A "Healthy" Year Ahead?

Two companies related to healthcare industry are queuing to be listed next year.

• Asian Healthcare Group (AHG) - listed as Special Purpose Acquisition Company (SPAC), targeting secondary & tertiary healthcare
• Qualitas Healthcare Corp (QHC) - mainly targeting primary healthcare

AHG will offer 1.5 bil shares (80%) at 50sen each to the public out of its enlarged 1.875 bil shares, together with one free warrant for each share, with exercise price of 50sen.

It will raise RM750mil to acquire qualified medical center(s) or hospital(s) with 100-500 beds in Malaysia.

If AHG fails to acquire anything in 3 years after listed, it will be liquidated and investors will get back less than what they have invested earlier as money will be spent on various listing fees and administration expenses except for directors remuneration.

The eye-catching point in AHG's listing is about the names behind it.

The directorships of AHG are led by:

• Datuk Yvonne Chia, Malaysia's first female commercial bank ex-CEO at RHB & HLB
• Datuk Chevy Beh, ex-director at BP Healthcare Group
• Tan Sri Dato Sri Abdul Aziz, director of Affin & Affin Islamic Bank
• Mahadzir bin Azizan, director of Syarikat Takaful Malaysia & ECM Libra
• Dato Voon Tin Yow, director of SP Setia
• Jamaludin bin Elis
• Dr Lawrence Chan Hon Wah, cardiologist

So many bankers, future money not a problem?

The warrants will raise another RM937.5mil if all are converted into AHG shares after successful acquisition of assets.

I think all the SPACs listed in Malaysia do not do so well. Is AHG worth to invest in?

Meanwhile, QHC also plans to list in the main board in 2015. The detail of the IPO is still pending.

QHC is mainly a primary care providers which is expanding fast recently through acquisition.

It started in 1997 by acquiring stakes in general practitioner (GP) clinics and medical imaging centers. It was listed in Catalist Board SGX-ST in 2008 but was taken private in 2011.

It is a regional player which has business in Malaysia, Singapore, India, Australia & New Zealand. 

The main services provided by QHC include primary care service, medical diagnostic service and dental service.

Currently in Malaysia it has:

• 94 owned GPs
• 23 affiliate GPs
• 110 associate GPs
• 4 dental clinics
• 4 medical imaging centers
• 1 pathology lab
• 1 fertility center

QHC's financial report shows that its revenue doubles in 2 years from 2011 to 2013. However, net profit does not follow as expenses are growing at a higher rate.

Net profit actually fell from RM16.5mil in 2011 to RM14.1mil in 2013.

Anyway, gross profit is impressive at more than 50%.

Healthcare industry is considered as a relatively "safe" sector to invest in, as no matter how the market and economy behave, people are still getting sick.

Actually when the market is bad, more people will get sick isn't it?

With fast increasing medical insurance coverage, people tend to go to hospital more frequently, and doctors tend to do more tests on patients.

In the end, healthcare providers will earn more.

Nevertheless, healthcare is also a very competitive business. Those weak players will be eliminated sooner or later.

Perhaps more healthcare-related companies to be listed next year?

Heng Huat: Shareholders Surely Heng & Huat?

Heng Huat Resources will be listed in ACE market tomorrow on 25th July 2014 with an IPO price of 45sen per share. Its IPO was oversubscribed by 60.3x by the public!

Heng Huat is a relatively new company established in 2007. Its main business involves:

• Manufacturing and trading of coconut biomass materials
• Manufacturing & trading of oil palm biomass materials
• Manufacturing & marketing of mattresses & related products (Fibre Star brand)

The Penang-based company started with 2 production lines for manufacturing of coconut fiber & coconut peat back in 2007. It then expanded its reach to include oil palm empty fruits bunch (EFB) fiber which has better economy of scale in 2009, and later went downstream into fiber mattress business in 2011.

So Heng Huat can be considered as a "green" company which makes waste products (coconut & EFB fibers) to good use.

Besides mattress, these fibers can be used to make upholstered furniture, cushion, carpet, mat, broom, paper, fertilizer etc, as well as being used as erosion control mat, green fuel and farming materials.

Heng Huat mainly exports its oil palm EFB related products to China, which makes up 59.13%, 62.88% and 55.22% from FY11 to FY13. It has a major customer in China (Shenzhen Yuemao) who accounted for 30.14% of FY13's total revenue.

How is Heng Huat's past financial performance?

RM mil	FY13	FY12	FY11
Revenue	73.7	63.0	31.7
Gross profit	32.0	30.6	17.6
PBT	11.4	13.6	13.7
PATAMI	9.7	12.2	10.5

FY ends 31 Dec

It is an extremely positive sign that its revenue grows for the last 3 years. However, PBT & PATAMI drops quite significantly in FY13, mainly due to higher selling & distribution expenses, finance cost & tax.

Though gross margin drops throughout the years, it is still a good 43.4% in FY13.

Heng Huat has just released its FY14Q1 results.

RM mil	FY14Q1	FY13Q1
Revenue	21.3	16.1
Gross profit	9.7	7.7
PBT	3.8	3.0
PATAMI	3.0	2.6

Revenue & PATAMI rise 32% & 15% respectively YoY, while gross margin manage to stay at 45.5%. This is definitely a great result which can charge its share price up when trading starts on 25th July.

As at 31 Mac 2014, Heng Huat has RM6.3mil of cash, RM36.7mil borrowings & RM40.4mil shareholders equity. This makes its net gearing at 0.75x which is high.

It has accumulated debts due to acquisition of production land/plants and expansion of its production lines for the past 2 years.

So the IPO which will raise RM20.93mil cash comes timely. As much as 45% of the IPO cash will be used to repay the borrowings. The net gearing is expected to ease to 0.3x.

Heng Huat offers 46.5mil shares to the public at 45sen each. Its enlarged paid up shares will be 205.8mil when listed in ACE.

Is the IPO price attractive?

Heng Huat's net asset per share stands at 25sen according to latest FY14Q1 report, and it is expected to reach 27sen after IPO. The price/book ratio is 1.7.

With its FY13 PATAMI of RM9.7mil, EPS (post IPO) should be 4.7sen, and PE ratio at 45sen per share is 9.6x. 

If we annualize its FY14Q1 result, FY14 might give a PATAMI of RM12mil and thus EPS 5.8sen. With this, its forward PE ratio for FY14 is just 7.8x at share price of 45sen.

I think IPO at 45sen is a good price for investors. For those who still do not own the shares, can they still get it at 45sen when it starts trading? I doubt so.

In its notes in latest FY14Q1 quarterly result, Heng Huat mentions that there is recent banning of new coal-fired plants in Beijing, Shanghai & Guangzhou which are China's largest cities.

So Heng Huat who has more than half of its business in China might benefit from anticipated higher demand for alternative greener fuel source such as palm briquette.

       Palm Briquette

Palm Briquette is an Ideal Green Fuel due to

• Eco friendly and Renewable Energy Fuel.
• Economical and Cheaper than other solid fuels ie. Coal and Wood.
• Higher Thermal calorific value around 4000 Kcal/Kg.
• Pollution free because there is no sulphur or any hazardous materials.
• Lower ash content 2 to 5%. There is no fly ash when burnt.
• Consistent high burning efficiency due to the low moisture.
• Contain High Density and Higher Fix Carbon Value.
• Easy for Transportation, feeding & combustion due to unique shape.
• Combustion is more uniform compared to other fuels.
• Good Market due to rise in price of Fossil Fuels.

Perhaps Heng Huat can just forget about the mattress and concentrate on its core business.

Boustead Plantation IPO: Is RM1.60 Certainly A Good Price?

Boustead Plantation (BPLANT) is going to be listed in 2 days time on  26th June 2014. It seems to be in a good timing as plantation sector is gaining upward momentum because CPO price is expected to move up further.

BPLANT will raise RM1.05bil from its IPO at RM1.60 per share. Its total paid-up shares will be 1.6 billion after some corporate exercises and then IPO.

Is BPLANT a good company to invest in?

Specifically for a plantation company, I would look more into a few criteria such as:

• Growth prospect
• Unplanted reserve
• Tree age profile
• Replanting strategy

• Management efficacy
• FFB yield
• OER
• Gross margin 

Boustead's Estates & Mills:

• Total 41 plantation estates & 10 palm oil mills (all in Malaysia)
• Total 86,363 ha of land (70,991 ha planted, 5,494 ha unplanted)
• Total mills capacity 415 MT/hour or 1.96mil MT/year

The unplanted land reserve is limited...

Tree age profile:

Age profile	Years	%
Immature	0 – 3	7.4
Young mature	4 – 9	16.6
Prime mature	10 – 20	59.3
Past prime	21 – 25	15.8
Replanting	> 25	0.9

From the age profile above, its future growth potential is not so exciting, as 76% of trees are already at or over prime age.

Expansion:

• Plan to expand by 10,000 ha in 3 years, 20,000 ha in 5 years
• Plan to replant 4,375 ha in year 2014/15

It is a 15-30% expansion of plantation area in 3-5 years.

       Location of estates & mills

For me, BPLANT's future growth is not exciting. Anyway, how efficient is BPLANT running its estates & mills?

FFB yield:

• With high percentage of mature trees, its overall FFB yield is still below national benchmark. Not impressive.

OER:

• Overall OER is slightly above national benchmark from 2011 to 2013. This is good.

Gross margin:

• BPLANT's gross margin 2011: 33.3%, 2012: 22.4%, 2013: 15.1%. It is in declining trend to a lowish 15%. The low CPO price surely has a major effect on it.
• Compared to gross margin of some peers chosen randomly (year 2013 figures), BPLANT is not good but not too bad either.

• UTDPLT: 39.5%
• KULIM: 32.1%
• THPLANT: 24.7%
• IJMPLANT: 23.7%
• KMLOONG: 19.4%
• IOICORP: 18.1%
• BPLANT: 15.1%
• KLK: 12.5%
• SOP: 10.5%
• FGV: 7.0%
• BLDPLANT: 6.0%

Lets check how did BPLANT perform for the past 3 years.

FFB & CPO production:

• FFB & CPO production are flat from 2011 to 2013, as 75% of trees are in prime age and may be biological tree stress from dry weather in 2013.

Financial results:

• Revenue & gross profit are declining from 2011 to 2013, due to weak CPO price & no growth in FFB/CPO production
• PATAMI rose YoY in 2013 mainly due to a RM92.8mil gain on disposal of plantation assets.
• ROE in 2013 is at a decent 11.6% but it is also heavily affected by the special gain.

Debts at 31 Dec 2013:

• Cash: RM32.3mil, Loans: RM977.4mil, Net D/E: 0.53
• After IPO, Cash: RM587.2mil, Loans: RM977.4mil, Net D/E: 0.17

Overall, BPLANT's recent performance is only average for me.

Is the company worth to invest in? Is the IPO price fair?

Its net asset per share after IPO is RM1.43, so the IPO price at RM1.60 is 12% higher.

Base on 2013 earning of RM161.5mil, EPS of 2013 will be 10.1sen. Thus PE ratio at RM1.60 per share is 15.8x. Because of this, the director said that IPO at RM1.60 "is certainly a good price".

However, as mentioned earlier there was a one-time special gain of RM92.8mil in 2013. Without this huge special gain and with high finance cost in 2013, I think BPLANT's PATAMI should be around RM80mil. 

So the EPS should be cut by half to 5sen and PE at RM1.60 per share should double to 32x.

Anyway, CPO price has advanced in 2014 and BPLANT's earning should pick up as well.

HLIB has projected BPLANT's core net profit in 2014 to be RM119.9mil. With this figure, EPS is 7.5sen and target price will be RM1.13 if fair PE is 15x.

BPLANT has just announced its FY14Q1 results. Its PATAMI of RM30.1mil is a good 36% higher than previous year's RM22.1mil.

However, revenue just increases by 3.3% YoY to RM198.6mil. Higher CPO price YoY but flat revenue, has FFB & CPO production dropped??

Anyway, gross margin improves to a good 27.5% which is great. 

If we annualize the PATAMI, it will be RM120mil for FY14 which is similar to HLIB's forecast above.

       Boustead Plantation CEO & Chairman

So for me, BPLANT at RM1.60 is not a good price, unless it has a very strong growth prospect with many immature/young trees or eye-popping acquisition. However, it is not the case.

The only good surprise is its dividend payout policy of at least 60% of net profit. If it were to register RM120mil net profit in FY2014, then dividend will be at least RM72mil or 4.5sen per share. 

Nevertheless, this works out to be only 2.8% dividend yield at IPO price of RM1.60.

With this high dividend payout, it is also unlikely that the company will grow in an aggressive way, even with the money from IPO.

Overall, BPLANT is not a bad company. It's just not my cup of tea in term of investment as I like growth more. 

Almost all plantation stocks are traded at high PE well above 15 currently. So RM1.60 for BPLANT might seem to be fair. To invest in it or not will depend very much on your investment style.

Kiss Goodbye To BJAuto

I feel a bit ashamed by making these statement 2 days ago in BAuto Set To Fly On Debut:

"From the public respond to its IPO, perhaps BAuto may not have the same fortune as Karex & Caring."

"I can sense that it will open at 80sen and close at 90sen in the first day."

It is proven that my sense does not make any sense.

However, neither some investors and speculators of BJAuto do.

At an IPO price of 70sen, BJAuto opens at RM1.55 which is 121% above its IPO price and touches RM2.20 (214%) before 10am.

       Hehe... Huat ah

So for now, I have to say sayonara to BJAuto.

Surely a lot more investors will make a last gasp try of luck on Titijaya, possibly with all their savings. Titijaya will be the "king of over-subscription". 

BAuto Set To Fly On Debut

Recent two IPOs Karex & Caring swallowed enormous gain on their debut days. How will Berjaya Auto perform next Monday?

From the public respond to its IPO, perhaps BAuto may not have the same fortune as Karex & Caring.

BAuto's IPO is oversubscribed by only 4.2x, while Karex & Caring are oversubscribed by 21.8x & 33.7x respectively. So, there is a huge difference here.

This is good for me though, as I have interest to buy BAuto's share in the near future.

However, Kenanga Research gives BAuto a target price of 92sen, which is 30% higher than its IPO price of 70sen. So, I can sense that it will open at 80sen and close at 90sen in the first day. Sigh...

BAuto will launch the new Mazda 3 much sooner than I expect, which should be around March-April 2014. Besides, it has just launched the minivan MPV Biante & the facelifted SUV CX-9 during the current KL International Motor Show. All are CBU with Skyactiv technology from Japan.

I predict that the new Mazda 3 will be BAuto best-selling model in term of number of units. However, it has a disadvantage as it is priced indicatively at RM139,000 for its 2.0 variant. At this price, we can get a bigger D-segment car.

If compared to other C-segment cars:

• 2014 Toyota Corolla Altis 2.0G - RM126k
• 2014 Toyota Corolla Altis 2.0V - RM138k
• Honda Civic 2.0S - RM132k
• Honda Civic 2.0Navi - RM137k
• Honda Accord 2.0VTi (D-seg) - RM140k
• Nissan Sylphy 2.0XL Comfort - RM115k
• Nissan Sylphy 2.0XV Premium - RM125k
• Hyundai Elantra Nu 1.8L Premium - RM115k
• Hyundai Sonata Nu 2.0L Elegance (D-seg) - RM138k 
• Kia Cerato 2.0L - RM119k
• Kia Optima 2.0EX (D-seg) - RM144k
• Peugeot 408 2.0L - RM110k
• Peugeot 408 Turbo - RM129k
• Ford Focus 2.0 Titanium Plus - RM130k
• Ford Focus 2.0 Sport Plus - RM130k
• VW Jetta TSI - RM153k

       Mazda Biante

The 2014 Mazda 3 2.0 is priced very close to high-spec Altis & Civic, but both of them are CKD while Mazda is CBU Japan. So it might have an upper hand in facing Toyota & Honda.

However, against other brands like Hyundai, Kia, Ford & Peugeot, Mazda 3 does not have a competitive edge in term of pricing. So it will rely on its technology, design, service and branding. Hopefully BAuto will load it with more gadgets to attract potential buyers.

In the near future, I think BAuto will CKD this new Mazda 3 just like what it did to its older version of Mazda 3. This should bring the price down by RM10k and BAuto will have a chance to export it to other countries. It may also introduce the lower engine displacement variant soon.

Anyway, the sale of the old Mazda 3 should be very slow now...

Berjaya Auto: Soul Of Motion

In year 2008, Bermaz was awarded the distributorship of certain Mazda CBU (Completely Built-Up: Imported) vehicles. Since then, Mazda vehicles are getting more and more common on Malaysia's roads.

Because of the success of Bermaz, Mazda Japan has renewed the distributorship agreement with Bermaz twice and the latest will only expire in 31 Mac, 2019.

Now Bermaz, through Berjaya Auto Sdn Bhd (BAuto) which was incorporated in May 2010, will be listed in Bursa Malaysia main board tentatively on 18 Nov 2013 to raise RM57.9 million.

From 2008 until now, Bermaz is involved in the import of Mazda CBU vehicles from Japan/Thailand. From year 2009, Bermaz has started its CKD (Completely Knocked-Down: locally assembled) program in which the Mazda 3 was the pioneer. Now the CKD model is extended to the CX-5. Both Mazda 3 and CX-5 are the best selling models in Malaysia.

The CKD vehicles are assembled in a third party assembler plant Inokom in Kulim. They will be exported to other countries besides being sold to local market.

CKD for Mazda is essential as locally assembled cars will be priced more competitively to its rivals Toyota, Honda, Nissan etc which are also CKD in Malaysia.

However, BAuto only has 30% share in its CKD segment in MMSB. The rest are owned by Mazda Japan.

RM mil	Revenue	PAT	PAT %
2010	266.8	14.1	5.3
2011	592.6	36.1	6.1
2012	663.6	40.7	6.1
2013	1064.3	52.0	4.9

  

BAuto's past financial results are quite impressive. It records consistent growth in revenue and profit since 2010. Its net profit margin has been at 5-6%.

BAuto's IPO is priced at 70sen per share. It has total shares of 803 million and thus a market cap of RM562 million. Base on its FY2013 profit for shareholders of  RM52mil, its EPS will be 6.3 sen and PE ratio 11.1x at 70sen per share.

BAuto does not have a fixed dividend payout policy, but if circumstances allow, it will pay up to 40% of its net profit as dividend. If it pays 40% for FY2013, then it will be 2.6sen per share of dividend yield 3.7% at share price of 70sen.

       Mazda: from 0.3% to 2.7%

Is BAuto a good stock to own? Well, its business model is very simple. If more people buy Mazda cars, profits & share price of BAuto will rise and investors will gain.

Automotive sector is quite competitive in Malaysia. Because of protection from the government, throughout the history national car makers (Proton & Perodua) have taken up more than 50% of the market share in term of total sales volume. The rest is up for other non-national car makers to grab.

Every Malaysian is aware that the most popular non-national car brands are Toyota, Honda & Nissan. However, in recent years, other cars especially the Korean & European brands have taken the market by storm.

Mazda vehicles have taken up higher market share each and every year since it was distributed by BAuto in 2008. If Mazda wants to remain competitive in Malaysia, it should have:

• Attractive design
• I think Mazda's car design is impressive since the Nagare era. Its latest design Shinari Concept which is seen in its CX-5 and new Mazda6 in Malaysia, is nothing but outstanding. Anyway, design is subjective and everyone has different taste. However, from the response of its CX-5 here, I think it is very well-accepted.

       KODO - Soul Of Motion Shinari Concept

•  Advanced technology
• Mazda newly launched SkyActiv Techonology, which is also found in its CX-5 and new Mazda6, consists of brand new engine, transmission, body & chassis. Its SkyActiv-G engine has the world's petrol engine highest compression ratio of 14:1 which translates into 15% better fuel efficiency. New models in the future will certainly switch to this.

• Attractive package
• This depends on the management of BAuto to add whatever gadgets and engine variants in its vehicles to attract buyers and stay competitive.
• Attractive price
• This will also depend on BAuto's management and other industry players who slash price to win customers. CKD models will help to boost up sales even though some car enthusiasts may insist on CBU.
• Service convenience and quality
• More 3S centers and dealers with trained and qualified sales & service personnel. Fund raised from IPO should help to improve this area.

Overall, Mazda Japan has already provided great vehicles to BAuto. It is up to BAuto to find ways beat its competitors. BAuto's CEO Dato Yeoh is someone who has vast experience in Malaysia's automotive industry.

Mazda, Hyundai, Kia, Peugeot, Ford & VW will certainly erode Toyota, Honda & Nissan's market share in the future. Among all these brands, I think Mazda has the cutting edge.

Mazda needs to ensure that it will consistently roll out new models and facelift its vehicles. Mazda2 which are imported from Thailand since 2010 is running out of steam at the moment. Mazda3 which is the latest model in the new Shinari design should be able to boost Mazda's sales in the near future. However I believe this 2014 Mazda3 will not reach Malaysia's shore so soon, probably 2015?

       2014 Mazda3 hatchback

So, currently BAuto will depend on mainly CX-5, new Mazda6 & commercial pick-up BT-50 to support its top and bottom lines.

If you think that hybrid and electric vehicles are the near future trend, then Mazda may not be in a good position. Mazda has just launched its 2014 Mazda3 in Japan last month. The launch includes Mazda3 hybrid under licensed from Toyota Hybrid Synergy Drive System. Overall, Mazda now concentrates on its latest SkyActiv petrol & diesel engines, so it may not be able to compete with Toyota & Honda in hybrid cars area.

       Mazda CX-5

Through its 60% owned subsidiary Berjaya Auto Philippines, BAuto started to distribute Mazda vehicles in Philippines since FY2013. For FY13 ended April 2013, Philippines contributes just 5.2% of BAuto's revenue. Philippines is one of the lowest car ownership in the world, which is 9 cars per 1000 people, compared to Malaysia's 300+ cars per 1000 people.

BAuto will not have the opportunity to venture into Mazda vehicles distributorship in other Asean countries besides Philippines, as all other countries already have their own distributors appointed by Mazda Japan. However, BAuto may export its CKD vehicles to them just like the export of CX-5 to Thailand.

Since 2010, I always think that Mazda will be successful in Malaysia and globally. This have not changed until now. 

I did not apply for any IPO before and will not do so. However, among all the IPOs that I have studied, I would say that BAuto is the one that excites me the most, as I am a fan of Zoom-Zoom...

Caring For You & Your Money

Another IPO queuing to be listed in Bursa on 13th November 2013 is Caring Pharmacy, which is the first retail pharmacy group listed in Bursa Malaysia.

It will offer 35 million shares at RM1.25 each to raise RM43.75 million. Its total share will be 217,706,400 and NTA 46sen per share after listing.

Caring Pharmacy started as a small retail pharmacy in Cheras in 1994. Over 20 years, it has successfully evolved into a chain of 85 communities pharmacies under the Caring brand, in which 26 are wholly-owned and 59 are partially-owned through joint venture.

Caring pharmacy is a brand well-established in the Klang Valley, but not so much outside it. Until June 2013, it has 68 pharmacies in Klang Valley.

• Kuala Lumpur - 30
• Selangor - 38
• Johor - 11 (since 2008)
• Melaka - 2 (since 2010)
• Perak - 2 (since 2012)
• Penang - 2 (since 2013)

Similar to other community pharmacies, Caring mainly generates its revenue from selling pharmaceutical products, health foods, personal care products, medical devices and some from distribution services. It also sells some products under its own Caring brand such as mineral water, hand/body wash, beauty accessories etc.

Caring's financial performance from 2010 to 2013 has been exceeding my own expectation. Amid intense competition, Caring still manages to record a consistent growth in both revenue and profit. Its 3-year CARG of revenue and net profit stand at 21% and 15% respectively. 

Nevertheless, the profit after tax margin is quite low (7.4% in 2013).

RM mil	Revenue	Net Profit
2010	170.6	13.6
2011	206.5	16.5
2012	248.3	18.3
2013	301.4	20.6

  Caring Pharmacy Financial Results

After listing, the EPS for 2013 is estimated to be 9.5sen, giving it a PE ratio of 13.2x at IPO price of RM1.25.

Before IPO, Caring has a cash & equivalents of RM40.4 million while the total borrowings are only RM14.9 million. Its balance sheet is deemed healthy.

Caring has a dividend payout policy of at least 30% of its net profit. If we use the net profit of RM20.6mil in 2013 and IPO price of RM1.25, its dividend yield will be at least 3%.

Base on past financial results, Caring may be able to carry its growth momentum for a period of time. However, immense competition is the key problem in the future.

Though currently Malaysia has 2,205 retail pharmacies, it is growing at a slow 4.3% CAGR from 2008 to 2012. This may give chance to Caring to expand at greater pace.

Nevertheless, there are a few big groups who are already targeting the cake of retail pharmacy business, such as Cosway and BP Healthcare. There are also some small pharmacy chain stores which flourish locally and it is not easy for Caring to penetrate their market.

       Cosway: going aggressive

In shopping malls and hypermarkets where most Caring pharmacies are found, there are surely other competitors like Guardian, Watson, Aeon Wellness, Apex etc.

If Caring Pharmacy want to do well in the future, then it must survive in the highly competitive environment. This is why it is planning to be listed publicly. Besides obtaining the necessary fund, it can help to lift Caring brand name to another level.

Without doubt, this is a bad news for individual-owned retail pharmacy stores.

Karex: Indisputable World Leader?

Karex Berhad will be tentatively listed in Bursa KLCI on the 6th of November 2013. It will raise RM75 million through public issue of 40.5 million new shares at RM1.85 each.

Better known as world's largest condom manufacturer, Karex started its business back in 1988 in Johor. Besides condom, it also manufactures other rubber-based medical devices such as probe covers, sterile catheters, rubber gloves and lubricating jelly. However, condom sales contribute to about 90% of its total revenue.

Karex's condoms are sold in commercial, tender and OBM (own brand manufacturing) markets, which makes up 59.7%, 36.1% and 4.2% respectively for FY2013 ended 30 June 2013.

Its commercial customers include Ansell (Lifestyle brand), Reckitt-Benckiser (Durex brand), Line One (Trustex brand) & Global Protection (One brand). The tender market is tendered to institutional buyers such as NGOs and government agencies. 

Karex's own condom brand Carex and INNO are mainly distributed in Singapore, UAE, South Africa, India, Bangladesh and Nigeria.

Karex currently has 3 factories at Pontian, Port Klang and Hat Yai. Manufacturing facilities in Hat Yai commenced operation in 2006 and will receive 13 years of tax incentives for condoms manufactured there. It will enjoy 8 years 100% tax free (2006-2013) and 5 years 50% tax exemption (2014-2018). This means it will start to pay some tax next year.

How big is the condom market and does Karex has a competitive edge?

According to research, global condom sales increase from 16.2 million in 2007 to 22.8 million in 2012, representing a CAGR of 7.1%. It is estimated that 51.9% of sales are derived from commercial market and 48.1% are from institutional buyers.

For year 2011, Malaysia is the second largest condom exporter in the world (18.9%) after Thailand (23.8%) in term of sales. In term of weight, Malaysia is the world largest condom exporter with 12,450 tonne in 2012, followed by Thailand (10,600 tonne).

Karex is said to enjoy 10% of global market share in condom manufacturing.

In its homeland Malaysia, Karex is the clear leader in condom manufacturing with other closest competitors miles behind in term of revenue, profit, margin and market share. In 2012, Karex exported 7,600 tonnes of condom, which represents a market share of 60.8% in Malaysia condom export market.

       Karex: No.1 in Malaysia

In term of annual manufacturing capacity, Karex with 3.0 billion pieces per year is the world leading condom manufacturer. It still plans to double its capacity to 6 billion pieces by year 2015!

       Karex: No.1 in the world

For FY2013 ended June, Karex manufactures 2.4 billion pieces of condoms, representing a utilization rate of 80%. Thus, plans to ramp up its manufacturing capacity by acquiring new factory and installing new lines in Klang and Hat Yai have been on-going, and are expected to be completed by end of 2013. Besides, it also plans to move its main facility in Pontian to a larger 18 acres site nearby in 2014-2015.

Besides expansion of manufacturing capacity, Karex will introduce further automation in its manufacturing process to increase efficiency and reduce manpower. In the near future, Karex will expand its own brand market which can give better profit margin. Who knows it may diversify into other rubber-based products in the future?

	RM mil	2010	2011	2012	2013
	Revenue	157.4	181.7	188.8	231.4
	PAT	16.5	7.0	12.0	29.0
	PAT margin	16.8	3.9	6.4	12.5

       Karex recent financial results

From year 2011 to 2013, Karex's net profit and profit margin increase tremendously. However, I am not sure why its margin in year 2010 was so high.

Before IPO, its total borrowings stand at RM50.8mil while it has RM41.3mil of cash. It will be a net cash company after listing.

With total shares of 270 million, net profit of RM29 million in 2013 (ended June13) and IPO price of RM1.85, Karex's EPS and PE ratio will be 10.7sen and 17.3x respectively. 

Currently its net profit margin of 12.5% is considered quite good in manufacturing and may have little room for improvement I think. Thus base on its previous year 23% increase in revenue, we can conservatively estimate a 23% increase in net profit for year 2014, which will be RM35.7 million. At this profit, its estimated PE base on IPO price will be 14.0x  in 2014.

If Karex can maintain its profit growth of 2012-2013 (140%), then it will be excellent.

Karex does not have fixed a dividend payout policy. If it pays 50% of net profit in 2013 as dividend, this will be 5.4 sen per share, or 2.9% dividend yield at RM1.85. 

Karex is a world leading condom manufacturer, with healthy balance sheet and good financial results. It is aggressive in expansion as well. However, at RM1.85, do you think it is a fair price to invest? I would prefer to know its FY2014 Q1 result first (July-Sep 2013).

ACE IPOs 2011: Wrong Timing?

This year as we know there are quite a lot of bad IPOs in the ACE market. Some of them even make loss after listing, especially XOX. From a total of 11 of them, only 2 register a current share price higher than their IPO price, which are Asia Media and Boilermech. Is it too easy to get listed in the ACE market?

			Share Price	Latest Q profit
	IPO Price	30Nov Price	Change %	RM ' 000
Amedia	0.23	0.290	26	3400
Mpay	0.16	0.155	-3	-780
Smartag	0.31	0.260	-16	-907
Boilerm	0.33	0.770	133	3626
Mclean	0.52	0.175	-66	307
Ijacobs	0.27	0.190	-30	434
Xox	0.80	0.245	-69	-6536
Inari	0.38	0.375	-1	3959
Catcha	0.75	0.620	-17	-2274
Plabs	0.30	0.145	-52	358
Idmensn	0.38	0.275	-28	78