星期六, 六月 16, 2007

Update on YLI

From Star Bizweek 16.6.2007


One man’s foray
EYEBROWS were raised at the end of last week when Tan Sri Syed Mohd Yusof Syed Nasir emerged as the controlling shareholder in pipemaker YLI Holdings Bhd following the acquisition of a 30% stake in the company from its founders, the Loh family.
Most analysts expressed surprise at the sale, which saw the Loh family's stake in Penang-based YLI, held via Fuji Fusion Sdn Bhd, reduced to 10%.
The 29.6 million shares acquired by Syed Yusof were priced at RM86mil, or RM2.90 per share. (why the sale of big stake 30% at such a low price with no premium?a willing sale and willing buy with strategic partnership in growing the business is the most likely reason)
“Syed Yusof is probably aware of the potential high demand for YLI's products,” says an analyst, who is not alone in opining that the good times are set to roll for YLI.
“YLI's earnings are poised to catapult on the back of the surge in demand for ductile iron (DI) pipes with a full-scale revival of water projects under the 9th Malaysia Plan (9MP), as well as the acceleration of pipe replacement activities at Syarikan Bekalan Air Selangor (Syabas),” says a bank-backed research house. It has a fair value of RM3.59 for the counter and is maintaining its outperform recommendation, stating its belief that the current share price has yet to fully reflect the company's fundamentals.
In fact, most analysts have earmarked YLI as a potential beneficiary of rising spending on non-revenue water (NRW) in Selangor as well as the Government's allocation for repair and replacement of pipes in the water sector, with some indicating that this may be part of the rationale behind Syed Yusof's entry into the company. (this potential is very real and soon)
The former activity has seen Syabas step up its pipe replacement programme in a bid to reduce its NRW to 27.78%, thereby allowing it to qualify for the next tariff hike of 37% that is set for 2009.
As OSK Research points out, Syabas' estimated annual capital expenditure is set to top the RM600mil mark over the next three years. With 80% of that figure allocated for pipe replacement, the research house estimates that the annual cost of purchasing water pipes will be at least RM120mil to RM150mil. (increase of Rm 30 mil if buy all the ductile iron pipe measuring less than 700mm from YLI--the preferred pipe to use)
As for the latter, Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik has recently announced an allocation of RM2bil that will be allocated specifically to rehabilitate and replace old water pipes.
OSK feels this may see a continued escalation of demand for DI pipes from other states, prompting the research house to revise its projected utilisation rate for YLI's products from 62% to 70% in FY08 and 65% to 75% in FY09.
Speaking of its products, YLI is regarded as one of the two largest DI water pipe manufacturers in the country.
An analyst is of the opinion that this will stand the company in good stead, as the duopoly of YLI and Engtex will allow for the superior pricing power of players in the DI pipe sector.
According to the bank-backed research house, DI pipes are likely to be preferred over other varieties such as mild steel, polyethylene and PVC pipes due to its strength, durability, corrosion resistance and long life. In other words, just the qualities an NRW-based initiative would be looking for.
By all accounts, Syed Yusof's entry is set to considerably raise YLI's profile, as the man whom Forbes lists as being the 25th richest man in Malaysia has earned a reputation as a canny investor over the years. (he has the reputation of buying undervalued stocks and cashing them out at a premium.....He bought YLI from Loh family at 2.90 (PE of only 15)at the low end of YLI four year historical PE band of 11-29 times , thus chances for him to exit at present price of ~3.10 unlikely)
As the former chairman of Southern Bank, he was a prominent figure in its drawn-out takeover by Bumiputra-Commerce Holdings Bhd (BCHB).
His name was again splashed across headlines last year during a tussle over Landmarks Bhd.
Although control of both companies eventually went to other parties, Syed Yusof's prior investments in the two proved profitable in the long run.
Syed Yusof is currently the chairman of Concorde Hotels and Resorts (M) Sdn Bhd, while his other business involvements include the Hard Rock Cafe chain and its upcoming hotel in Penang, as well as the Four Seasons Hotel in Kuala Lumpur.
With this in mind, analysts are suggesting that Syed Yusof's presence, along with YLI's newly-raised profile, could help enhance the company's chances of winning DI pipe supply contracts from the public sector, given that it is now a Bumiputra-controlled company.
But is he in it for the long haul? Recent reports have Aseambankers saying that Syed Yusof will remain a strategic investor in YLI, while a company official has been quoted as expecting its current operations to continue with no changes in management.
Likewise, the bank-backed research house understands that the company's day-to-day operations will remain in the hands of the experts, namely the Loh family. ( so the expert/founder still managing the company,good!)
YLI also has a presence in China via its wholly-owned subsidiary Zhangzhou YLI Electro-Metallurgy Co Ltd, which produces petroleum coke.
In addition, YLI made its maiden foray into the water supply business when its 37%-owned associate Pinang Water Ltd successfully completed its first project, the Yuan He Water Treatment Plant in Yichun City, which is located in China's Jiangxi province.
Undertaken with PBA Holdings Bhd and Ranhill Utilities Bhd subsidiary Ranhill KWI Sdn Bhd, the project is not expected to be an immediate earnings contributor, but is part of the strategic steps that YLI is taking to diversify its long-term revenue streams. (YLI still not aggressively venturing abroad and depends heavily on local business thus tie up with the politically linked Syed Yusof will be of good help )
YLI recorded a net profit of RM14mil on the back of RM123.6mil in revenue during the financial year ended March 2007 (FY07), up from RM12.9mil and RM100.1mil respectively from FY06
(rising price of core(the raw material for making pipe) had squeeze the profit margin of YLI and with the profit margin of only 11-12%, increase in the revenue is essential and immediate thing to do though YLI sit on comfortable cash of~ RM 50 mil with no debt)

Report from OSK

FYE mar (rm) FY05 FY 06 FY07 FY08f FY09f
Total Revenue 98.8 100.1 123.6 160.1 171.1
Net Profit 14.8 12.9 14.0 19.9 21.4
% chg YoY (30.0) (13.1) 9.0 42.0 7.7
Consensus EPS (sen) - - 20.9 26.4 -
EPS (sen) 15.0 13.1 14.2 20.2 21.8
Gross DPS (sen) 7.0 7.0 7.0 9.7 10.3
Gross Div. Yield (%) 2.0 2.0 2.0 2.8 2.9
PER (x) 23.3 26.8 24.6 17.3 16.1
P/BV (x) 2.0 1.9 1.8 1.7 1.6
EV/EBITDA (x) 15.3 15.0 11.4 9.2 0.0
ROE (%) 8.9 7.3 7.6 10.2 10.4
ROA (%) 8.2 6.7 7.0 9.4 9.6



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