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Saturday, June 20, 2015

Why SAM? Order book of RM3Billions and pure cash company (RM103Millions)- (TP:RM10.95)

EPS estimation : 18.25 x 4 =73sen

PE ratio : 15 (higher PE ratio due to stable income in the next 5 year, pure cash
company with no debt and high dividend yield)

Target price : RM10.95 (might be more in long term)





I am here to ANSWER a simple question. Why SAM?

1) Strong order books of RM3billions keep the company busy until 2026

2) Management determination - Become global player with annual revenue more than

RM1billions

3) Strong balance sheet -RM103millions cash with zero borrowing, dividend yield of 4.14%

4) Reputable customers, GE Aviation. subsidiary of General Electric, which is listed company

in Dow Jones index


Introduction

On 27 September 2012, SAM Engineering & Equipment (M) Berhad have completed the

acquisition of the entire issued and paid-up capital for Avitron Pte Ltd from Singapore

Aerospace Manufacturing Pte Ltd for RM135millions.

After the acquisition, it began the new chapter for SAM Engineering in aerospace industries.

There are three main business involvement:

a) Aerospace (69% of total revenue)

b) Equipment Manufacturing (24% of total revenue)

c) Precision Engineering (7% of total revenue)

According to annual report 2014, Temasek Holdings (Private) Limited (investment company

for Singapore government) owned 74.18% of indirect interest in SAM Engineering & Equipment

(M) Berhad.





1) Strong order books of RM3billions keep the company busy until 2026

http://www.thestar.com.my/Business/Business-News/2014/09/08/SAM-plans-to-grow-via-additional-investments-and-acquisitions/?style=biz

From the Star report as at 8 September 2014, the company already have RM2billions orderbook on September 2014.







http://www.sam-malaysia.com/wp-content/uploads/2015/06/Latest-News_17-June-2015.pdf

http://www.sam-malaysia.com/wp-content/uploads/2015/05/Latest-News_26-May-2015.pdf

Refer to the link above, Avitron Pte Ltd, wholly-owned subsidiaries of the company have receivedRM450millions contracts from GE Aviation on 26 May 2015 and RM900millions contracts fromGE Aviation on 17 June 2015. These brought the company currently stood at RM3billions order book.

Calculations are as follows:
RM'000
Total order book as per Sep 14 2,000,000.00
Revenue as per 30/09/2014 (112,328.00)
Revenue as per 31/12/2014 (113,542.00)
Revenue as per 31/03/2015 (132,493.00)
New contracts on 26/05/2015 450,000.00
New contracts on 17/06/2015 900,000.00
Total order book as per 17/06/2015 2,991,637.00


The order book of RM3billions will keep the company busy until 2026.

With the RM3billions order book, the company will able to maintain revenue for the latest quarter, which is RM132million for 5 and a half year!!! (5.5 x 4 x 132 = RM2.904billions)

2) Management determination - Become global player with annual revenue more than RM1billions

Refer to the annual report 2014, the company management planned to target annual revenue of RM1billions in the next 2 to 3 years. For year 2015 (up to 17/06/2015),the company have received order book of RM1.35billion (as stated above). These marked the management determination to archieve the target of RM1billion revenue, which is 121% inceased in total revenue from rolling revenue for the past 4 quarters!! From the star news above, the management also stated that they are targetting to become the leading player in Asia Pacific in aerospace industry.

3) Strong balance sheet -RM103millions cash

with zero borrowing, dividend yield of 4.14%

As per latest quarterly report, the company held RM103million cash and cash equivalents, which is RM1.23 per share!! Other than that, the company have zero bank borrowing and RM79million of trade and other payables. Net assets for the company stood at RM4.46 per share.

Also, the company have declared RM0.1725 per shares of final and special dividend during 2014, which translated to 4.14% of dividend yield. For financial year 2015, the company expected to declared the dividend during July 2015, which is one month from now. As the company's profit grow for current financial year, hence we expected better dividend payout for this year.

4) Reputable customers, GE Aviation, subsidiary of General Electric, which is listed company

in Dow Jones index

The main customer of the company, GE Aviation, which is among the top aircraft engine suppliers and offers engines for the majority of commercia aircraft in the world.

GE Aviation is one of the subsidiaries for General Electric Company which is listed in the Dow Jones Index (top 30 largest company in term of market value in US).



https://www.ge.com/sites/default/files/ge_webcast_pressrelease_01232015_1.pdf

According to the quarterly report for General Electric Company. GE Aviation have contributed USD24billions revenue during financial year 2014.

5) Strong currency exchange against ringgit lead to increase in total revenue

As most the contract signed in US dollar (refer to the attachment for the latest contract on 17 June 2015 and 26 May 2015), we expected the total order book increased (in term of ringgit) as ringgit have been depreciation about 10% to 20% during 2015.

Trade at your own risk!!! Do research before any investment decision!! Happy trading :-)

http://klse.i3investor.com/blogs/undervalue/78651.jsp

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