Enviro-Hub

Enviro-Hub?s FY2007 net profit attributable to shareholders increases 11-fold to S$20.3 million

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_31F07EA56FFD1E28482573FA004A84AE/$file/Press_Release_FY07.pdf?openelement

Company     Insider           No.of Shares Share Price  %Stake Before transaction %Stake After
Enviro-Hub Raymond Ng   4,000,000      0.45            31.15                                31.76 

 Raymond Ng 4,000,000    0.450          31.15                              31.76

Friday, February 16, 2007

Trust those analyst reports?

To answer the title question, I want to use the example of Enviro-hub: a local small cap company which deals in the extraction of precious metals from e-waste and e-waste trading.

On 2nd February 2007, UOB Kay Hian issued a buy call on Enviro-hub at $0.63, with a target price of $0.78, stating that it will be a beneficiary of e-waste created by Windows vista. On the very same day, Kim Eng Research also issued a buy call on Enviro-hub with a target price of $0.75.

Guess what happened soon after?



If you look at the chart, Enviro-hub was already on the downtrend from a high of $0.72 reached on 16th January 2007. But instead of rising on the back of those buy calls, Enviro-hub plunged dramatically further by some -20% in just two weeks to $0.50 currently.

And then today...the killer blow was delivered: Enviro-hub announced a profit guidance (see here) stating that "it is likely to incur a loss for 4QFY06". Despite this, the stock price may not continue to fall tomorrow, but the damage had already been done for those who blindly followed those buy calls.

Although I agree that Enviro-hub has very promising prospects, I don't believe in ever overpaying for a stock no matter how promising the future might be. And the reason for this is very simple: No CEO will every say anything other than that the company's future prospects are bright, and no analyst wanting to sell you a stock will ever highlight its negatives or risks. The only analysis you can and should trust is your own.

Posted by kleer at 12:02 AM 0 comments    

http://extraordinaryprofits.blogspot.com/

Enviro-hub

Shining through acquisition

�� An accretive acquisitionAn accretive acquisition

Envirohub (E-hub) announced it is acquiring a 23% associate stake in Thai

listed, Professional Waste Technology Public Company Limited (PWT) for

Baht 230m (~S$9.8m). The investment is valued at 12x PE (associate level)

and will be funded by internal resources and bank borrowings. PWT has

issued an NPAT guarantee of at least Baht 82m (E-hub?s implicit share works

out to S$0.82m in FY07) and Baht 156m (S$1.6m) in FY08. E-Hub will also

receive a one-off US$2m in licensing fees for technology transfer to PWT and

it will be entitled to appoint two directors to PWT?s board. Overall, the

acquisition will effectively boost NPAT to $66m inclusive the one time gain

from the recent sale & leaseback of its two properties and sale of Leong Hin

Equipment (M) Sdn Bhd.

�� Expanding market reach and additional income sourceExpanding market reach and additional income source

PWT is one of three companies licensed to treat and recycle hazardous and

non-hazardous waste in Thailand, and has a client base of 1,000 customers

in the vast automobile and electronics industries. As part of the agreement,

PWT will:

1. Engage Cimelia Recovery Resource Pte Ltd (CRR) to set up an

electronic waste recycling facility in Thailand

2. Acquire the technical know-how from CRR for electronic waste

recycling for a cash consideration of US$2m.

3. Engage the services of E-hub to manage all its waste recycling

business.

4. Acquire a JTS Aluminium and Metal Co Ltd which is engaged in

recycling of aluminium scrap and aluminium dross. Its customers

provide raw materials to the autombile, construction and electronic

industries.

Management is positive on recycling and processing aluminium on a large

scale thereby adding another avenue of income.

�� Maintain BuyMaintain Buy

We are maintaining our Buy recommendation and target price of $0.75. Our

assumptions are predictated on (1) 16x for core refining business (2)

revaluation of HLS Electronics given its impending IPO and (3) property

revaluation. Key risks include the execution risks of the copper smelting

factory and raw material prices.

Enviro-Hub Holdings

Beneficiary of e-waste created by Windows Vista

Financial performance at Enviro-Hub will improve significantly starting 2Q07

after its copper smelting & refining plant commence commercial production.

Copper smelting & refining plant provides vertical integration. E-Hub

Metals? copper smelting & refining plant has completed production for the first

batch of copper cathode. Anode slime, a by-product from copper refining, is

further processed by subsidiary Cimelia Resource Recovery. Analysis of anode

slime indicates a rich mix of precious metals. Iridium was found in the anode

slime besides the usual gold, silver, platinum and palladium. Commercial

production is scheduled to commence in Mar 06. Processing of anode slime will

take up to 30% of available capacity at Cimelia.E-Hub

Metals? copper smelting & refining plant has completed production for the first

batch of copper cathode. Anode slime, a by-product from copper refining, is

further processed by subsidiary Cimelia Resource Recovery. Analysis of anode

slime indicates a rich mix of precious metals. Iridium was found in the anode

slime besides the usual gold, silver, platinum and palladium. Commercial

production is scheduled to commence in Mar 06. Processing of anode slime will

take up to 30% of available capacity at Cimelia.

Utilisation at Cimelia to improve. Cimelia recovers platinum group of metals

(PGMs) from e-waste. The company was constrained by lack of working capital

last year as financial resources was devoted to accumulating copper scrap and

construction of the copper smelting & refining plant. However, Cimelia was

profitable in FY06 despite operating at utilisation of only 30%. Utilisation will

improve in FY07 due to processing of anode slime and increasing contribution

from customers in the PC, HDD and mobile phone industries. The company is

also expanding into recovery of precious metals from plating solutions.Cimelia recovers platinum group of metals

(PGMs) from e-waste. The company was constrained by lack of working capital

last year as financial resources was devoted to accumulating copper scrap and

construction of the copper smelting & refining plant. However, Cimelia was

profitable in FY06 despite operating at utilisation of only 30%. Utilisation will

improve in FY07 due to processing of anode slime and increasing contribution

from customers in the PC, HDD and mobile phone industries. The company is

also expanding into recovery of precious metals from plating solutions.

Recycling contract from US-based PC maker. Enviro-Hub has secured new

e-waste recycling contract from a major US-based PC maker covering the Asia

Pacific region. The contract was secured after a series of three stringent audits.

This is part of the PC maker?s consumer take-back programme to offer free

recycling services on a global basis for PCs and peripheral equipment. The

customer has just extended free recycling services to Asian countries such as

China, India, South Korea and Taiwan in Dec 06.Enviro-Hub has secured new

e-waste recycling contract from a major US-based PC maker covering the Asia

Pacific region. The contract was secured after a series of three stringent audits.

This is part of the PC maker?s consumer take-back programme to offer free

recycling services on a global basis for PCs and peripheral equipment. The

customer has just extended free recycling services to Asian countries such as

China, India, South Korea and Taiwan in Dec 06.

Windows Vista creates more e-waste. PC makers such as Dell and HP are

preparing for a surge in e-waste from discarded PCs after launch of Windows

Vista. It is estimated that 63% of PCs shipped in 2005 were equipped with lastgeneration

integrated graphics processors and will not be able to run premium

versions of Windows Vista (source: Jon Peddie Research). Both Dell and HP

accept desktop and notebook PCs, monitors and printers from all vendors,

including competitors. Dell made it convenient for consumers by providing pick

up services from homes. In US, consumers can return outdated HP products at

drop-off points in retail stores.PC makers such as Dell and HP are

preparing for a surge in e-waste from discarded PCs after launch of Windows

Vista. It is estimated that 63% of PCs shipped in 2005 were equipped with lastgeneration

integrated graphics processors and will not be able to run premium

versions of Windows Vista (source: Jon Peddie Research). Both Dell and HP

accept desktop and notebook PCs, monitors and printers from all vendors,

including competitors. Dell made it convenient for consumers by providing pick

up services from homes. In US, consumers can return outdated HP products at

drop-off points in retail stores.Jon Peddie Research). Both Dell and HP

accept desktop and notebook PCs, monitors and printers from all vendors,

including competitors. Dell made it convenient for consumers by providing pick

up services from homes. In US, consumers can return outdated HP products at

drop-off points in retail stores.

Balance sheet strengthened by divestment of industrial properties. Enviro-

Hub will receive payment of S$54.9m for the divestment of leasehold properties

and premises at 20 Gul Way and 3 Tuas Avenue 2 in Apr 07. We expect the

estimated capital gain of S$37.4m to be recognised in 2Q07 when the

transaction is completed. Management plans to utilise the funds for dividends

and business expansion.

Reiterate BUY. We like Enviro-Hub for its vertically integrated business model.

Our target price of S$0.78 is based on 15x FY07 core earnings.Enviro-

Hub will receive payment of S$54.9m for the divestment of leasehold properties

and premises at 20 Gul Way and 3 Tuas Avenue 2 in Apr 07. We expect the

estimated capital gain of S$37.4m to be recognised in 2Q07 when the

transaction is completed. Management plans to utilise the funds for dividends

and business expansion.

Reiterate BUY. We like Enviro-Hub for its vertically integrated business model.

Our target price of S$0.78 is based on 15x FY07 core earnings.