Reach Energy (NOT RATED New)
Margin of Safety…
- Largest SPAC in Malaysia …Reach Energy (REACH) is the fourth oil and gas special purpose acquisition company (SPAC). It is also the largest IPO for a SPAC by its fundraising size of RM750m with overwhelming response as IPO was oversubscribed by 42 times.
- Opportunity emerges as share price trading well below cash value… With current share price of 61.5 sen which is 13% below cash value of 71sen, we see value emerge. In the worst case scenario, where a QA not executed in 3 years time, investors could get back ~77.5 sen including 3% interest rate earned which implied 26% return over 3 years period or 8.7% pa which is higher than FD rate.
- Successful completion of SPAC could provide better upside…Based on the implied cash value, we believe the market has mispriced the security due to misunderstanding of the SPAC structure.
- Current weak oil price environment provides better bargain power…SPACs are cash companies looking for oilfield assets and should potentially be able to negotiate for better pricing especially in the declining oil price environment.
- Share price should be underpinned by the cash backing per share which is 71 sen. The stock should trade over and above this value to factor in the likely probably of finding a value accretive qualifying asset.
MRCB (BUY çè)
Bags building job in Johor
- Awarded RM197m job to construct tower for Johor Land
- Boosts orderbook to RM1bn, 2.6x cover on construction revenue.
- Other catalysts include securing Kepong incinerator job and commencement of MX1 development.
- Maintain BUY with unchanged RM1.97 TP
Sasbadi (BUY çè)
Going online in Indonesia
- Sasbadi announced that its wholly-owned subsidiary, Sasbadi Online Sdn Bhd (SOSB) has formed a License and Services Agreement (LSA) with the biggest educational publisher from Indonesia, Pt. Penerbit Erlangga (PPE), for the usage of their interactive online learning system called i-Learn Online Learning System. A one-off non-refundable income of USD300k (equivalent to RM978k) will be paid by PPE in FY08/2015.
- How it will be done… Based on subscription business model, SOSB will provide the online platform for PPE to deliver online learning materials to its end-users.
- Expanding its footprint… In line with its expansion strategy, we are POSITIVE on Sasbadi’s latest collaboration. As Sasbadi online educational segment has passed the initial super growth stage, we believe that this LSA would provide additional growth impetus to the segment.
- Taking into account projected strong earnings growth of 17-18% in FY15-16 and the above long term catalysts to sustain double-digit earnings growth from FY17 onwards, we reiterate our BUY call with TP increased by 31% to RM2.15 from RM1.65 previously, based on a higher P/E multiple of 15x (implied PEG of 0.86x) CY15 EPS or circa 50% discount to average P/E of the education sector.
Traders Brief
More knee-jerk selldown as 1800 psychological support is violated
- Bursa Malaysia is now in technical oversold territory (reflected by grossly oversold daily and weekly oscillators) and we believe a rebound is imminent although it may not be smooth given the wild swings in overseas markets .
- Immediate rebound targets are 1805 (38.2% daily FR), 1812 (20-w SMA) and 1831 (10-d SMA). A formidable resistance is situated at 200-d SMA (1851). Only a strong breakout above 00-d SMA will lift the market from current downward consolidation. Conversely, a breakdown below 1800 psychological support will likely trigger more downside towards 1778 (50% daily FR) and 1750 (61.8% daily FR) supports.
- We had closed our positions on OLDTOWN, SKPETRO and RHBCAP yesterday after achieving our supports and resistances levels.
Trading Idea - USD Currency overview
USD Currency overview
- Overall, weekly USD index is likely to engae in a short term pullback amid its overbought position but long term uptrend remains intact. The bullish outlook is also reflected in the USDEUR and USDJPY charts.
- On the other hand, USDMYR could see some short term rangebound trading within 3.20-3.40 levels.
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