Friday, January 14, 2011

Today's Denial Could Be Tomorrow's Reality

Someone says that in China there are two types of companies. The ones with the government as an important shareholder and the ones that fail. What about Malaysia? In the past, it's probably the other way round. But things have changed. Look at KPJ, Kulim, Telekom, TDM and EPIC. Did they not benefit from their connections with the government?

EPIC is now given the exclusive rights to build, manage and operate a duty-free shopping complex in Tasik Kenyir. Why do you think that they give it to EPIC? The answer is obvious. Because, the Trengganu State Government (TSG) is its major shareholder.

Not long ago, Ahmad Zaki Resources' stake of 20% in EPIC was bought over by TSG for about RM3 per share. TSG now controls over 60% of EPIC.

I am intrigued as to why EPIC is not mentioned when people talk about oil and gas. Actually, it is a specialist in this sector. Its services include: fabrication, engineering works, manufacturing & assembly, wire line & rigging, and testing & inspection of equipments, warehousing. etc.

EPIC owns the Kemaman Supply Base (KSB) which caters to the needs of over 250 companies supporting the petroleum industry. Major companies already operating in the area are: Petronas, Esso, Cari Gali Hess, Talisman, Petrofac, Newfield and Murphy. Later this year, some 50 more companies will be added to the list of clients when its expansion plan is completed.

EPIC's other core business is in the management and operation of the Kemaman Port which is one of the deepest ports in Malaysia. Other positive attributes of the company is its strong balance sheet.

As at Sep 2010, it has RM97,275,000 cash in its coffer. Its debit/equity ratio is only 0.063, and its current ratio is 3.88. On top of all these, its barrier of entry is extremely high.

For the year ended Dec 31, 2010, EPS is forecasted to be not less than 30 sen. In view of the present bullish market, and looking at other counters, a PE of 12 for EPIC is not illogical. This works out to RM3.60 per share.

Is privatization on the card for EPIC? TSG says no. But, often today's denial is tomorrow's reality. Only time will tell.

An excerpt from Bursa reads as follows:

Review of performance

The Group achieved revenue of RM72.85 million in the third quarter under review, an increase of RM29.10 million or 67% compared to RM43.75 million reported in the same quarter in the preceding year. The Group recorded profit before tax of RM20.84 million, an increase of 45% compared to RM14.36 million achieved in the same quarter in the preceding year.
For the nine months ended 30 September 2010, the Group generated revenue of RM181.83 million, an increase of RM47.91 million or 36% compared to RM133.92 million achieved in the same period in the preceding year. The Group recorded profit before tax of RM57.27 million, increase by 36% compared to RM42.19 million achieved in the same period in the preceding year.
The increase in revenue and profit before tax was mainly due to increase in port operations and oil and gas activities.

I like this stock and I am presently heavily invested in it.