Integrax has a new exciting venture

Background

Integrax is currently the owner-operator of 2 port facilities- Lumut Maritime Terminal & Lumut Bulk Terminal. The group has been looking to diversify geographically without much success.

New Venture

Integrax has just announced plan to venture into the nickel mining business by buying a 20%-stake in the Philippines-based Platinum Group Metals Corp (PGMC) for USD12 mil.

PGMC is involved in the mining of nickel ore. It currently has one mine in Narra, Pahlawan, which has 4.2 mil wet metric tonnes of nickel ore. It will commence mining operation on a second & third nickel mines in Pahlawan & Isabela, Luzon within the next 6 months. In addition, it will start mining limonite & saprolite on Mindanao by 1st quarter 2007. It will also convert & rehabilitate a ferro-chrome smelter in Manticao, Mindanao into a ferro-nickel, which is scheduled to commence operation in late 2006. For more information, see the report in The Edge dated Sep 26, 2006 (here).

iCapital has a research report which shows that the new venture's projected payback period to be of less than 5 years, based on a conservative price of primary nickel of USD12,000 per tonne (i.e. 5-year weighted average price). This venture will boost Integrax's net profit by 50%.

Recent Financial Result







Based on the above table, we can see that turnover has increased 7.0% q-o-q or 5.4% y-o-y to RM23.1 mil. Net profit at RM9.8 mil represents an increase of 47.6% y-o-y from RM6.7 mil but declined of 6.5% from RM10.5 mil recorded in the preceding quarter. The latter was attributable to higher tax rate for QE 30/6/06 as the pre-tax profit for the latest quarter has in effect increased by 6.1% from RM13.4 mil to RM14.2 mil.

Valuation

Based on the latest quarterly result, Integrax's annualized EPS is about 13.1 sen. Using yesterday's price of RM0.785, the stock is trading at a PE of 6.0 times. That's fairly attractive for a defensive stock.

If the new nickel venture can boost net profit by 50% (as projected by iCapital), then the adjusted EPS would be about 19.5 sen. At this earning, the stock would be trading at a PE of 4.0 times only. Of course, we must bear in mind that the new venture has a different risk profile from Integrax's existing port business.

Technical Outlook

From the weekly chart (Chart 1), we can see that Integrax has broken above its medium-term downtrend line in July. It is being supported by a short-term uptrend line (current level RM0.65) & a break above the strong horizontal resistance of RM0.79/80 could be the beginning of a more sustained rally for this stock. We can see that the share price has just surpassed that level yesterday. The daily chart is also appended here as Chart 2.

















Chart 1: Integrax's weekly chart as at Sep 26


















Chart 2: Integrax's daily chart as at Sep 26


Conclusion

Since the break of the strong resistance of RM0.79/80 is at hand, Integrax could be in for an exciting rally.