KUALA LUMPUR (Sept 4): Shares in HeveaBoard Bhd and SHH Resources Holdings Bhd (SHH) shares jumped sharply in early trade today on news that HeveaBoard is in talks with the latter over a possible merger or acquisition.

HeveaBoard rose as much as 7.7% to hit an intraday high of RM1.12. As at 4.18pm, the stock was traded up 3.85% or 4 sen at RM1.08.

SHH shares, meanwhile, surged as much as 6.06% to hit an intraday high of RM1.40, before paring down gains to RM1.35, up 1.35% or 3 sen, with 448,300 shares changing hands as at 4.31pm.

HeveaBoard's (fundamental: 2.1 valuation: 1.8) market capitalisation stood at RM461.55 million, while SHH's (fundamental: 1.4; valuation: 2.5) was RM68.5 million.

Year-to-date, HeveaBoard's share price has gained 163.79%, while SHH rose 77.92%, outperforming FBM KLCI's 9.14% decline.

In a media and analyst briefing yesterday, HeveaBoard group managing director Yoong Hau Chun said the company's term loan have been mostly repaid to less than US$9 million (RM38.06 million).

"We also had been consistently paying RM26 million annually for the loan and we are not looking for any loan in the near term," he said.

He pointed out that once the group turns into a net cash position, it will put the group in a strong position to increase dividend payout.

On the talks between HeveaBoard and SHH, Yoong said the discussion is in the preliminary stage and nothing has been firmed up yet at this juncture.

"We did meet up, but it's very preliminary, nothing has materialised [yet]. I cannot admit, I cannot deny also, because we did see each other ... there is nothing firmed up [thus far]," he said.

In a note to clients today, CIMB Research said it continues to recommend investors to accumulate the stock.

It expects HeveaBoard's US dollar debt to be fully repaid by mid-2016, which allows it to then focus on rewarding shareholders.

"We raised our dividend per share estimate for financial years 2016 and 2017 by 100% and 200% to 4 sen to 6 sen (from 2 sen in FY15), which translates into a yield of 4% to 6%," it added.

"Coupled with a very strong anticipated 3QFY15 results, investors should take advantage of the recent correction to accumulate the stock," it added.

CIMB Research retained its "add" rating, with a sum-of-parts target price of RM1.49 on HeveaBoard.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)