HUGE POTENTIAL: Fitters’ foray into renewable energy in oil palm plantations offers a huge potential for the group as this sector has been identified as the next growth driver. — Bloomberg photo
KUCHING: Fitters Diversified Bhd (Fitters), a Main Market listed group with eclectic business activities in several sectors, has been regarded as an ‘under-researched jewel’ with strong potential upside to its current stock price.
HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) noted that the group’s activities could be divided into three main streams: manufacturing, trading, services and theming (MTST);construction, engineering and property (CEP); and renewable energy and palm oil (RE).
“Its current valuation at only five times FY13 (financial year 2013) price earnings is a clear bargain on the back of three-year earnings CAGR (cumulative annual growth rate of 38 per cent while boasting solid 19 per cent FY13 ROAE (return on average equity).
“The balance sheet is healthy with 22 per cent net gearing as at December 2011. FY13 is set to be a record year, premised on property development progressive billing, palm oil mill capacity upgrade to 90 metric tonnes per hour (from 60 metric tonnes per hour) and commercialisation of green mills.”
However, the research house also pointed out the huge potential in renewable energy for the group as this sector had been identified as the next growth driver.
Fitters, with a market capitalisation of RM163 million, had commercialised its concept of sustainable palm oil mill by providing zero-waste solution via dried long fibre plants and biogas power plants.
“Its strong value proposition of additional income from palm oil wastes and relatively short pay-back period of four to five years is highly attractive. Securing new green mill projects will be the immediate catalyst for Fitters,” HwangDBS Research highlighted.
In addition, Shanghai Disneyland specialist theme works worth more than RM100 million was a potential catalyst given Fitters’ approved vendor status. Malaysia booming theme park development in Johor also provided huge untapped market.
There was also an extra boost from property as the maiden property development project in the prime Setapak area (with a gross development value of RM400 million) would be a major boost to FY12 to FY14 earnings amid strong take up for its SOHO (small office home office), anchored by unbilled sales of RM120 million as at the first quarter of this year.
Forecasting a net profit of RM32 million for FY12, HwangDBS Research was bullish on the group given the strong growth nodes across the board and the potential ‘proxy to renewable energy with promising growth prospects’.
Using a sum-of-parts valuation method, the research house derived a target price of RM1.25 per share, representing a 66 per cent upside to the last traded price.