KLCI Stock - HUAAN / 2739 - 2010 Quarter 2

Market Cap : 1122307817*0.35 = 392,807,735.95 (Small)
NTA per share : 705904/1122308 = 0.63
P/BV : 0.35/0.63 = 0.5556
Forecast P/E now : Not available
ROE : 0.33%
DY : Not Applicable
Fixed Asset Turnover(3 year) : (1.7192+1.5592+1.3978)/3 = 1.5587 (High)
Liquidity Ratio : 222791/98914 = 2.2524 (Moderate)
Receivables Collection Period : (43439+68412)/2/(1383680/365) = 14 days (Good)
My Target Price : Not interested unless receivables increase more or price moving show more clear uptrend
My Decision : PAY ATTENTION
My Comment : Revenue decreased but profit increased, good cash flow, low debt, inventory remain high, receivables increased, closing down the 192 small and inefficient coke factories in China, price moving chart showing slightly positive uptrend
Technical Support Price : 0.33
Risk Rating : HIGH
OSK Target Price : 0.47 (25 Aug 10)

My notes based on 2010 quarter 2 report (number in '000):

- The increase in the consolidated revenue of approximately 14% registered in the current quarter under review can be attributed to the favorable upward trend in the pricing of metallurgical coke and majority of the by-products in the current quarter experienced by the Group. The average prices of metallurgical coke, crude benzene, tar oil, coal slime and middlings during the current quarter under review have increased by approximately 35%, 49%, 34%, 51%, and 14% respectively compared with those of the preceding year corresponding quarter. However, the price of ammonium sulphate has dropped by approximately 16% and the price of coal gas remained fairly constant in the current quarter compared to the same quarter last year

- Despite the seemingly favourable pricing of metallurgical coke and the majority of the byproducts as mentioned above, the cost of sales had also increased in tandem by approximately 8% in the current quarter compared to the preceding year corresponding quarter. This was primarily attributed to the increase in the average price of raw material (i.e. coking coal) by approximately 30% in the current quarter compared to the average price registered in the preceding year corresponding quarter

- Given the continuing recovering trend in the coking and steel industry, albeit a gradual one, the Group has managed to record a gross profit of approximately RM10.9 million in the current quarter under review compared to a gross loss of approximately RM4.8 million recorded in the preceding year corresponding quarter. The Group has turned around to register a profit for the period of approximately RM4.8 million for the current quarter under review compared to the loss for the period of RM13.3 million registered in the preceding year corresponding quarter, after two consecutive loss making quarters since the third quarter of 2009

- The Group’s consolidated revenue registered during the current quarter represents a reduction of approximately 8% in the preceding quarter ended 31 March 2010. The reduction in revenue was primarily attributed to the unfavorable pricing of some of its by-products in comparison with the prices registered in the preceding quarter. The average prices for ammonium sulphate, crude benzene and middlings (which contributed to approximately 5% of total revenue) during the current quarter under review were reduced by 16%, 8% and 2% respectively, the effects of which more than negate the price increase seen in tar oil and coal slime of 13% and 4% respectively compared to the average prices registered in the preceding quarter. Besides, the average metallurgical coke price has only increased by a meager 0.4% in the current quarter under review compared to that of recorded in the preceding quarter (first quarter 2010)

- Cost of sales in the current quarter has correspondingly reduced 9.9% in the current quarter under review compared to the preceding quarter ended 31 March 2010. This was attributed to lower sales volume as well as reduction of approximately 2% of the average coking coal price compared to that of the preceding quarter

- The reduction in the average coking coal price on the back of a slight increase in the metallurgical coke price bodes well for the Group resulting in it recording a profit for the period of approximately RM4.8 million in the current quarter under review compared to a loss for the period of approximately RM2.5 million in the preceding first quarter 2010

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