Friday 29 Mar 2024
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This article first appeared in Capital, The Edge Malaysia Weekly, on November 28 - December 4, 2016.

 

CLOSING at RM1.46 last Wednesday, HeveaBoard Bhd’s share price was up 39% from a low of RM1.05 on Aug 30. Still, the stock was about 10% lower than where it ended last year and off its 52-week high of RM1.79 on Jan 6 this year.

CIMB Research, for one, thinks HeveaBoard can beat that high. “A strong US dollar and rising particleboard prices is a perfect scenario for HeveaBoard,” CIMB told clients in a Nov 22 note when raising its target price for the stock to RM2.37 from RM2.02 after rolling-over valuations to 2017 and adding its net cash per share figure to the sum-of-parts estimate.

If CIMB is right, there is a 62% upside potential to HeveaBoard. Those who can stomach the risk may also consider the company’s warrant, Hevea-WB, which has more than three years to run before expiring on March 1, 2020. It has a one-to-one conversion ratio and a strike price of 25 sen.

Closing at RM1.21 last Wednesday, Hevea-WB was trading at parity with the underlying shares.

If HeveaBoard hits CIMB’s RM2.37 target price, Hevea-WB should be worth 75% more at RM2.12, assuming zero premium to the underlying stock.

CIMB is the only research house with active coverage of the stock, Bloomberg data shows at the time of writing.

In the Nov 22 note, CIMB also says it expects HeveaBoard’s fourth-quarter numbers to be “very strong”, given that both its divisions (particleboard and furniture) will be in peak season. The particleboard price hike in September “should start to filter through and the ringgit is weak”, it explains. This is why it deemed HeveaBoard’s 9M2016 core net profit of RM52.7 million to be in line with forecast despite being only 58% of full-year expectation.

“We raise our FY2017-18 EPS (earnings per share) by 5% to 15% to factor in weaker ringgit-US dollar assumptions and higher E0-Super E0 board selling prices (up 10%) but mitigated by higher raw material prices (up 10% to 15%) and a slightly higher effective tax rate of 12% (versus 10%) due to a higher tax rate in the furniture division. HeveaBoard is one of the biggest beneficiaries in our coverage of a strong US dollar — every 1% appreciation in the US dollar will boost FY2017 EPS by 5%,” CIMB says.

The research house also expects HeveaBoard’s net cash per share to rise to 32 sen by end-FY2017 from 20 sen as at end-3Q2016.

The 2.6-sen dividend per share paid so far was “slightly ahead” of CIMB’s full-year estimate of five sen. Downside risks to its forecast include a higher-than-expected increase in raw material prices. 

 

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