Saturday, October 29, 2011

EAH Still Looks Too Cheap At This Juncture

In my Sept 14 posting, I blogged EAH as one of my picks under the heading -  Shopping List:


" .... 3) EAH - I spoke to management and they are well on track to doubling their net profits this year. The DDSB acquisition is a big plus. Up to RM0.32 is OK.."
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I also came across this blog -alphachart.blopspot with the following .....EAH...Another Selective Buy

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EAH is the other stock that I bought into due to its low risk technical reading. It falls within the group of potential stock in penny stocks which would see selective action in this market.
All in all, CCM and EAH still represent "finger food" trades and defensive play for Reflexivity portfolio with a relatively low equity exposure of ~12%.


Continue to watch the market closely, the next pivot point will prove utmost important whether my big picture bear outlook is confirmed (80% chance) or disproved (20% chance). 
2 Comments:


alwayswin111 said...
Hi alpha chart What is your target for Eah?
OCTOBER 20, 2011 11:40 PM
Alpha Chart said...
Hi, I see an easy 20-30% return.
Image Detail As things stand now, I must say that I do agree with Alphachart comment of an easy 20-30% return. 
In fact I believe EAH short term trading range to be in the 38c-43c trading range, and should eventually move to 44-49c range in the longer run. Here's why..
I spoke to management recently and they indicated that EAH have secured a rather healthy order book of approximately RM42 million, which is very impressive for a smallish  ICT business solutions provider. The order book should last them for at least the next two (2) financial years.
EAH is also one of the few recently listed ACE counters whereby it is still trading above its IPO price.
Despite recent turbulent markets globally, EAH shareholders who subscribed to the shares during the IPO should still be a happy lot especially when their investment is trading approximately 20% premium to their investment of RM0.25 during the EAH IPO. In terms of financials, for the latest FYE 2010 and the latest quarter ended 30 June 2011, EAH recorded revenues of RM20.7 million and RM14.8 million and profit before taxes of RM4.1 million and RM3.1 million respectively. The table below further illustrates the historical financial performance of EAH:-

FYE 2008*
FYE 2009*
FYE 2010
1H 30 June 2011





Revenue (RM'000)
8,289
13,892
20,711
14,805





Profit before tax (RM'000)
2,020
3,677
4,053
3,096





Profit after tax (RM'000)
1,944
3,641
4,081
3,095





Shareholders' funds (RM'000)
4,194
9,735
23,434
26,529





No. of shares ('000)
155,001^
155,001^
155,001
155,001





Earnings per share ("EPS") (sen)
1.25
2.35
3.35
2.00





Net assets per share (RM)
0.03
0.06
0.15
0.17





Borrowings (RM'000)
-
-
636
597





Gearing ratio (times)
-
-
0.03
0.02





Return on equity (%)
46.4
37.4
17.4
11.7





Notes:-
*  Based on proforma figures as the group had only been in existence in February 2010 while EAH was listed on 20 July 2010.
^  Assuming the number of shares in issue after the listing of EAH, for comparison purposes. The issued and paid up share capital of EAH has increased to 203.45 million upon completion of the acquisition of DDSB Sdn Bhd in July 2011. Image Detail
As depicted in the table above, the financial performance of the group has been improving on a year on year basis and the revenue and profit before taxes has recorded annual CAGR of 35.7% and 26.1% respectively for the past three years. The group further has negligible borrowings / gearing. The EPS of the Company based on its latest audited accounts for the FYE 2010 and the annualised EPS for the FYE 2011 (based upon its latest quarterly results for the six months ended 30 June 2011) stood at 3.35 sen and 3.99 sen respectively. The Company’s order book inclusive of DDSB currently stands at RM42 million and the group has tendered for numerous projects with various government bodies and GLCs, estimated to be worth around RM100 million in total, which the Company is confident of at least winning a few.  Besides, EAH had recently, in the month of July 2011, completed the acquisition of 51% equity interest in DDSB Sdn Bhd (“DDSB”) for a total purchase consideration of RM19.4 million which was satisfied through the issuance of new EAH shares of RM 0.10 each at an issue price of RM 0.40 per EAH share. DDSB is principally engaged in information technology, consultancy services and software development. The acquisition of DDSB is pegged at approximately 5.63 times the cumulative profit guarantee provided by vendors of DDSB of RM13.5 mil for the FYE 2011 and 2012 (the portion attributable to EAH is RM6.8 mil / on a yearly basis the profit attributable to EAH based upon its 51% shareholding in DDSB amounts to RM3.4 million per annum).   The acquisition of DDSB is also expected to be earnings accretive. The acquisition of DDSB has enabled EAH to diversify its earning base further and add value to its existing business operation. He added that with the addition of DDSB in the group, EAH is confident of the group’s continuous growth, building a strong market position with a sustainable business model. The order book of DDSB currently stands at RM24m In my view, the Company should acquire the remaining 49% of DDSB, its a no brainer with DDSB's healthy order book, the profit guarantee of RM13.5m should be easily met. Assuming EAH buys the balance of DDSB in 2012, we can expect EAH's total earnings in 2012, say EAH hit RM7m PAT, and DDSB attains it profit guarantee of another RM7m, to be at least above RM13m, which would be really impressive for an ACE company.    Moreover, I like EAH's rather shrewd and prudent acquisition criteria - Mohd Sobri also added that EAH is constantly scouting the market for more acquisitions, companies with strong earnings and profits after tax. The CEO added, “We will only acquire companies who add value to our group's overall business and are PE accretive, and will preferably pay for such acquisition with the issuance of new shares. Our selection criteria of the type of companies we acquire are very stringent and prudent”.   Image Detail
Who is to say that the Company wont find another buy such as DDSB around the corner soon. If they finds another DDSB, their earnings should soar, and most likely would its shareprice. I do see a  gem in the making in EAH. Oh, btw, EAH also made the latest Forbes Best 1000 Companies in Asia Under $1 Billion.


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. 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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4 comments:

mr. lim said...

Hi Dali,
Thanks for this good article. It is the second one but sad to note that this counter is still laggard and has not catched the investors attention. May be this round of bulls will push it sky high.
There are other good counters too in ace whcih are also not moving like Digistar and Smartag which I have invested heavily. Glad if you can do a write up on these two too.
Thanks & Regards
Michael Lim

K C said...

Hi Dali,
From your posting of EAH, it does seem to have an attractive growth story, coupled with reasonably low valuation. I had in some time ago bought in some after reading through your previous posting (still at a loss. No I am not blaming you, LOL). However just some critical comments.
1) Is the growth a quality one, in view of its fast deteriorating ROE from 47% to less than 12% as shown in your table?
2)Projected ROE of 11.7% is ok lah but really it is not that fantastic, is it?
3)What is the edge of EAH in its ability to acquire excellent companies with reasonable price, and hence increases its shareholders value, taking in consideration that there are many more established companies are all trying to out do the others in this game?
4) Historically, the success stories in shareholder value enhancing in acquisition are rare. What makes EAH the exception rather than the norm?

Unknown said...

Dear SDali,

it is indeed good value with potential growth area whether with private or government order...

yet, come across this today, so i m giving a second thought about it...that's vote of no confidence to me

"EA HOLDINGS - DIRECTOR WARRANTS/SHARES DISPOSAL EA HOLDINGS reported that Director MOHD SOBRI B SAAD had on Nov 9, 2011 disposed 2.0m Company warrants at 12.5 sen each and 100,000 shares at 34.5 sen per share"...from equitiestracker.com

terry said...

Dear Dali,

EAH received LHDN project but the share unable to sustain upside.
What I noticed is someone keep on sell on 0.135 to push the share down.
Based on pass few weeks volume I believe it is not recent accumulated shares.
Do you have any idea who is dumping it?

Thanks

Regards,
Terry