Hiap Huat Holdings Bhd (“Hiap Huat”) is an integrated
licensed Scheduled Waste recycler, where its core business is the collection, recycling,
refining and production of recycled products. The group has more than 17 years
of experience in the recycling industry. The vast experience has allowed the
group to stand out from many of its competitors and become one of the top three
players in the oil recycling industry in Malaysia with an estimated revenue
market share of 20%-26% in FY11. Upon the completion of a new treatment plant
in Pulah Indah, Selangor, in 1QFY13, the group will be able to double up its
production capacity. In our forecasts, we have assumed a 10% utilisation rate
of the additional new capacity from the Pulau Indah treatment plant for our
FY13 forecast while annualising the 6M12 revenue and net profit to get our FY12
forecast. All in all, we expect the group to record revenue and net profit of
RM42.6m (16.4% YoY) and RM7.0m (+22.8% YoY) respectively in FY13. While we are
not assigning a rating to the stock, we reckon that its fair value should be
pegged at RM0.21 based on a FY13 PER of 9.8x (being the top 50 FBMKLCI Small
Cap stocks average PER).
Doubling up
production capacity. Hiap Huat is aiming to increase its production
capacity after the completion and operation of its new Pulau Indah production
plant by 1Q13. The plant, which is located in close proximity to Westport in
the Pulau Indah Industrial Park and the Selangor Halal Hub, provides it easy
access to an abundant supply of waste oil generated by the marine industry as
well as other upcoming industries operating in the region. Upon completion of
the new plant, the group is anticipated to increase its permitted treatment and
recycle capacity of waste oil, waste solvents and used drums and containers by approximately
100%.
Recurring revenue
streams from a large and diverse customer base. The group’s customers
require regular service calls on the collection, replenishment and maintenance
of waste products as well as on technical assistance needed. This recurring
service demand generates a stable source of revenue under its Scheduled Waste
collection services. These recurring visits have allowed the group to build a
solid relationship, and loyalty, create a dependable recurring revenue stream
and give it the opportunity to cross-sell its produces and service offerings.
The group has a wide base of clients with an approximately 903 customers from
various industries. In addition, Hiap Huat also has agreements with licensed
third party agents to collect and transport Scheduled Waste from ships/tankers
anchored offshore within the coastal wasters of Malaysia.
Established track record and reputation. The group has been
involved in the recycling industry for more than 17 years. Throughout the
years, Hiap Huat has grown into a licensed and integrated waste oil recycler
with the capabilities to recycle and produce a wide range of finished products
form of waste oil. This has differentiated the company from the majority of its
peers that are only able to produce semi-finished products such as recycled
base oil.
New plant to
contribute positively in FY13. We expect the group to record revenue and
net profit of RM42.6m (16.4% YoY) and RM7.0m (+22.8% YoY) respectively in FY13,
underpinned by the increase in its permitted treatment capacity (100% YoY) upon
the completion and operation of its third production facility at Pulau Indah by
1Q13. The downside risks in the stock are 1) fluctuation in oil prices, 2) risk
of interruptions in the supply of raw materials and 3) competition from other
Scheduled Waste contractors in Malaysia.
Source: Kenanga
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