Tuesday, February 28, 2012

If You Build, They Will Come

Readers will know that I have been a loyal follower of EAH. Depending on your entry price, EAH's performance may have been less than desirable over the last 6 months. However, when you take in the 1 for 2 free warrants and 1 for 2 bonus issue, the real effect is pretty good. Now, why would a company keep doing these kind of issues. It is important if your desire is to grow and make the Main Board. Secondly, its also an effective way to reward shareholders.

EAH just announced its 4Q2011 results and the full year's results have been tabulated below:

I don't know about you but from RM4m to RM11m net profit is nothing to be sneezed at. We should also ignore the diluted EPS because the warrants are only convertible at 40 sen compared to current share price of 20 sen. Hence at 20 sen, the stock is trading at historical PER of less than 4x. It is after all an ACE counter but investors should be looking at the growth percentages over PER to get at a more realistic valuation.

This is the sad thing about ACE stocks, the ones with good fundamentals and strong earnings growth are ignored by investors, but the ones that are in the red and bleeding with flimsy business models get syndicates to whack their shares skyhigh??!!

Good ACE counters suffer from a lack of exposure and following. I believe there are close to ZERO the number of local funds that can invest or are allowed to invest in good ACE counters. This has to be rectified. Without the emergence of strong institutional following, it is harder for their share price to properly reflect their real worth. IF THIS TREND CONTINUES, ACE COMPANIES WILL NOT BE INCENTIVISED TO "DELIVER STRONG RESULTS" but rather seek the easy way out ... e.g. pump and dump shares. Just like what we are teaching our children, what are our markets trying to tell good ACE counters?

Solution: the government and related institutions must make more funds available to invest in "good value" ACE counters. Only by 'rewarding' them this way, will we encourage the right entrepreneurial spirit. 

I have all these slides because I have introduced a few foreign fund managers to EAH recently and they were rightly impressed. The above chart indicates their business platform. What is striking is that they are qualified to bid for all government projects and has notched important government type projects. That is a strength not many companies in the same industry can boast.

I like EAH because it does not rely solely on organic growth, it actually sees many companies every month and when the synergy is there, the acquisition is EPS accretive, they will make their offer. Their 51% acquisition of DDSB has demonstrated that brilliantly. It is likely that EAH will gobble up the balance sometime this year.

The stock may be one of the longer term hold for me as I believe that's how I would manage and grow a small company. Rest assured that the management is highly professional. But I believe their profit will surge at least another 20%-30% this year. Its only a matter of time before somebody starts to take notice.

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.