Dominant Enterprise Berhad

General Review

Myanmar is the 5^th largest tropical wood producer and exporter in the Asia-Pacific region. Looking on a tight log supplies due to the Myanmar recent ban on log export (effective on March 31^st 2014), Malaysia, which is also the 3^rd largest and leading exporter in Asia-Pacific will continue to lie on a comfortable position, benefits most of the timber related industry. One of the counters that continue to draw my attention on a possible reversal is Dominant Enterprise Berhad.

Business Model

Dominant Enterprise Berhad is engaged in investment holding and providing management services. The Company operates in three divisions: manufacturing of wood products, distributing of wood products and others. The Company operations are located in Malaysia, Australia, Singapore, United States and European countries, and other Asia-Pacific countries.

Financials

(Source: klse.i3investor)

-Dominant has been recording a strong revenue growth of 234% over 10 years (142 million to 477 million)

- A healthy Growth in Net Profit attributable to shareholder of 167% over 10 years (8.6 Million to 23 million)

-Total Asset of RM278 Million, Total Liability of RM118 Million and Total Equity of RM160 Million

-The latest quarter EPS of 8.99 is partly derived from the fair value adjustment from investment property (6.81 million), excluding the fair value adjustment, the fair EPS would be ( (12.4 million – 6.81 million) / 139 million)) which is around 4 cents.

Zooming closer into the total liability of 118 million, the largest portion of the company borrowing is on “Banker Acceptance”. As described above, Dominant operations are mostly overseas, and Banker Acceptance is one of the crucial instruments used to help them in their business transaction with the unknown party. So, bank acceptance will rather be a healthy liability since both the bank and borrower are liable for the amount that is due. I will attach the picture on how (BA) works.

(How Banker Acceptance Work)

Rising in demand in Logs and timber related product such as plywood especially in Japan and India will continue have a positive impact on the price, with analyst estimates a potential increase of 5 to 7%. 

(Source: theedgemalaysia.com) 13th June 2014

NTA
-Dominant is trading at a 38% discount below the NTA

Valuation

-2014 EPS 12.07 cents (excluding one off gain). With the estimated minimum 10% growth of EPS for the upcoming years, Using 10 years Discounted Earning Per-Share Method

-Intrinsic value RM1.71

- Assume it is trading at 10 times PE, it will be trading at RM1.68

Technical 

Dominant has been looking to challenge it's resistance at 1.25 and 1.30

-Short-Term Target Price RM1.30

-Long-Term Target Price RM1.70