Are You Interested in This Company That Could TRIPLE in Share Price?
If you think May is a terrible month for your investment; yes, I agree with you. Perhaps that might be caused by investing in the wrong sector, the wrong stock or maybe at the wrong price. But what if I am going to share with you about this deeply undervalued company that could potentially – not double, but triple in share price?
If you were looking at the price movement of the company, it might not look interesting. And as you can tell from the graph, yes, the company is named after TECHFAST HOLDINGS BERHAD, or TECFAST.
We would have few pointers for our discussion, namely the corporate exercise, profitability as well as valuation of the company. Now, let us start with corporate exercises.
On 14th April 2021, the company had announced to have a multiple proposal of:
- Proposed Share Split.
- Proposed Rights Issue with Warrants; And.
- Proposed Disposal.
You might not be aware that the proposal actually hints or screams a free profit from the trading. According to one of the ACE market listing requirements; companies that are interested in exercising bonus issue or share split shall NOT be allowed to have its share price to be below 20.0 cents post-exercise or after the ex-date.
Based on this golden rule of thumb, for TECFAST to go for the 1 to 1 share split, the post-exercise MUST be above 20.0 cents, or prior to the exercise, the company’s share price MUST be 40.0 cents. As at the date I am writing this, TECFAST is trading at 31.0 cents, representing a 29.03% discount even as of now.
Would they consider calling the share split off? I do not believe so. Under their proposal, they company would first execute the share split, then the rights issue. THEY NEED THE ADDITIONAL MONEY FROM RIGHTS ISSUE.
For your information, rights issue may raise more money from a greater number of shares as the discount could be as steep as they want, as long as not more than 50%. Do you see where I am coming with this? TECFAST share price MUST be above 40.0 cents before the rights issue.
But what do they need the money for?
Mostly, the money would be used for their new business.
If you are already a follower of TECFAST, you might already know that the company is going big into oil bunkering business via their recent acquisition on a non-listed oil bunkering company named after CCK PETROLEUM. To be specific, they own 35% stakes of CCK PETROLEUM now.
With reference to what is actually oil bunkering, please have a look at Baltic Dry Index & WTI Crude Oil Index before we go deeper.
From last year to date, the BDI and USOIL had actually went up by 624.94% and 154.35% respectively. This means that the global demand for dry bulk shipping is recovering, and as the oil price recovers, more offshore activities including oil exploration and production will be involved. This would translate into more demand for marine fuel oil. *Note: CCK is in the exact same industry for marine fule oil.
If we were to take this into the context of onshore – or better known as land activities, the more economical activities, the higher demand for fuel and logistics are required, this spells the same for marine fuel oil.
Oil bunkering activities is relatively simple to explain, but difficult to execute. Technically, oil bunkering trades marine fuel oil for ships, vessels, or cargos for OFFSHORE activities specifically. They also provide services such as refilling your vessel in the vast ocean. The industry might sound simple, but tough regulation had destroyed a lot of illegal competition as well as non-competitive player without sound financial backings.
CCK PETROLEUM, on the other hand had a much solid financial background and would lead TECFAST to be the beneficiary of this sector.
But enough of theory, let us talk about numbers.
Historically, TECFAST has been achieving close to 2 million in profit per year. And for 2021, after several clean up of non-profitable companies from the management, I would expect the profit to rise up to 3 million, or optimistically even 4 million. But this is not the key point to invest in TECFAST.
CCK PETROLEUM, the company which TECFAST had acquired, had 0.9 million in profit in a terrible year – 2020. When the industry turnaround, it is not rocket science to have a guestimate that CCK PETROLEUM would perform even better in 2021, in the acquisition of CCK PETROLEUM, they actually had a profit guarantee agreement where CCK PETROLEUM will achieve 10 million in profit in 2 financial years’ time. And that would translate to at least 1.75 million per year for TECFAST.
Moreover, TECFAST also acquired 2 huge contracts, which is RM 2.2 billion in value and RM 540 million in value, respectively. Both contracts entail TECFAST should provide them with marine fuel oil for WISE MARINE PTE LTD and HUANG FAN SDN BHD, respectively. Recently, TECFAST’s management had confirmed that they started delivering marine gas oil to WISE MARINE and I expect the profit to come in quite early this year.
Taking the total contract value of RM 2.74 billion and divide by 3, this would translate in RM 913 million in revenue. The oil bunkering had a rather low profit margin, which averages around 5% but with the rising price for low sulfur marine gas oil due to the IMO 2020 requirement, the margin should slightly increase by a per centum of 1%. But to be conservative, lets stick to the 5%.
We should be able to work out the profit for TECFAST for now.
Existing business profit : RM 3 – 4 million
CCK PETROLEUM contribution : RM 1.75 million (minimum)
New Contracts : RM 15.98 million
Total = RM 20.73 million – RM 21.73 million
This is a chart of the historical valuation of TECFAST, the lowest we had seen is 20 times and highest had gone up to 120 times. But to be fair, let just take a 30 times PER valuation for now.
Based on the number of shares outstanding of the company of 396,509,091, it is not hard to know that the EPS would be around 5.23, and with 30 times P/E, the price of the company should be around 156.0 cents to 157.0 cents.
Even if we discount whatever that could happen to the company, the share price would be still approximately 78.0 cents. Now based on the current price of 31.0 cents, there is potential 2.5 times increase in share price!
To be fair, not a lot of investor had paid attention to the potential of this company, including some forum gurus in the community. This is our chance before the “push” the share price after collecting their deep pocket!
GO FORTH TECFAST!