KUALA LUMPUR (April 21): Perak-based Choo Bee Metal Industries Bhd rose by as much as 18 sen or nearly 10% today after UOB Kay Hian Securities (M) Sdn Bhd issued a non-rated report on the company, describing its earnings as having a "potential upswing".

At 11.45am, today, the stock pared down its gains to trade at RM1.96, still up 13 sen or 7.1% from yesterday's closing price of RM1.83.

At RM1.96, Choo Bee is valued at a market capitalisation of RM215.41 million.

It is worth noting that some 1.25 million Choo Bee shares, equivalent to 1.15% of its share capital, were traded in the morning session today.

In a note to clients today, UOB Kay Hian said, "Choo Bee expects to report another set of outstanding results in the first quarter of financial year 2017 (1Q17)."

This, said UOB Kay Hian, was mainly on account of the 30% improvement in its manufacturing division's average selling price, which was up by 30.4% to RM3,000 per tonne in 1Q17 from RM2,300 in 4Q16.

"Choo Bee expects its manufacturing division's growth to moderate in 2017 to a high single digit," the stockbroking firm said.

Ipoh-based Choo Bee processes steel coils and turn it into steel products. Choo Bee also leases out land, in addition to fabricating steel products, and trading hardware products.

"Choo Bee has another plot of land located next to its main plant, which is to be used for the next expansion exercise," said UOB Kay Hian, noting that the expansion — likely to be financed by internally-generated cash — will result in a 20% increase in production capacity.

"Its main plant is running at 60% utilisation rate and future expansion will depend on market demand," the stockbroking firm noted.

According to UOB Kay Hian, Choo Bee is able to cut its raw material costs by 10% to 15% since the closure of Megasteel Sdn Bhd's plant.

"It is also exempted from paying import duty on hot rolled coil until November 17," it noted.

UOB Kay Hian said Choo Bee currently trades at a 12-month trailing price-earnings ratio of 8.1x, while its closest competitor, Hiap Teck Ventures Bhd, currently trades at price-earnings ratio of 13.1x.

"Another key attraction of the stock lies in its generous dividend payment. Choo Bee declared a nine sen dividend in 2016, representing 43% payout ratio and implying 4.7% yield," the stockbroking firm said, noting that "typically, Choo Bee will declare a special dividend when net profit hits RM20 million".