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Tuesday, August 30, 2016

KESM Target Price RM11

Affin Hwang Capital

KESM was RM6.95
In the automotive sweet spot
KESM recorded a strong 2012-15 EPS CAGR of 32%. We believe the solid growth is sustainable, underpinned by focused growth in the automotive business and margin expansion from improved product mix and growth in the high-margin testing business. Hence, despite the 34% stock price outperformance ytd, we think valuations remain attractive and expect a continued PE re-rating.


Initiate coverage with a BUY and target price of RM11 based on 12x our calendarised 2017E EPS, for upside potential of 58%. Set to benefit from automotive structural growth story KESM provides a good proxy to the stable and growing automotive semiconductor segment, in our view. With strong growing demand for electronics for vehicles, from safety to infotainment and autonomous vehicles, we believe KESM is in the right segment to benefit from an automotive structural growth story.



2015-17E EPS CAGR of 35%

We forecast KESM to achieve a 3-year EPS CAGR of 35% on the expansion of its testing business in the automotive segment. Its recent investments, in our view, should gradually bear fruit in the coming years and drive revenue growth. We look for EBITDA margins to rise from 31.9% in 2015.


Further re-rating expected

We see several re-rating catalysts for the stock, including a strong earnings

upcycle and PE expansion, as awareness on the stock remains low and

institutional holdings are limited.


Initiate coverage with BUY and RM11 target price

We initiate coverage on KESM with a BUY rating, on: 1) solid growth prospects in the automotive space, a strong working relationship with customers and expansion into the testing business, which we expect to drive a 3-year-forward EPS CAGR of 35%; 2) a hands-on and forwardlooking management team; and 3) although valuation comparables are limited as competitors are mainly integrated device manufacturers (IDM), closest peer Trio-Tech (TRT US) trades at a 14x 2016E EPS. KESM also trades on average at a 56% discount to automotive-related IDMs’ 2016E PE of 20.7x. Thus, at a 2017E PER of 8x, valuation looks attractive. Our target price of RM11 (12x calendarised 2017E EPS) offers 58% upside.



KESM was RM6.69
Despite weaker performance in the global semiconductor industry, KESM’s earnings have continued to grow at a rapid clip. Between FY12 and FY15, net profits had grown by a stellar CAGR of 60%. KESM is now poised for the next growth stage following the recent acquisition of the remaining 34.6% equity interest in KESM Test as well as the successful development of proprietary process controls for Test-During-Burn-In (TDBI); both developments will enable the group to establish a stronger foothold in the resilient & high margin automotive segment. We project earnings to grow by 75.2%/13.6% in FY16E/FY17E, and recommend a TRADING BUY on KESM with a fair value of RM7.90 based on a targeted FY17E PER of 10x.


In a sweet spot.

KESM began as a company involved in burn-in services for the semiconductor industry. The company’s foray into the Testing Services industry over the years has begun to bear fruit and KESM now enjoys a market-leading position as the largest independent “Burn-in & Test” service company in Malaysia. Recently, KESM completed the acquisition of the remaining 34.6% equity interest in KESM Test (in May 2015) for RM35.0m. The automotive segment now accounts for 70-80% of revenue (UNISEM and MPI derive c.17% and 23% of revenue from the Automotive industry, respectively), with the balance coming from the commercial segment.


Betting big on the automotive segment.

KESM is well positioned to benefit from two salient trends; (1) rising global automotive sales (expected to exceed 100m units in 2017 from 91m in 2015), and (2) increased electronic chips content in cars. The value content of electronics in a car is expected to grow from USD284 to USD330 from 2014 to 2019. The automotive segment represents an area of high growth potential and has enabled the Group to diversify into a segment that offers longer product life cycle and higher margin.


FY16/17E Net Profit to grow 75.2%/13.6%. KESM’s EBIT margins have expanded from just 5.4% in FY12 to 9.5% in FY15, while its earnings have also increased at a 3-year CAGR of 60.0%. In addition to the above growth drivers, we see the trend of increasing chip content cascading down from luxury cars to mid/low range cars, anchoring top line growth for KESM’s Burn-in and Testing services over the medium-to-long term. At the same time, higher margins from the automotive IC segment as well as cost efficiency from KESM’s proprietary Test during Burn-in (TDBI) should pave the way for a 273bps/23bps improvement in EBIT margins for FY16E/FY17E.


Strong balance sheet with RM63.6m cash pile.

Despite the expansion drive these past few years, KESM was still able to maintain a net cash position (RM1.48/share). Looking ahead, we projected CAPEX to come in at RM50m/RM70m for FY16/FY17. While dividends are expected to maintain

at a modest 15% pay-out ratio (dividend yield of 1.9%), we see scope for a bonus issue, given the high retained earnings of RM219.5m and very low share capital of just RM43.0m.


Trading Buy with Fair Value of RM7.90.

We believe this under-researched

gem is due for a rerating given its unique position within a resilient segment, strong earnings delivery and cash rich position. KESM is currently trading at a mere 8.5x FY17E PER (6.6x ex-cash), compared to listed peers, which trade at an average Fwd. PER of 12.8x. We expect the valuation gap to narrow, and have derived a FV of RM7.90 based on 10x PER FY17E (+18.1% from yesterday’s close). The RM7.90 Fair Value is premised upon a 20% discount to the valuation of industry peers in view of its smaller market capitalization and tighter shares liquidity.

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Friday, August 12, 2016

Top 7 Investors in the World, 4 are from Malaysia. Warren Buffet No.7

World Top Seven Investors. If you read their track records, excellent job done. I wish my return can come close to these seven top investors in the world. Still have a lot to learn from them.

Number Seven.
Warren Buffett. He made more than USD60 million for the past 50 years. I think that excludes billions that he has donated away. Great investor for so many years.

Number Six.
Although we always hear of Warren Buffet, but he lose to Carl Icahn. He is an American business magnate, investor, activist shareholder, and philanthropist.From 1968 through 2011, Icahn grew his original $100,000 investment in his firm at a 31% annual rate, while Buffett's Berkshire Hathaway had "only" a 20% annual growth rate.

Number 5.
But both of them still lose to George Soros in ONE SINGLE DAY CATEGORY. His September 16, 1992 transaction, when he made a single-day gain of $1 billion dollars.

Number 4
But Soros loses to a Malaysian guy by the name of Mr Dummy who made 107%profit in 2015. Soros only increased from USD23 billion to USD24.9 billion, a mere8%.

Number 3
But Mr Dummy loses to moneySifu who made more than 20% in 2016, while Mr Dummy is making 8.5% lose in 2016.MoneySifu is a Malaysian.

Number 2
But moneySifu loses to a pretty lady called Michelle (not her actual name), a branch manager who I met in an optical shop last weekend. She is a Malaysian too. She made 87% within two months from 1000 units of JHM stock worth RM720 and sold RM1350. Her brother in law suggested her to buy JHM. 

Number 1.
Who is the best? Michelle's brother in law? Her brother in law is only driving an old local car. He is a Malaysian.

The list can go on and on. Therefore:

A)Don't compare and be sad/envy. Compare and see how we can be improved, should be happy. Learn from them.

B)Don’t WORSHIP great investors.

1) Those who made high percentage, maybe invested smaller amount than you, just like Michelle.

2)High percentage may be just selected years. Look at Mr Dummy 107% gain in 2015, negative 8% this year while many are making good profit in 2016. Great investor, but maybe he has no time to look for new stocks or review his stocks and hold on too tight. Have learned a lot from him.

3)For those who made high percentage % and invested a lot, they still lose to Warren Buffett, because Buffett made more money than anyone. But Warren Buffet lose to Carl Icahn. And the winner is Michelle’s brother in law who is driving an old local car. The circle keeps continue until no end.


4)Some make 60% from their spare cash, but you make 17% from your total portfolio. You are better.

5)Some invested almost all their net-worth and made 16%, whereas yours only part of your net-worth and made 17%.


6)Some are from rich family, the first trade is already RM20,000. Whereas some started with RM800.

Great investors have their own weaknesses. Learn from them, but don’t worship them.

When am I rank? The world has 7.4 billion people now, and I’m rank 3,700,000,001. Slightly above average.

Stock Market is a good place to make money. Happy Investing.

Tuesday, August 9, 2016

Why I Am Not Sexy?

Why I Am Not Sexy?

Many will feel that I am not sexy. Yes, most of the time I am not sexy. But sometimes I can be sexy.
The stocks shared here are not sexy. They are mostly slow, not popular and not high in volume. But as long as it can grow, no need sexy stocks. Many stocks shared here have achieved 100% gain or more.

Take a look at Arsenal football club under Arsene Wenger. No offence to Arsenal fans, just making comparison. Arsenal last won the premier league was in 2004, and now more than 12 years playing so-called sexy football but without any league title.

Look at Mourinho. Many said he parks the bus and play defensively; look at his league titles. 6 league titles in the same past 12 years. He can be sexy too. His Real Madrid broke the record of highest goals scored in the Spainish league La Liga in 2012. Scored more goals in a season than Messi's Barcelona all the years before.

For now, looking for sexy girls, not here. But if those who are looking for non sexy ladies for long term, you may find some info here.

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About Me

Dollar Cost Averaging and PEGGY Method. Sharing info on cheap (low PE) company with high growth, low Gearing or Net Cash and High Dividend Yield.



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