Tuesday, November 17, 2009

Why I Like Supportive International Holdings

If you mention Supportive International Holdings, most investors would ask if they were listed or if they were recently listed ... or you'd think they were in the undergarments business. This used to be a counter called SDKM Fibers Wires & Cables which started in Mesdaq before moving to the Main Board in May 2008. However their usual business suffered and had to be resuscitated by realigning their business. This brought about the reverse takeover exercise by Supportive Technology Sdn Bhd (ST) in February 2008.

The company, which was founded by Lee Kuang Shing in 1994, started off as a plastic components manufacturer. The founder’s family (shareholders) comprises of Lee
Kuang Shing, Tan Siew Hong, and Khaw Hooi Huang. Since then, it has diversified into manufacturing and sale home theater systems and wooden/plastic consumer durables (kitchenware, toys, etc) or consumer
‘light’ durables (CLD). ST’s purchase consideration was RM197m, which SDKM settled with issuance of 178m new SDKM shares (issue price of RM1.00 per share) and RM19m cash to ST. This resulted in a reverse acquisition as ST emerged as the group’s major shareholder. Name of company was then changed from SDKM to Supportive International Holdings.

The group’s total product range includes manufacturing and sale of home theater systems, audio/video/telephony products and cords, intercoms, as well as, plastic and wooden CLD. Not terribly exciting products but steady business. They have a strong list of major customers that include SONY, KenWood, Pioneer, Onkyo, Yamaha , JVC, Panasonic, IKEA, etc. OEM customers tend to have demanding requirements ; like timing of delivery, ability to adapt to latest designs quickly and high quality control (QC) standards - so far so good. It has been supplying products to the Panasonic Group for the past 11 years because of ST’s strong execution capabilities.

Over the last 4 years, ST’s revenue from the Panasonic Group accounted for 88% to 92% of sales. On the flip side, this also illustrates ST’s ability to maintain strong ties; an asset for SIH. Thus, SIH has been actively reducing dependence on the Panasonic Group by securing new customers, like SONY and IKEA. The group can continue diversify its clientele by tapping into SDKM’s existing audio products’ clients, such as Kenwood and Pioneer.

Catalyst #1: Basically the new owners have never seen daylight for their shares as the price dwindled down almost immediately owing to the timing of the financial crisis and went as low as 0.595. Technically speaking the share has never been higher than its 52 week high of 0.96 except yesterday. I like the volume build up and the surge past its 52 week high a lot. An indication of some corporate action or acquisition is likely.

9-Nov-09 0.85 0.87 0.84 0.85 -0.005 1,800
10-Nov-09 0.88 0.88 0.84 0.84 -0.005 1,734
11-Nov-09 0.86 0.90 0.86 0.90 0.060 4,710
12-Nov-09 0.91 0.93 0.88 0.91 0.010 15,493
13-Nov-09 0.92 0.94 0.92 0.94 0.025 2,129
16-Nov-09 0.95 1.03 0.95 1.03 0.095 29,252
This is the kind of price / volume action that I like (open, high, low, close, change, volume).

Catalyst #2: SIH completed the SPA to acquire Welcome Properties Sdn Bhd (WP) for RM10m on 4/2/09. Consequently, the group will recognize RM9.5m negative goodwill. WP owns the 48.6ac mixed development project, called Aman Bayu, in Teluk Air Tawar, Butterworth, Penang. Normally I would frown on companies suddenly going into property but to me this counter needs another layer of business to parlay its bread and butter earnings. Typically, property developers can reap 10%-22% net margins compared to the E&E sector’s 1%-5%. The sea-fronting land fronts Penang Island is highly attractive, and is adjacent to Taman Air Molek (established mid to high end residential development) while being accessible via the new Butterworth Outer Ring Road. The land has an NBV of RM35m or c.RM16psf. The RM358m GDV gated and guarded community project will consist of mid to high end landed residential and condominium developments, as well as, some commercial content. The project is expected to yield a 30% gross development profit margin and is expected to be completed in mid 2012.

Lee Kuan Shing said its RM360mil Aman Bayu project in Butterworth would contribute about 30% to revenue this year. They have sold half of the 100 three-storey terraced houses priced about RM350,000, which were launched early this year. The second and third phases, comprising 250 semi-detached houses and bungalows, will be launched next year.

Catalyst #3: Copycat? - Mah Sing started off in the plastic injection molding business in 1965 with listing status in 1992. Since then, it ventured into its first property development project in Johor Bahru (Sri Pulai Perdana). As property earnings became Mah Sing's biggest contributor, the company was reclassified as “properties” in 2000. Its still a long way off but it looks increasingly likely that ST is adopting the Mah Sing's blueprint for longer term success. To be recognised as a property player, the company will need to grow its landbank to at least 1,000 ac. Look for possible land acquisitions in the near future.

The net profit for year ended Jan 2009 was a smart RM12.9m on revenue of RM90.8m, not bad considering the turmoil in broader markets over the past 16 months. Paid up: 218.5m shares. If it stayed as an OEM in E&E products, the margins are thin and it would take a quantum leap to get to the next level. Having said that, its business is steady and the clients long term support is evident, showing they are doing the right things operationally. For me, their property project is attractive and is the start of the next leg up. If you wait for their land bank acquisitions, the price would have flown by then. It is by no means and ultra exciting, or exceedingly well managed company - its a steady company, adding an attractive new layer to its earnings, and could win over institutional holders over the near term.

The attractive RM358m GDV property project may bring about a gross profit of RM107m, halve that to a net basis you still have RM53.5m. Take that over 3 years, that is still a healthy whack when you consider its existing net profits of RM12.9m a year.

The above were views on stocks and sectors that I like, not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

p/s photos: Rachel Kum

1 comment:

pharmacyproduct2u said...

May I know what is yr target price?