HeveaBoard Bhd
(July 22, RM1.14)
Maintain add with a lower target price of RM1.34: Hevea’s share price has gone ex for a four-for-one share split.

This enlarges its share base from 100 million to 400 million shares, and reduces the par value of the ordinary shares from RM1 each to 25 sen each. 

Hevea’s warrants will also be entitled to a four-for-one split, and the exercise price will be adjusted down accordingly from RM1 to 25 sen.

We view the share split positively as it will help increase trading liquidity.

One of the complaints that investors have about the stock is its low trading liquidity.

Since our initiation report in February 2015, our experience marketing Hevea revealed that many funds are restricted from buying small-cap stocks that are below US$100 million (RM379 million) in market capitalisation and less than US$1 million in average daily turnover.

This exercise should go some way towards alleviating this shortcoming.

With the continued weakness of the ringgit, we are confident Hevea will be able to achieve and possibly exceed our financial year 2015 (FY15) earnings per share (EPS) forecast, which was based on RM3.60 per US dollar, versus RM3.80 to a US dollar now.

The announcement of strong results for the second quarter of FY15 at end-August should validate our belief and further rerate the stock.

Our sensitivity analysis suggests that every 1% appreciation of the US dollar increases the FY15 EPS by 7.6%.

Investors should continue accumulating the stock. We believe that investors will continue to be rewarded by US dollar plays from 2015 to 2016.

We expect Hevea to turn net cash by the end of FY15, putting it in a strong position to increase its dividends substantially. — CIMB Research, July 21

This article first appeared in The Edge Financial Daily, on July 23, 2015.