Stocks With Momentum: Solid Automotive

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Solid Automotive Bhd
LISTED at the end of last year with a then market capitalization of only RM84 million based on its initial public offering (IPO) price of 56 sen per share, Solid Automotive was one of the smaller IPOs compared with names like UMW Oil and Gas Corporation and Westports Holdings. In less than a year, its share price has risen almost 70% to 93 sen, with a market capitalization of RM139.5 million.

The Johor-based company mainly deals in the trading and distribution of automotive electrical parts and components. Solid was founded three decades earlier by brothers Ker Min Choo, Ker Mong Keng and Ker Boon Kee. Collectively, the Ker brothers control approximately 34% of the company.

Operationally, exports to the Middle East and Africa accounted for 40% of the company’s business, while the remaining 60% was generated in Malaysia and Singapore. Some of its customers include brands such as Bosch and Mercedes Benz.

With Malaysia being a small market of just over 600,000 new cars per annum, Solid’s expansion into overseas markets will expand its sales base. However, investors should also be aware of the risks posed by geo-political tensions in Middle East since most of its exports are to that region.

In 1Q FY Jul 2015, Solid posted a 16.2% rise in revenue to RM31.5 million and 92.3% jump in net profit to RM2.2 million. Its firm balance sheet has net cash of RM6 million or 4 sen per share.  The company paid 0.60 sen dividend per share in FY April 14 which translates to a yield of 0.65%. Earlier in September 2014, it announced a final dividend payout of 2 sen per share.

The stock is currently trading at 1.5 times its net asset value of 61.6 sen and trailing 12-month P/E of 16.4 times.

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This article first appeared in The Edge Financial Daily, on October 30, 2014.