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Thursday, September 18, 2014

GUNUNG - Buses of Hydro Mills

Source: http://klse.i3investor.com/blogs/bonescythe/60029.jsp

The local market had saw a hot focus from most of the sector with properties, plantation, oil and gas and furniture being the focused theme in the beginning of the year. Following up in the middle of the year, we saw the semi conductor theme play, as well as Sarawak themed following the bullishness of SCORE project. Then came Selangor's water concession theme play which had been in a tough unresolved saga for quite a period of time. In the middle, there are some businessman theme based speculation ranging from Tan Sri Quek Leng Chan, Tan Sri Robert Tan, Tan Sri Vincent Tan. Then came the aluminium theme play, and the latest theme in the market is being the GST that will be implemented next year.

While theme play is important, what could be the next coming up theme in focus?



The latest theme that had been strongly in the play is surprisingly - Buses.

While both KTB and KBES had been rolling higher, one of the better managed chartered bus company that had solid financial fundamentals and comes with solid government contract is Gunung Capital Berhad (GUNUNG - 7676)

Let's have a quick look on Gunung latest price chart.


Gunung had been seen consolidating at the loose range of RM 0.85 to RM 0.90 for a period of 9 months. The 9 months long consolidation had definitely see a level of saturation which will be going to see a fresh set of volume kicking into play. A quick outlook will definitely peg Gunung to a potential run up reaching RM 1.00 in the short term. While RM 1.00 is the main psychological barrier, a convincing break above RM 1.00 coupled with stronger volumes will definitely put Gunung into a good position for a stronger soar.


Gunung - Cashing The Water

GUNUNG CAPITAL BERHAD is primarily involved in land based passenger transportation and specialty vehicle. Gunung Capital had secured long term contracts with the government in providing bus services from the National Services and IIUM as well as some other smaller scale chartering services under their wholly owned subsidiary of Gunung Resources Sdn Bhd and GPB Corporation Sdn Bhd.

The 2Q FYE 2014 had saw Gunung maintaining it's revenue range, however, earning drop slightly which is affected by a higher operating cost. However, moving forward, Gunung is expected to see an overall stronger earnings after securing another 2 new contract from IIUM in 15th May 2014 to provide shuttle bus servicing operating within the Kuantan and Gombak campus which is worth a total RM 4.2 million. Source - Bursa Malaysia

While Gunung's earning is looking to be on a steady outlook with the already ongoing contracts, the new contracts inched will certainly be adding some boost towards it's earnings. A quick estimation will see Gunung being able to deliver an EPS of 13 cents for FYE 2014, which will be translating to a value of RM 1.30 based on a skeptical PER x10 on it's earning.

On it's financial and balance sheet statement, Gunung had been seeing an increase in cash and a gradual decrease in it's debt notes. Currently, Gunung is sitting on RM 24 million cash and in a RM 12 million net cash position, a position that is far better than the other listed bus operator KTB and KBES.


Upcoming Catalyst

Gunung had recently announced it's interest to diversify into a steadier income through by expanding into the renewable energy sector. With this, Gunung had purchased a 85% stake in Pusaka Hijau Sdn Bhd, where Pusaka Hijau Sdn Bhd controls 60% of the stake in PHREC (Perak Hydro Renewable Energy Corporation), while Perak MB's control the other 40%. This will automatically translate to a 51% controlling interest in PHREC, which had the concession license to develop, operate and own small hydroelectric plant in the state of Perak. It is envisage that PHREC will be contributing a total of 292 MW from 31 sites in Perak, in which 6 of them is carrying 116 MW is extended into the list of pre-identified sites in 29th April 2013. Based on a rough estimation of RM 10 million capex for 10 MW, the 292 MW from 31 sites will be looking at a RM 2.92 billion worth of construction project.


The Perak hydro renewable electric project had been in a hot stint lately with more JV in the pipeline for the hot projects. Amongst them had saw Tan Sri Abu Sahid's Maju Holdings already in the game for a RM 600m JV with PHREC to develop a 60 MW  hydroelectric plant. Source - Maju Holdings JV RM600m with PHREC

Then, Globaltec (Glotec - 5220) had also entered into a SSA (Share Sale Agreement) to acquire 49% of interest in Empangan Sejati Sdn Bhd (ESSB), which will comes with a concession for Glotec to build and operate a 15 MW hydroelectric plant in Sungai Perak, Lenggong.


And to put it more spicy, Gunung Capital direct 70% owned subsidiary, Gunung Hydropower Sdn Bhd had also took up 2 sites which comprises of 20 MW with 10 MW in Pulau Tengah, Chenderoh, Sungai Perak and another 10 MW at Pulau Temelong, Sungai Perak. Both of the sites had received duly executed REPPA (Renewable Energy Power Purchase Agreement) from Tenaga Nasional Berhad at 24 cents / kwh.

While the waters are hot, Gunung will further strengthen their financial position with the disposal of EV Bus Sdn Bhd to Best Venture Capital Sdn Bhd for a consideration of RM 9.05 million, further paring down RM 7.89 million of debt and increase their cash by RM 1.16 million.



Gunung Capital will definitely be a good and solid long term investment, and will be a upcoming shining star in year 2015 with their 51% stake in PHREC, literally putting Gunung in control for all the 292 MW hydro electric plant  in Perak, which will be worth billions in value. Gunung will definitely be a superb investment vehicle in the long run based on :
- Solid financial background and fundamental with a net cash position as a chartered bus operator
- Steady revenue stream with an estimation of total earning for FYE 2014 at 13 cents, reflecting a valuation of RM 1.30 based on PER x10.
- Diversification into the Renewable Energy Sector to create steady recurring income from REPPA (Renewable Energy Power Purchase Agreement) from TNB
- Significant 85% stake in Pusaka Hijau Sdn Bhd, which in turn own 60% of PHREC, reflecting GUNUNG Capital Berhad 51% indirect stake in PHREC, which had the 21 years concession for a total of 31 sites comprises of 292 MW, to build, operate and own them.
- Gunung Capital direct 70% and indirect 15.3% (Total 85.3%) owned subsidiary of Gunung Hydropower Sdn Bhd receiving duly executed REPPA of 20 MW from TNB.
- Disposal of EV Bus Sdn Bhd for RM 9.05 million. 
- Strong and favorable political ties.
- KLSE current "Bus" Themed play

Gunung Capital will be looking to challenge into a higher ground based on a solid fundamental run up which will be a core factor for a re-rating catalyst. At the current price of RM 0.86, Gunung will be a fresh and interesting target from Private and Institution Funds to lock in to their position. A long term outlook will put Gunung trading at the range of RM 1.50 to RM 2.00

Ready to ride with the hydro plants? You decide.

Bone's short term TP : RM 1.00

Cheers and have a nice day

Regards,
Bone

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