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.

What Could Endanger The Markets In 2010

What could cause problems in 2010, these are all IFs. Pays to keep track. If Bernanke gets itchy and push down 10-year US Treasury yields again, that could put more oomph to the already excessive liquidity in the system. Bernanke could be scared into doing so if jobless numbers do not show signs of improvement. The funds will try to play the liquidity game yet again, piling into crude oil, gold and this could really create a swift liquidity bubble again.

Japan is the best bet for calamity in 2010. Things may suddenly turn focus on their huge fiscal measures and their imbalances with respect to their public debt. Already the public debt is at a staggering 225 per cent of GDP. What could start the cascade is a big dip in the value of the yen, which may require stabilisation by raising interest rates. Any kind of rates rise will push debt service costs up the roof. The country will flip from deflation to early bouts of hyperinflation. The yen may crash to 130 yen to the dollar ... which will wreck their bonds market but actually sustain interest in Japanese exporters.

China may find that it is the only engine for growth, and shouldering global demand alone may reach its peak. Wild credit growth can mask the weakness of its export model for a while but only at the price of an asset bubble. Beijing must hit the brakes this year or store up serious trouble. What will Beijing do? Prick the asset bubble, the shares will also tumble, and its effects will be felt all across emerging markets.

The EU could be placed under attack as some nations complain bitterly for having to shoulder the weak ones. The weak ones complain that they need to revive their country's employment and wants the Euro much weaker and rates a lot lower. When rich nations spending power is under threat, the union may start to wobble. Rallies and protests may rage across Europe.

These are all IFs, but they could emerge as realities swiftly, hence its best to be on our toes.


p/s photos: Zhang Zhiyi

Understanding Business Mentality In China, Taiwan & HK - The Zhang Zhiyi Experience

Boy, I am so happy to be able to talk about Zhang Zhiyi in my blog on Asian business. Can you imagine that? Zhang had a wonderful 12 months thanks to Memoirs of A Geisha, but suffered enormous criticism over her role, which involved being involved with a Japanese man... in a movie role. I am not even going to go into how low-brow and uneducated an opinion it is to be offended by that MOVIE ROLE. You'd think things would die down..., NO... Zhang appeared magnificently in the recent Oscars, and even presented and she spoke surprisingly well in English. Was that good enough for the media? Apparently not. The media in China, HK and Taiwan have plenty to say about Chinese actress Zhang Ziyi and most of it is downright vicious. Below are excerpts from an article in The Straits Times in Singapore today.

Hollywood was enthralled with Zhang's beauty in Memoirs Of A Geisha, but it was her turn in House of Flying Daggers that captivated my attention. After her role as a presenter in the Oscars, this was what the HK papers had to say, and her gown was magnificent by the way. 'Zhang Ziyi's Armani evening gown made her look so flat-chested it was scary' said HK's Sing Tao Daily said in a headline. She has said previously the venom has to do with Hong Kongers' deeply entrenched bias against mainland Chinese, who are viewed as bumpkins and gold diggers. 'They think, 'How can you be an international movie star? You are only from China.' For them, China is like the countryside,' Zhang said in an interview with The Sunday Times of London in 2004.

Such evidence is found in a 2004 article in HK's Next magazine, a popular weekly known for its hard-charging paparazzi. It printed a photo allegedly showing Zhang squatting down to check out the bottom shelf in a store. A caption read: 'Miss Zhang displays the special trait of our motherland's compatriots: spreading her legs wide and squatting down.' People can often be seen squatting in China in crowded places - such as railroad stations - where the ground is too dirty for sitting and there is limited public seating. Zhang's rapid rise and ongoing success may also have bred envy. Many Hong Kong publications made sure their knives were extra-sharp for the Oscars, where she presented the award for best editing. A headline in Apple Daily ripped into her English: 'She still can't change her English with a Beijing country accent. She didn't pronounce the 'r' in the winning movie Crash properly.' This one really irked me, when do you find an average HK person speaking English well?? So what if she's got a Beijing accent, she's from Beijing isn't she? Nobody faults Antonio Banderas for speaking English with a Spanish accent!!! Or Gerard Depardieu for speaking English with the clipped French accent?? Does Apple Daily's editor even understand what is good English and what is accent? I mean, seriously, Zhang's intonation and pronounciation are so much better than Jackie Chan - do we see any HK papers savaging Jackie's English??

Sing Tao Daily said she read her cue card with 'quivering lips' and her pronunciation of Crash sounded more like that for the toothpaste Crest. The Ming Pao Daily noted that she forgot to hug or shake hands with the award winner, though it conceded that her English was improving. Hong Kong writers also savaged her Giorgio Armani outfit, a black beaded bustier with a crystal-encrusted grey skirt. 'Lacking in youthful vigour,' read a photo caption in the Oriental Daily News. Apple Daily hissed: 'Zhang Ziyi two decades behind the times.'

'Zhang Ziyi's English rolls off her tongue,' said Taiwan's Liberty Times. Another Taiwanese newspaper, the Min Sheng Daily, said 'Zhang Ziyi's English is no longer poor'. In China, there is still a strong undercurrent that they cannot accept that she has to "sleep" with a Japanese man, even though it was in a movie. Playing a Japanese woman already stirred open some wounds which have not healed properly for many years. China found it hard to "celebrate" with Zhang's new found international stardom but have toned down the viciousness of late.

Business Lessons

1) Though most HKers would not like to admit it, deep down there is a feeling of resentment against how fast some of the Chinese from mainland have gotten rich. HKers feel that they have progressed much faster economically and up the developed country curve, and to make less money than them is an insult. This mentality prevails even when certain HK companies go to the mainland to expand - beware and be aware.

2) HKers not only begrudge the rich ones from mainland but also abhorrs how crudely they spend their money in HK especially - no class as they say. But most HKers also know they needed cash from China to fund the down trodden economy in HK for the past few years. HKers can't wait for the good times to roll again so that they can pass crass remarks and shoo the mainlanders back to where they belong.

3) When doing business in China, you are either with them or against them. If you fallout with the Chinese, well its not going to be a "agree to disagree" mantra. You cannot afford to have a fallout as some entrepreneurs have found out the hard way. Many would want to hedge their fortunes by parking funds elsewhere whenever possible. There is an under current of uncertainty that you could find yourself in the wrong side of the turning tide of political sentiments too swiftly in China.

4) Taiwan politicians will fight like mad with politicians in China in the media, but business wise, China has been quite open in welcoming Taiwanese investors. Much of the open war of words is to appease the masses of both sides for championing nationalistic interests. But business has been going to and fro, especially from Taiwan to China in a big way for a very long time. Thus, you will usually find that anything China says will find the Taiwanese going the opposite way, mainly to spite the other party. You don't like Zhang Zhiyi, I think she is adorable. Hence when doing business with either Taiwan and China, you do not go extolling the virtues of Taiwan to China or China to Taiwan. Just do the business, even though they may actually agree with you opinions about the other country, its best not to say them out loud.

As the above are generalisations, they are bound to be exceptions. Generalisations applied harshly on everything will lead to prejudice and unjust discrimination. Generalisations are just tools for use to learn a bit more about something, not a divining rod.