News extract: KUALA LUMPUR — Malaysia’s exports in June expanded 10% year on year to 73.1 billion ringgit ($17 billion), slower than the 32.5% growth logged a month before, on reduced shipments across major products. In the first half of 2017, exports grew 21% to 451 billion ringgit while imports increased 23% to 408 billion ringgit. Nomura Group said the export slowdown is temporary and things should pick up in July as demand remains robust across the region. Malaysia’s export performance fell in line with its peers in the region such as Singapore’s 8% and Thailand’s 12% growth, according to UOB Group. “We continue to expect moderating export growth going into the second half of 2017 amid ebbing momentum in Asia’s manufacturing activity,” wrote UOB’s Julia Goh in a research note.
My question to you : Do you believe that the export market will continue to grow?
Strictly For Educational and Illustrative Purposes
Personally, my instinct is anchored towards the fact that MYR may continue to remain above the $4 mark against the USD for a foreseeable future. In addition , if there is sustained recovery in the US and global economy, export markets may continue to see gradual growth (definitely not robust).
One possible export-dependent candidate (listed on Bursa Malaysia) is Homeritz Corporation Berhad, an integrated original design manufacturer and OEM for a full range of upholstered home furniture.
Relatively Clean Balance Sheet
First of all, it has a relatively clean balance sheet (i.e not much debt):
High Level Desktop Valuation Analysis
Based on a high-level desktop valuation analysis (using earnings capitalisation method), indicative equity value is approximately RM1.15. Please note that this equity value is derived based on simplified assumptions.
Homeritz has both ordinary shares and warrants that are being traded on Bursa Malaysia. Homeritz WA expires on 09 Jul 2020 and has an exercise price of RM0.92 (with a conversion ratio of 1:1).
Simple Regression In Predicting Value of Homeritz WA
As shown below (and as expected), there is a relatively high correlation between Homeritz WA and share price of Homeritz and days to maturity (for the warrant):
As shown in the graph below, Homeritz WA is currently fairly valued based on the regression relationship:
Based on the derived regression relationship as well as potential target indicative value of RM1.15 per share for Homeritz, the following scenario analysis shows the possible value range for Homeritz Warrant based on the range of share price of Homeritz and Days to Maturity:
Key Risks (not limited to these)
The potential key risks have been clearly summarised in the following latest management quarterly updates. On an overall basis, Management is generally positive with the financials ending Aug 2017.
Further, there have been some recent divestment transactions by insiders in the company:
DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.