Hidden Gem Analysis: Why Do I love This Stock So Much?
Each day, we would see different company proposes some special corporate announcement to enhance their inherent and intrinsic value. Albeit some might carry ill intention to temporary create artificial demand for the company’s share, majority of these announcement truly carries weight.
Recently, I had studied about this company called Techfast Holdings Berhad (0084). TECFAST had previously been active in the electrical and electronics sector, but it has now turned their focus onto the midstream part of the oil and gas industry.
As we all know, the oil and gas industry heavily rely on the global oil price for their business. Last year, we had seen the unprecedented event of oil pricing dipping into the negative territory. However logically, the world still needs oil. Now we had seen the West Texas Crude Oil price had recovered strongly up to USD 61.25 per barrel as at the time of me composing this article. This spell the beginning of active marine activities in the upcoming years.
Remembered what we had discussed about company’s corporate announcement? Yes. TECFAST had announced that they are venturing into the oil bunkering business. But what exactly is oil bunkering about? Technically, oil bunkering means the docking of a company’s vessel at ports to source for Marine Gas Oil (MGO) and supply to the client’s vessel / ship / cruise at a cost-plus basis. Apart from trading MGO, the company would also charge a fee on the oil bunkering services.
Of course, oil and gas are just an example of the marine activities offshore. Shipping, transportation as well as logistics plays a huge part in sea transportation and would contribute significantly to TECFAST’s earnings in the future.
To get themselves involve in this huge opportunity and supply-demand gap; the company had setup a new wholly-owned subsidiary – Fast Energy Sdn Bhd to acquire 35% stakes in CCK Petroleum Sdn Bhd. Based on what we could see from the company’s corporate proposal, CCK Petroleum’s acquisition value would be approximately MYR 26 Million and MYR 16 Million would be settle in cash, and the rest would be in new shares issuance.
Interestingly, the share issuance price to partial settle the shares are fixed at MYR 0.430 per Consideration Shares.
As at today, TECFAST is trading at MYR 0.410 per share. What does this mean?
This would mean we are now (if you are buying) investing into TECFAST at a discounted price as compared to its settlement share price. The last time I had deal with such corporate exercises, which is in the newly listed construction company TCS, the share price flew high after the completion of exercise. Now, TECFAST resembles its share price movement pattern.
The company’s management also added that they are considering in investing into newer bunker tankers to significantly enhance Fast Energy’s range of products & services offerings as well as its competitive advantage. To add on, aside from International Maritime Organisation (IMO) 2020 sulphur cap regulation, a newer 2030/2025 regulation had been imposed to the offshore players as well. The regulation aims to reduce greenhouse gases by at least 40% and 70% by 2050. So how could TECFAST benefit from this?
Paradigm Shift – ESG Approach
Investors are now more alerted about a company’s ESG approach. More specifically, the world is currently focusing on the “E” – Environmental part. The MGO that TECFAST supplies would overtake “dirty oil” or residual oil that had commonly been used in Malaysia’s maritime activities. In addition to the IMO regulations, our government is also assisting in tackling illegal oil bunkering activities at the same time.
Moreover, by providing Low Sulphur Fuel Oil (LSFO) to their clients, TECFAST would get themselves to be entitled for helping the environment by reducing carbon emission. The management of TECFAST is also looking to venture into Liquefied Natural Gas (LNG), which is a more regulated market as there would be more demand for dual-fueled engines.
To conclude, TECFAST is an undervalued gem in a rapidly recovering sector. The recent Suez Canal sent OSV demands sky high, and as more OSV activities are in the market, the demand for MGO would increase significantly too.
Aside from that, the board of TECFAST seems committed to venture into the oil bunkering business as they had started to dispose some non-income generating assets such as their wholly owned subsidiary Oriem Technology Sdn Bhd for a sales consideration in cash for MYR 0.9 Million.
The management had also forecasted Oriem Technology who manufactures traditional LED epoxy diodes would get impacted by the recovering oil price, which would hit their raw material costs. To me, the management clearly knows their salt.
I believe TECFAST is trading at a discount now, the intrinsic value of TECFAST based on MYR 2.5 Million in profit per quarter before the newly secured MYR 2.2 Billion contract would value them at MYR 0.600. This would be the first level of which TECFAST try to challenge before market start to realize its value. DNEX, who tried to acquire SilTerra had faced some voices in the market as well. But look at what happened to its share price upon the deal has been sealed?