Below was the posting on Lion FIB back in 24 August 2010. Lion Forest Industries Bhd, a Malaysian timber and building materials supplier, rallied to a 40-month high in Kuala Lumpur trading after saying it plans to sell its Silverstone Bhd unit for RM462 million.
Can people do the math? The number of shares is 250m, hence the sale is worth RM1.84 per share. Realistically, its Silverstone tyres is a tough business. The disposal is to Japan’s Toyo Tire & Rubber Co Ltd. Correction here as they have sold their Sabah Forest Industries in 2007.
In FY10, the tyre division turned in revenue and EBIT of RM578mil and RM46mil, respectively.
This paves the way for the group to exit the Malaysian tyre industry at a fairly attractive price. Based on its audited figures as at June 30, 2010, SB’s profit after tax and net asset value stood at RM34mil and RM286mil, respectively – translating into an exit PE and P/BV of 14x and 1.6x, respectively.
LFIB further revealed in its announcement that the estimated gain on disposal is around RM140mil. For the year ended June 2010, Lion FIB registered a net profit of RM163.7m. Silverstone contributed just RM46m, which means there is still RM117.7m profit, even though the bulk of it was extraordinary. The market cap at RM2.20 = 250m x 2.2 = RM550m. Cash from Silverstone is RM462m (of course have to pay down some debt). Gains from disposal RM140m = RM0.56.
Chance for a grand generous dividend is high and considering its NTA of RM4.68 per share, this should be a great stock for value funds to accumulate all the way to RM3.00. If I follow the share correctly, the "managers of the stock" tend to let the share price find its way following a good announcement, just go back and track the chart/announcements trend. They will only "act" a few days after the volatility has subsided. Just take note of their spectacular earnings announcement, and my write up date... it moved only a week later, but what a move.
OSK: Potential special dividend of RM1.38 per LFI share. In order to gauge the potential dividend payout by LFI, we must first compute the potential net cash proceeds that LFI may receive upon completion of the disposal. SCB has issued bonds, for which the Net Present Value (NPV) stood at approximately RM320m and are currently fully owned by LFI. Thus the bond will obviously be redeemed prior to any cash distribution by SCB.
The remaining cash will also be used to pay for advisory fees and other expenses before being distributed back to its shareholders. Adding the proceeds from the bond redemption by SCB to LFI and a 84% share of the balance, we suspect the amount available for distribution would be about RM400m.
Tracking the disposal of Sabah Forest Industries SB (SFI) by LFI in 2007, the subsidiary made a total dividend payout of RM2 per share, or 78.8% of the total proceeds, after excluding the RM363.4m set aside in an Escrow account for the litigation claims against SFI.
Assuming a payout of 80% from the cash proceeds received from LFB, the special cash dividend may come to RM1.38 per share, with a dividend payable to Lion Industries of as much as RM233.6m. The remaining 20% will likely be retained for SCB and LFI to search of a new core business as the group will left with its tyre manufacturing operation in China and trading of building material plus petroleum based products, which only generate nominal earnings.
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August 24, 2010
There is earnings recovery, and then there is distinctive earnings recovery. There are still a number of issues which troubles the stock but overall its a concerted recovery over the past 18 months. Time for a major rerating. Its not a business I particularly like or fancy, just a trade in rerating.
A good indication of firmer footing, the company also declare a 2 sen dividend after paying nothing for sometime.
I only manage to get a report by RHB Research. This was dated February 2010, and their estimates have been surpassed, plus they had a target price of RM1.80. I am sure they would be revising that a bit higher now.
RHB Research:
Outlook. We remain positive on LFIB’s earnings outlook and on the back of:
1. The change in the National Automotive Policy in end-Oct that introduced incentives for local autoparts manufacturers, which is positive for SCB’s motorcycle parts and accessories business; and
2. Our projected total industry vehicle (TIV) sales volume growth of 8.5% in 2010, which will boost sales volumes at LFIB’s tyre manufacturing division;
and
3. The implementation of the two stimulus packages that will boost demand for building materials.
Earnings forecasts. We are raising our FY06/10-12 net profit forecasts by 43.4-51.5% to RM56.3m, RM62.0m and RM65.3m respectively, to reflect higher sales volume at the tyre manufacturing division.
♦ Investment case. Following the upward revision in our net profit forecasts, indicative fair value is raised by 43.9% to RM1.80 based on 7x revised CY2010 core EPS of 25.7 sen. Upgraded from underperform to Outperform as valuation has become attractive.
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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 (donations are welcomed though). 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.
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