EAH Still Looks Too Cheap At This Juncture

In my Sept 14 posting, I blogged EAH as one of my picks under the heading -  Shopping List:


" .... 3) EAH - I spoke to management and they are well on track to doubling their net profits this year. The DDSB acquisition is a big plus. Up to RM0.32 is OK.."

I also came across this blog -alphachart.blopspot with the following .....EAH...Another Selective Buy

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EAH is the other stock that I bought into due to its low risk technical reading. It falls within the group of potential stock in penny stocks which would see selective action in this market.

All in all, CCM and EAH still represent "finger food" trades and defensive play for Reflexivity portfolio with a relatively low equity exposure of ~12%.


Continue to watch the market closely, the next pivot point will prove utmost important whether my big picture bear outlook is confirmed (80% chance) or disproved (20% chance). 

2 Comments:

alwayswin111 said...

Hi alpha chart What is your target for Eah?

OCTOBER 20, 2011 11:40 PM

Alpha Chart said...

Hi, I see an easy 20-30% return.

As things stand now, I must say that I do agree with Alphachart comment of an easy 20-30% return. 

In fact I believe EAH short term trading range to be in the 38c-43c trading range, and should eventually move to 44-49c range in the longer run. Here's why..

I spoke to management recently and they indicated that EAH have secured a rather healthy order book of approximately RM42 million, which is very impressive for a smallish  ICT business solutions provider. The order book should last them for at least the next two (2) financial years.

EAH is also one of the few recently listed ACE counters whereby it is still trading above its IPO price.

Despite recent turbulent markets globally, EAH shareholders who subscribed to the shares during the IPO should still be a happy lot especially when their investment is trading approximately 20% premium to their investment of RM0.25 during the EAH IPO. In terms of financials, for the latest FYE 2010 and the latest quarter ended 30 June 2011, EAH recorded revenues of RM20.7 million and RM14.8 million and profit before taxes of RM4.1 million and RM3.1 million respectively. The table below further illustrates the historical financial performance of EAH:-

	FYE 2008*	FYE 2009*	FYE 2010	1H 30 June 2011
Revenue (RM'000)	8,289	13,892	20,711	14,805
Profit before tax (RM'000)	2,020	3,677	4,053	3,096
Profit after tax (RM'000)	1,944	3,641	4,081	3,095
Shareholders' funds (RM'000)	4,194	9,735	23,434	26,529
No. of shares ('000)	155,001^	155,001^	155,001	155,001
Earnings per share ("EPS") (sen)	1.25	2.35	3.35	2.00
Net assets per share (RM)	0.03	0.06	0.15	0.17
Borrowings (RM'000)	-	-	636	597
Gearing ratio (times)	-	-	0.03	0.02
Return on equity (%)	46.4	37.4	17.4	11.7

Notes:-

*  Based on proforma figures as the group had only been in existence in February 2010 while EAH was listed on 20 July 2010.

^  Assuming the number of shares in issue after the listing of EAH, for comparison purposes. The issued and paid up share capital of EAH has increased to 203.45 million upon completion of the acquisition of DDSB Sdn Bhd in July 2011.

As depicted in the table above, the financial performance of the group has been improving on a year on year basis and the revenue and profit before taxes has recorded annual CAGR of 35.7% and 26.1% respectively for the past three years. The group further has negligible borrowings / gearing. The EPS of the Company based on its latest audited accounts for the FYE 2010 and the annualised EPS for the FYE 2011 (based upon its latest quarterly results for the six months ended 30 June 2011) stood at 3.35 sen and 3.99 sen respectively. The Company’s order book inclusive of DDSB currently stands at RM42 million and the group has tendered for numerous projects with various government bodies and GLCs, estimated to be worth around RM100 million in total, which the Company is confident of at least winning a few.  Besides, EAH had recently, in the month of July 2011, completed the acquisition of 51% equity interest in DDSB Sdn Bhd (“DDSB”) for a total purchase consideration of RM19.4 million which was satisfied through the issuance of new EAH shares of RM 0.10 each at an issue price of RM 0.40 per EAH share. DDSB is principally engaged in information technology, consultancy services and software development. The acquisition of DDSB is pegged at approximately 5.63 times the cumulative profit guarantee provided by vendors of DDSB of RM13.5 mil for the FYE 2011 and 2012 (the portion attributable to EAH is RM6.8 mil / on a yearly basis the profit attributable to EAH based upon its 51% shareholding in DDSB amounts to RM3.4 million per annum).   The acquisition of DDSB is also expected to be earnings accretive. The acquisition of DDSB has enabled EAH to diversify its earning base further and add value to its existing business operation. He added that with the addition of DDSB in the group, EAH is confident of the group’s continuous growth, building a strong market position with a sustainable business model. The order book of DDSB currently stands at RM24m.  In my view, the Company should acquire the remaining 49% of DDSB, its a no brainer with DDSB's healthy order book, the profit guarantee of RM13.5m should be easily met. Assuming EAH buys the balance of DDSB in 2012, we can expect EAH's total earnings in 2012, say EAH hit RM7m PAT, and DDSB attains it profit guarantee of another RM7m, to be at least above RM13m, which would be really impressive for an ACE company.    Moreover, I like EAH's rather shrewd and prudent acquisition criteria - Mohd Sobri also added that EAH is constantly scouting the market for more acquisitions, companies with strong earnings and profits after tax. The CEO added, “We will only acquire companies who add value to our group's overall business and are PE accretive, and will preferably pay for such acquisition with the issuance of new shares. Our selection criteria of the type of companies we acquire are very stringent and prudent”.  

Who is to say that the Company wont find another buy such as DDSB around the corner soon. If they finds another DDSB, their earnings should soar, and most likely would its shareprice. I do see a  gem in the making in EAH. Oh, btw, EAH also made the latest Forbes Best 1000 Companies in Asia Under $1 Billion.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.