OSK Small Cap Jewel 2012

Key Highlights and Takeaways from the corporate presentations
At the corporate day, management highlighted 3 key points for the company. Firstly, this year is a year of
tender for Dayang where it expects to grab a portion of the RM7bn worth of brownfield services contracts and
most of them are mainly for contract renewal purposes, either from themselves or its competitors. Secondly, it
sees potential M&A opportunities for itself, coming not only from the Perdana acquisition but also from other
potential related O&G services. Finally, Dayang is looking forward to participate in marginal oilfield
developments, either directly or indirectly. Our FV of RM2.34 is premised on 13x FY12 EPS
Management articulated passionately on efforts to create further shareholder value through its venture in the
food and beverage manufacturing business to complement its tin manufacturing business. We gather that
management will continue to  be on the  lookout for other acquisitions which could leverage on its sales
networks in Africa to get more earnings contribution. Although nothing is firmed up at this juncture, we believe
that the group could embark on other acquisitions if the pricing and synergies are value accretive. Despite the
impressive performance of the stock recently, we believe there is further upside on the stock as valuations
remain attractive at 6-7x PER vs the 8-9x of comparables, coupled with multiple re-rating catalysts highlighted
during the briefing such as: (i) expansion of its evaporated milk business, which will kick  off by 4Q12, (ii)
installation of new lines to enhance its production capacity of sweetened condensed milk, and (iii) focusing on
selling its own brands for the domestic market to enhance its margins. We are reiterating our BUY
recommendation for Johore Tin with a FV of RM1.51, premised on: (i) 6.5x FY12 earnings for its tin can
manufacturing business, and (ii) 8.0x FY12 earnings for its dairy product manufacturing business. Maintain
BUY with FV of RM1.51.
Prestariang shared its plans to further grow its earnings base going forward. The key focus will be the launch
of its in-house developed certification programmes such as Vocational English and Green IT solutions, coupled
with the progressive rollout of the 1Citizen programme. The company targets to grow its better-yielding training
and certification division from 20% of group revenue to 40%. The volatility seen in quarterly earnings is likely to
be smoothened out, unlike what happened in 1H11 which saw a sharp drop in earnings due to seasonality.
Prestariang is looking to reward shareholders with quarterly dividend payouts going forward in view of its
strong cash balance of RM46m and its light capex business model. Although the company’s market
capitalization has doubled since we initiated coverage last September, we see potential for further share price
re-rating owing to its undemanding valuation, trading at just 5x FY12 PER, which is anchored by a dividend
yield of over 10%. Our FV of RM1.48 is based on 8x FY12 EPS.
At the corporate day, management continued to highlight its intentions to grow its family takaful business and
will put more focus on growing its retail agency, in line with Bank Negara Malaysia’s intentions to grow the
family takaful business moving forward. Management also expects its claims ratio for its general takaful
business to remain around the 65% region moving forward due to its less profitable motor insurance business,
which it caps at 40% of its total portfolio. In line with our expectations, the management also highlighted that it
is expecting more growth in its wakalah fees as it will be launching all new products under the wakalah model
moving forward. While the stock has performed well recently, we believe that it is still trading at a discount to
its peers. If the insurance companies under coverage (Allianz, LPI Capital, Kurnia  – discontinued last week)
traded at our fair value, the stocks would trade at a range of 13-17x FY13 EPS, while Syarikat Takaful will
trade at only 10x FY13 EPS. Hence, we think this company could be worth more when its PER rerates,
provided that it continues to deliver  on the earnings  front  as evidenced by its historical earnings growth.
Maintain BUY with FV of RM4.42 premised on 10x FY13 EPS.