LionFIB- a possible play on China strong auto demand

Background

Lion Forest Industries Berhad ('LionFIB') is an investment holding company with four business segments: building materials and steel products; petroleum, lubricants and automotive products; and, tire. The tire division is carried on by its subsidiary, Silverstone.

Recent Financial Results

LionFIB's financial performance has turned around in the past 4 quarters. If we ignored the QE31/12/2008 where it recorded a net profit of RM139 million due to negative goodwill of RM133 million, we could still be satisfied with LionFIB's net profit for the last 3 quarters which rose from RM13 million in QE31/3/2009 to RM28 million in QE30/6/2009 & then to RM32 million in QE30/9/2009. The operating results for the tire division was RM16-17 million for the last 2 quarters. The better performance of the tire division could be due to strong contribution from its China-based subsidiary, Shandong Silverstone LuHe Rubber and Tyre Co Ltd which produces a range of tires for passenger cars and commercial vehicles for the domestic market.


Table: LionFIB's 8 quarterly results

Valuation

LionFIB (closed at RM1.20 at the end of the morning session) is now trading at a PER of 2.3 times. This is based on the annualized EPS of 52 sen (which was in turn based on the last 2 quarters' EPS totaling 26.12 sen). At this PER multiple, LionFIB is deemed very attractive.

Technical Outlook

The MACD & DMI indicators are signaling further rise in LionFIB's share price. Its immediate resistance level is at RM1.20 & thereafter at RM1.45.


Chart 2: LionFIB's weekly chart as at Jan 4, 2010_2.50pm (Source: Quickcharts)

Conclusion

Based on good financial performance, attractive valuation & mildly positive technical outlook, LionFIB could be a good stock for medium-term investment.