HALEX (5151) - Halex Holdings Berhad - Higher Value

Halex Holdings Berhad (Halex - 5151) is principally involved in Agrochemical and Fertilizer products. Subsequently, the group also involved in foliage cutting and landscape potted plants as well as Healthcare disposable products.

With the current stiff competition in the agrochemical division, it had been critical for the group to look out for new business opportunities for diversification purposes in order to grow the company. Halex had been seen having interest in tapping into the real estate industry since 2014 through the acquirement of 25% stake in Kesington Development Sdn Bhd which had prime development land in Kota Kinabalu, Sabah.

Let's have a look at the price chart of Halex to see what would be the development in the company in the coming days ahead.

Based on technical readings, it can be easily identified that Halex had saw good amount of open market accumulation during the month of December 2015. The accumulation can be saw through good solid candle reading which is supported by good participating volumes. Albeit having the volume dying down due to the recent market volatility, Halex had saw a break away from the short term down trend line. The break away candlestick is shown with strong volume support, indicating a possible turn in trend, which is for this case is going uptrend.


Rise Up and Rice Up

One of the critical key project that Halex had secured in 2016 is a rice supply contract to Koperasi Majlis Belia Felda Malasysia Berhad.

Under the salient terms of the contract, Halex can supply up to 80,000 tonne of rice per year for a period of 2 years with a 1 year extension option. According to the agreement, Halex is supply price is based on market price from Bernas + a fixed premium of RM 200 per tonne. The margin for rice trading fluctuate around 7% .

Assuming Halex supply price is RM 2500 a tonne, the gross margin could be looking at a profit of RM 175 per tonne. An annual supply of 80,000 tonne will interpret to a gross profit of RM 14 million, EPS of 13 cents based on current share base of 106 million outstanding shares.

To put it more skeptical, a 70% delivery will still see a potential EPS of 9.2 cents based on rice trading alone.

The rice trading business will commence in June 2016, and will greatly contribute to the bottom line of FYE 2016.


Corporate Exercise

Halex is vying to venture into the property scene through the acquirement of Kensington Development Sdn Bhd through it's wholly owned subsidiary - Halex Realty Sdn Bhd. The prime land that Kesington own in Kota Kinabalu that span an area of 15.43 acres is a potential spot to churn in RM 1.1 billion of mixed development of commercial and residential project for the next 4 to 6 years.

This huge exercise will see Halex enlarging share base and share capital. Sources are probably seeing Halex looking to set placement share at a possible pricing around RM 0.65 to RM 0.70, due Halex having clinch the rice trading contract, and approximately 40% discount from it's NTA of RM 1.20.

The corporate exercise will raise enough capital for Halex to fully acquire Kensington Development Sdn Bhd.


Conclusion

Based on the current development in Halex, the current pricing is deemed attractive to investor. At the current juncture, the rice supplying contract can easily see Halex valuation jumping to 90 cents based on potential EPS at 9 cents per annum, valued at PER x10, that it notwithstanding it's other business in agrochemical and healthcare disposable products.

Bone's TP: RM 0.65




Cheers and have a nice day

Regards
Bone

HALEX (5151) - Halex Holdings Berhad - Higher Value
http://bonescythe.blogspot.my/2016/04/halex-higher-value.html