken into account when 3A was building its glucose plant last year. The
glucose plant, with current capacity of 7,000 tonne per month can easily be
upgraded to produce up to 12,000 tonne per month with the incurrence of
just a small additional capex.

The Proposed Private Placement will entail the issuance of up to 20% of the issued and paid-up share capital of 3A. Based on the issued and paid-up share capital of 3A as at 30 September 2009 of RM61,600,003 comprising 308,000,019 ordinary shares of RM0.20 each ("3A Shares"), a total of up to 61,600,003 3A Shares ("Placement Shares") may be issued pursuant to the Proposed Private Placement.The Placement Shares are proposed to be placed out at an indicative issue price of RM0.75 per Placement Share. The issue price of RM0.75, represents a discount of approximately 12.63% to the five (5)-day WAMP up to 02 October 2009 of RM0.8584.The Placement Shares are proposed to be placed out to strategic third party investors, namely Wilmar International Limited ("Wilmar" or “Investor”). Wilmar has given a letter stating that it is interested to subscribe for 61,600,000 Placement Shares at RM0.75 per Placement Share. Upon the completion of the Proposed Private Placement, Wilmar will emerge as new substantial shareholder of the Company with equity shareholdings of 16.67%. The Proposed Private Placement is to enable 3A and Wilmar to collectively venture into any future overseas investments.

p/s photos: Lee Ji Ah


mantua said...

Rumour has it that YTD net profit for 3Q09 would reach MYR 13m, with full year net profit >MYR18m, eqv. to EPS of 6 sen. That's quite believable given that net profit for 1Q & 2Q09 were MYR 2.1 & 5.5m, respectively.

This means a current year P/E ratio of 15 at today's closing price of 89.5 sen.

Given the double digit growth guidance from management for next year, the P/E for 2010 should be in the low teens which suggest that the stock is fairly priced on the basis of currently known projects.

I understand that Wilmar produces huge amounts of protein by-products (currently poorly utilised) from its soy factories in China. Would this not be the ideal basis for a lucrative JV in China with 3A providing the food manufacturing expertise & Wilma providing the factory space, infrastrucure, marketing expertise & cheap raw protein feed?

Boon2008 said...

Please to ask your opinion. I am very confuse with the issue.
Since it is at RM0.75 per Placement Share by Wilmar, why the share is trading at RM0.90 now?
Lets assume if the Proposed Private Placement is firmed, is the share really worth RM0.90?