I was browsing around some old news just now, and came across an old article about HEXZA (nearly 6 months ago) and thought it's worthwhile sharing here. It is quite a positive/balanced article, with both good and bad points, and in the interest of telling you the whole story, good and bad, I hereby present it to you ... The only surprise I had is that I didn't know SBB covered HEXZA before, and now that SBB is part of CIMB outfit, perhaps CIMB might cover HEXZA. If anyone knows and has a CIMB analyst report, I would greatly appreciate receiving a copy of the CIMB Analyst report, to compare it with my own personal analysis. I will not post it in its entirity, but I would be happy to summarize an extract to post here. Thanks.
It is also worth mentioning that SBB also expects higher dividend. They think it could be 3 sen, i.e. 50% increase. That seems consistent with last year's increase, although I won't rule out a special dividend in view of their superb results.
Hexza does well despite challenges
Friday October 13, 2006
BY KEITH HIEW
PETALING JAYA: Malaysia's largest ethanol products manufacturer Hexza Corp Bhd has performed “commendably” despite rising materials costs and intense competition, and should be a target stock for investors, said research outfit SBB Securities.
The research house said due to external uncertainties, the brokerage was inclined to focus on companies with good management and valuations rather than on specific sectors, and singled out Hexza as an example of such a stock.
The company's earnings per share (EPS) of 6.1 sen for the first half ended July 31 alone was equivalent to 77% of the EPS for the year ended Jan 31.
Turnover for the second quarter ended July 31 improved 23.9% to RM41.8mil due to expanded capacity in its chemical division and increasing demand for the company's adhesive resins. Net earnings increased 9% to RM4.8mil.
SBB Securities said the company had performed well in spite of challenges like increasing costs and competition due to rising demand of raw materials such as methanol and molasses from China and high oil prices. Hexza's operating margins, it said, had improved to 11.5% for the year ended Jan 31 from 8.5% in 2005, attributed to higher sales and rising economies of scale.
The research house's senior analyst Ng Jun Sheng told StarBiz yesterday that SBB recommended Hexza in October 2004 when the stock was at 54 sen, but the share has not been active and its price has traded in the range of 42 sen to 64 sen in the past two years. (Seng: this would be an awesome trading range!)
Ng said: “We believe the underperformance of the stock could be due to the lack of media coverage and promotion by the investment community, the eagerness of the company's management to keep a low profile, a lack of investor focus on small-cap companies and maybe a high free float among shareholders.''
He added that SBB believes the company is “ripe” for a re-rating given the resurgence of interest in small-cap stocks, savvy management, undemanding valuations and anticipation of earnings improvement for the year ending Jan 31, 2007 due to lower raw material costs, efficiency gains and lower effective tax rates due to reinvestment allowance.
SBB Securities expects a higher dividend of 3 sen for the financial year ending Jan 31, 2007 from Hexza on the back of higher earnings and stronger net cash of RM25mil.
Another analyst (Seng: anyone knows who besides SBB/CIMB?), meanwhile, said Hexza's existing shareholders were also keen to increase their stakes in the company over the past two years as they themselves also recognise the company's value.
Hexza shares closed 6 sen higher, or 11.5%, to 58.5 sen yesterday.