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Friday, June 26, 2009

Integrax- a good long-term investment

Background

Integrax is currently the owner-operator of 2 port facilities- Lumut Maritime Terminal & Lumut Bulk Terminal. In 2006, it diversified into nickel mining business by buying a 20%-stake in the Philippines-based Platinum Group Metals Corp (PGMC) for USD12 mil. PGMC has been experiencing losses due to the collapse in the demand for nickel. In 2008, it shutdown all mining operations except for the Surigao mine as well as idling its smelting plant.

Integrax is negotiating with relevant authorities to develop 2 ports in Aceh, Indonesia at Kuala Langsa and Krueng Guekeh. It is also assessing other ports in Indonesia for acquisition.

Recent Financial Results

Due to the shutdowns in PGMC, Integrax has written off 75% of the carrying value of its investment in PGMC amounting to RM35.2 million in 4Q2008 ended 31/12/2008. This led to a net loss of RM27.2 million for that quarter. Integrax bounds back in 1Q2009 with a net profit of RM7.8 million on a turnover of RM19.9 million.


Table: Integrax's 8 quarterly results

Valuation

Integrax (closed at RM0.69 today) is now trading at a PE of 6.7 times. This is based on its annualized EPS of 10.3 sen. At this multiple, the stock is still attractive.

Favorable Development ahead

Since the last quarterly results announcement, the price of Nickel has been rising since April (see Chart 1). This could be a big positive for PGMC, which could allow the company to re-start its mines & smelting plants again. If this happened, there is a good chance that Integrax may write-back some of the provision for diminution in the value of its investment in PGMC.


Chart 1: Nickel's 5-year price chart (Source: Kitco)

Recently, Vale International SA, the world’s second largest diversified metals and mining company, has agreed to buy 165.5ha in Manjung, Perak, from property developer KYM Holdings Bhd. In addition, Vale had an option to buy another 305.95ha, putting the total amount of land available to Vale at 471.46ha in Manjung. It has was investing RM9bil in an iron ore pelletizing plant on the site. Pelletizing of iron ore is the process of converting the raw ore into pellets with characteristics appropriate for use in a blast furnace. If this plant takes off, the importation of iron ore to the plant will likely to benefit Integrax's existing 2 port facilities- Lumut Maritime Terminal & Lumut Bulk Terminal- significantly. For more, go here.

Technical Outlook

From the monthly chart below, we can see that Integrax has bottomed out in March. The share price has crossed above its 20-month SMA while the monthly MACD & Williams' %R have hooked up. Good entry level is about RM0.60-65.


Chart 2: Integrax's monthly chart as at 25/6/2009 (Source: Quickcharts)


Conclusion


Based on attractive valuation, potential positive development as discussed and bullish technical outlook, Integrax is a good stock for long-term investment.

5 comments:

topaz said...

Dear Alex,

Can you please elaborate on what do you mean by long term? What would be a suitable exit time or exit price? Thank you.

Alex Lu said...

Hi Topaz,

I think we can expect a slow rise for the next 1-2 years, with the target of RM1.50-2.00.

KLSE said...

Hi Alex

VALE going to built their own wharf and jetty. Melewar Group (MIG) is their Malaysian partner/JV. MIG is flying low now. Time to catch.

Alex Lu said...

Hi KLSE,

Thanks for the info. Has it been officially announced? Can you post the link here?

KLSE said...

Alex,

No official announcement.

Check below's link:
http://www.themalaysianinsider.com/index.php/malaysia/29202-zambry-puts-rm9-billion-vale-deal-at-risk

Enough to say that consultant and VALE representatives are all camping at MAA building.