Stock with Momentum: Tek Seng Holdings

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Tek Seng Holdings Bhd

Tek Seng Holdings’ share price has doubled in the last two months, following news of a proposed investment into the company by a Taiwanese party in September.

Tek Seng is primarily involved in the manufacturing and trading of PVC sheeting. The company ventured into solar photovoltaic cell manufacturing business back in 2012. The solar division is gaining more prominence with the rise in demand for solar energy, and is likely the reason Tek Seng is seeing increased interest.

Indeed, trading momentum in the stock soared just before and after the company announced that it had, on Sept 11, 2014,entered into an MOU with Taiwan-listed Solartech Energy Corp (SEC), who will invest RM100 million in Tek Seng’s 86.1%-owned subsidiary TS Solartech.

TS Solartech had net assets of RM50.02 million and posted a net loss of RM14.14 million in 2013.

The investment is large relative to TS Solartech’s net assets of RM50.02 million and Tek Seng’s market capitalisation of RM199.2 million. However, it is unclear what its eventual stake in the solar business will be.

Indeed, it should be noted that there have been no new developments announced since then, and the agreement is only an MOU at this stage.

The solar division generated pre-tax losses of RM7.7 million in 2012 and RM13.9 million in 2013. Despite these losses, Tek Seng remained profitable, with pre-tax profit of RM9.63 million in 2012 and RM7.54 million in 2013. In 1H2014, Tek Seng’s pre-tax profit jumped from RM2.5 million to RM14.4 million, with a 25.6% jump in revenue to RM122.35 million.

Net gearing stood at 55.8% as at end June 2014. The stock is currently trading at 1.47 times book with a 12-month trailing P/E ratio of 14.7 times.

This article first appeared in The Edge Financial Daily, on October 21, 2014.