Wednesday, April 7, 2010

LTKM the hidden gem stock yet to be discovered

Before the merger of KLSE's main and second board, LTKM (7085) was listed in the second board, and like most of the stock counters there, was out of the radar screen of most institutional and personal investors. This could probably explain why its price is stable and steady without much fluctuation most of the time.

Even now, its number of share remains at a low level of 42,055,002 only, and 60% of them are tightly controlled by Ladang Ternakan Kelang Sdn Bhd (the "fullname" of LTK), which founded by the 3 Tan brothers way back in 1976, and initially operated on a small piece of 10-acre land in Kampung Jawa, Klang.

The "M" in LTKM is Melaka. Ladang Ternakan Kelang (Melaka) Sdn Bhd was established in 1986 after they acquired a 448 acres freehold land in the district of Durian Tunggal, Melaka. LTKM was listed on KLSE's Second Board in March 2000.

LTKM is famous as the single largest centralized poultry farm in Malaysia. Each and every day, LTKM produces at least 1.3 million fresh shell eggs. They are fully integrated in egg production including the processing and trading of organic fertilizer. They employ high production technology, including the biosecure environment controlled housing and automatic egg collection equipment.

They are well known as the sole producer and distributor of MARDITECH licensed Omega-3 eggs under the brand name LTK Omega Plus. LTKM was given the exclusive rights to produce Omega-3 eggs using MARDI's feed formulation, despite nowadays there are a few "me-too" brands of Omega eggs in the market. Another famous brand from LTKM is LTK Organic Selenium Plus, an R&D result with MARDITECH.

Currently over 40% of LTKM's eggs are exported to Singapore and Hong Kong. The balances are sold to wholesalers throughout Malaysia.

While egg production is the main business of LTKM, and many has the perception that they are only in this business, in fact, LTKM has ventured into other business, such as organic fertilizers (since 1993), property development (since 2006), sand extraction and trading (since 2008). Their latest venture is into glass processing business in 2009. Therefore, LTKM has been diversified their business into different areas, and I like their entrepreneur spirit.

Certain analyst are curious about their business venture to glass processing, which seems unrelated to their livestock business. But taking a closer look at it, I found there is relationship between sand extraction, glass processing and property development. Do you agree with this observation?

LTKM is currently building their glass processing factory in Sungai Rasah, Klang and expected to start operation by 2nd half of 2010. They have hired 2 experts from overseas, Mohan Menon and Alexander Akguel, to help them establish this new business under the brand name Lumiglass.

So, what make me feel that LTKM is a hidden gem? All back to fundamental facts and figures.

As you can see from my estimation of their upcoming FYE2010 based on simple normalization, LTKM is likely to announce their best ever revenue and profit result, with the estimated EPS of 45 sen. If they really achieve this, the net profit will be more than double from last year, and the ROE could be standing at a high ground of 18.44%.

Something worth notice is that, on 24 February 2010, LTKM has revalued their freehold land and buildings, which will contribute an exceptional gain of about 19 sen per share to its 4th quarter EPS to be announced in May 2010. With this, technically the EPS for 4th quarter will be much higher than my estimation above which didn't take this exceptional gain into account.

You might have observed that LTKM share price and transaction volume have both risen immediately after the asset revaluation announcement, which formed a strong support at RM1.53, which was the peak of 25 February 2010.

Meanwhile, LTKM is going to distrubute a 3 sen single tier interim dividend soon, the ex-date is 14 April 2010. Based on historical records, I estimate the full year dividend to be 10 sen, with another 7 sen final dividend in 4th quarter.

Closing at RM1.61 on 6 April 2010, we can therefore calculate based on my estimation that:
  • PE = 1.61/0.45 = 3.58
  • DY = 0.10/1.61 = 6.2%
I think the asset revalue exercise of LTKM might be a sign of possible bonus issue in the future to increase their issued shares from the current low level.

Perhaps this hidden gem will be discovered when they release their 2010 Annual Report in around August.

Click here to visit the website of LTKM. Their website is really informative.

Disclaimer: This article is intended for sharing of point of view only. It is not an advice or recommendation to buy or sell any of the mentioned stock counters. You should do your own homework before trading in Bursa Malaysia.


dragonism said... Reply To This Comment

Hi Voyager

LTKM profit will be affected if there is sharp increase in prices of corn and soybean. Example FY09Q2, the soybean have increased 50%.

Do you have any recommendation website to observe the prices of corn and soybean? In order to estimate the earning pressure in future.

Thank you.

Best Regards,

Voyager8 said... Reply To This Comment

Hi dragonism,

There are a lot of information here:

The strengthening of Ringgit against US Dollar is beneficial to LTKM in terms of import, provided its export currency of Singapore Dollar and Hong Kong Dollar remain strong. In their annual report, they revealed that sales to Singapore are in SGD, but no mentioning about Hong Kong, which is a smaller export market than Singapore.

dragonism said... Reply To This Comment

Hi Voyager,

The Q4 result was announced. The result is not so promising. All segments are reporting lost except poultry farming.

Best Regards,

Ohaiyo said... Reply To This Comment

better withdraw from LTKM if you are still holding it. The so called oversea expert to run lumiglass have left, even their marketing manager who has deep experience in glass industry from GJames. LTKM wanted to sell Lumiglass now, but no buyer yet. Lumiglass is running at loss everyday!

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