KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research has assigned a fair value of RM2.07 to APB Resources Bhd, as it rides on the petrochemical upcycle.
"APB is an established process equipment fabricator mainly involved in petrochemical, oleochemical and energy sector. Its products include pressure vessels, heat exchanger and heat recovery steam generator. It was listed in May 2004 via the reverse takeover of NCK Corp Bhd.
"APB has registered uninterrupted profit since 2004 and 90 per cent of revenue is from export with main clients from international major Engineering, Procurement, Construction and Commissioning (EPCC) providers. APB has two fabrication yards, one in Subang and another in Gebeng.
"We understand that APB is not directly participating in any RAPID packages, but given more than 30 years’ experience in petrochemical process equipment, we do not rule out any possibility of subcontractor jobs from major international EPCC to be awarded to APB.
"We expect more EPCC contracts to continue roll out in 3Q14 after site preparation, Cogeneration Plant and Raw Water contracts have been awarded to ensure RAPID will be operational in time ie early 2019," said HLIB in its research notes.
HLIB said APB is one of the few oil& gas (O&G) stocks with decent 5 per cent dividend yield and has been rewarding shareholder with good dividend.
"Since FY 2005, APB has been consistently paying 6.5 sen dividend per share (exclude FY 2011 with only 3 sen). At current share price of RM1.43, this translated to 4.5 per cent dividend yield. We expect the dividend to be sustainable in future given huge cash pile.
"First half 2014 earnings registered RM7.9 million represented 50 per cent of our FY 2014’s forecast. Outstanding orderbook stands at RM70 million and will last for 9 months.
"We understand that the contract duration for process equipment is relatively short with range from 6 to 9 months. Past track record suggests that orderbook replenishment rate will offset the contract burn rate and sustain revenue going forward."
HLIB said oleochemical production capacity expect to reach 4.2 million tons in 2014 from 3.8 million in 2012 with investment from leading industry players such as Sina Mas, Musim Mas and Permata Hijau Group.
"We believe capital investment in oleochemical will be sustainable and benefit APB given rising output from upstream, consumption growth in China, India and Indonesia."