Thursday 31 January 2013

Texcycle Technology - Steady business but rich valuation


INVESTMENT MERIT
- A wide clientele network nationwide.  TEXCYCL is primarily involved in the environmentally friendly waste management business, which collect recycle materials such as rags, wipes, gloves and container, from over 2000 clienteles nationwide. The key sectors focused by the company are mostly in electronics, engineering, automotive, printing and the oil & gas industries. We believe the wide clientele ensures a stable collection of wastes to the group as it would not be dependent too much on a particular industry/market to secure its scheduled wastes. 

- Current plant is running at full capacity. The group’s existing one acre plant located in Taman Perindustrian Kinrara (Puchong) is currently running at full capacity according to management. We understand that the plant has been awarded 11 types of scheduled wastes code by the Department of Environment (“DOE”). 

- Aiming to construct a new plant in 1H13. In view of the capacity constraint in its current plant, the group has acquired an 8-acre land in Teluk Gong, Klang in May 2012 for RM6.7m. Management is aiming to construct a new plant in 1H13, subject to receiving all the necessary approvals from the relevant authorities, on the first 3 acres of the land with the balance retained for future plant expansion. We understand that management is targeting to apply more scheduled waste codes under the renewable-energy category and manufacturing sectors for its recycling business. The new waste codes are expected to further improve the group’s revenue from the recycling business. 

- There is no special dividend in the pipeline despite the group recording a total net gain of RM4.4m in 1H12 from the disposal of two pieces of industrial lands as management intends to utilise the disposal gains for future capex and working capital purposes. 

- Consistent dividend policy.  The group have consistently rewarded its shareholders since its debut on Bursa Malaysia in July 2005, having declared a yearly 5% dividend per share (or 0.5 sen per share) since then, which translates into a 1.6% dividend yield. Going forward, we understand management intends to maintain this current dividend policy. 

- Fully Valued.  TEXCYCL is currently trading at 10.2x FY13 PER, which is much higher as compared to an average FTSE Bursa Malaysia Small Capital Index (“FBMSC”) forward PER of 7.5x. FULLY VALUED.

SWOT ANALYSIS
- Strength: Wide clientele network nationwide, awarded ISO 14001 by SIRIM Malaysia
- Weaknesses: Small market capitalisation 
- Opportunities: Tapping into other type scheduled waste recycling business e.g. base oil, engine oil, etc.
- Threats: Regulatory risks, political risks

TECHNICALS
- Resistance: RM0.375 (R1), RM0.425 (R2)
- Support: RM0.275 (S1), RM0.225 (S2)
- Comments: Though illiquid, TEXC's share price has been on a mild uptrend over the past two years. We reckon that a strategy may be developed whereby traders look to buy at 27.5 sen and targeting the 35 sen resistance.

BUSINESS OVERVIEW
Tex Cycle Technology (M) Bhd (“TEXCYCL” Bursa Code: 0089) was founded in 1984 and listed on the ACE Market of Bursa Malaysia on 27 July 2005. TEXCYCL is primarily engaged in an environmentally  friendly Waste Management Business which provides professional services preferred by companies from the various industries, mainly of the Electronics, Engineering, Automobile, Oil & Gas and Printing industries in accordance with the Environmental Quality Act. In 2003, the group was awarded the ISO 14001 certificate by SIRIM Malaysia. Currently, TEXCYCL has over 2000 clienteles network nationwide, with some of its big clients being Gardenia, Proton, Perodua, Western Digital, Motorola and etc. 

BUSINESS SEGMENTS
Its principal activities are mainly categorised into three major divisions, namely
 - Recovery and recycling scheduled wastes e.g. rags, wipes and gloves
 - Manufacturing and marketing of chemical products
 - Trading of chemical products, e.g. agro-cultural chemical products

Source: Kenanga

No comments:

Post a Comment