Monday, January 11, 2010

Why I Like Success Transformer (A Lot)

I generally will not repost previous articles, but like I said before, timing is everything. You can have all the fundamentals but when there are no catalyst, nothing will happen. Success Transformer has been locked between 1.16-1.22 for the past few weeks. The Seremban Engineering IPO should be approved soon. I cannot put it any plainer than that. Its free IPO shares for ST shareholders. Seremban Engineering is looking to be a very attractive IPO for 1Q 2010 based on its earnings and growth expansion.

Success Transformer, through its subsidiaries, manufactures and markets electrical and industrial lighting products.The company's products include high-intensity discharge (HID) lighting luminaries, low voltage transformer, automatic voltage stabilizers, battery charger and tester.

It also offers energy
saving lumens regulator, phase monitoring relay, reactor and running light controllers.The company primarily operates in Malaysia, where it is headquartered in Sungai Buloh.

The company's key products include the following:
High-intensity discharge (HID) lighting luminaries
Low voltage transformer
Automatic voltage stabilizers
Battery charger and tester
Energy saving lumens regulator
Phase monitoring relay
Running light controller

Catalyst #1: Success Transformer Corp Bhd is proposing to list its wholly-owned subsidiary, Seremban Engineering Bhd, on the main market of Bursa Malaysia. In a filing on behalf of the company, RHB Investment Bank Bhd said Success Transformer’s board had approved the proposed flotation comprising several proposals to facilitate the listing exercise. Can reasonably expect some free shares since its a 100% company that is being listed.

Success Transformer Corporation Bhd’s (STC) subsidiary, Seremban Engineering Bhd (SEB), has entered into a cooperation agreement with Affcom Resources Sdn Bhd towards forming a joint venture (JV) company in the oil and gas (O&G) industry. STC said the objective was to incorporate a JV company to undertake the design and fabrication of equipment, refinery, lube oil plant and engineering and any other related activities.

Malaysia-incorporated Affcom is an affiliate to an independent integrated oil company and its activities cover trading, marketing, refining, and O&G fabrication in Malaysia and abroad.

SEB is mainly involved in the manufacturing and fabrication of process equipment such as unfired pressure vessels, heat exchangers, tanks, silos and other machinery or parts, including mechanical works, maintenance and shutdown works. STC said Affcom would provide the expertise in management, consultancy, market information, and any other contribution in the best interest of the mutual business cooperation.

Catalyst #2: Success Transformer Corp Bhd (STC) says its engineering unit currently has some RM30mil worth of projects in hand and is bidding for new jobs worth about RM40mil. Palm oil and waste management industries remain Seremban Engineering Sdn Bhd’s (SESB) main contributors. SESB has started construction work on its seventh factory by end-September. The new factory will focus on the fabrication of process equipment for the food and pharmaceutical industries. SESB’s factory expansions are on track with the 5th factory being operational and the 6th expected to be operational on 2H FY09. On top of that, Seremban Engineering is in the process of setting up another factory to specifically serve the food industry.Seremban’s current workflow consists of pressure vessels for palm oil refineries. Key customer, a Singapore based design house is farming substantial business to SESB given the latter’s strong execution capabilities. Visibility is seemingly positive with the key customer guiding for constant workflow till the end of the year. With Plant 5 now fully onstream, capacity is further enhanced by 20%.

Catalyst #3: Earnings visibility and sustainability. The company recorded revenues of RM185 million in the fiscal year ended December 2008. Its net profit was RM23.6 million in fiscal 2008. 1H09 revenue was RM97.4m, while RM12.9m was its net profit. Annualise that, the company is making at least 22 sen a share.

Catalyst #4: Operating margins 18%. For a company that has been making EPS in the 15-28 sen region for the past 3 years (on an uptrend), expanding its facility, and operating at that margins, to trade at low single digit PERs is unbelievable. Obviously many investors have not wised up to this company. Taking the free IPO shares in Seremban Engineering, this should be worth RM1.60 easy.

NOTE: The above opinion is 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.

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