Friday 15 November 2013

Fitters Undervalued?

Fitter caught my attention because it seems to be traded at a very low forward PE and also under its book value. That's why it is in my Stock Alert list.

For the first 2 quarters of FY2013, Fitters posts a RM20.8mil net profit, which represents 75% of FY2012 FULL year net profit. 

Its PE ratio at current share price of 72sen is 8.1x base on FY12 net profit of RM27.9mil. If we assume Fitters can duplicate its earning for the 2nd half of FY2013, then its net profit may reach RM40mil, which will give a forward PE of just 5.6x.

Its NTA stands at 85.4sen at 1HFY13, which is 18% discount from its current share price.

The question is, can Fitters duplicate this performance in 2HFY13?

Fitters has 3 core businesses, which are
  • manufacturing & trading: mainly fire-fighting related products
  • property, construction & engineering
  • renewable energy

RM mil Rev PAT
2008 163.8 21.6
2009 126.2 8.0
2010 189.8 13.2
2011 446.5 22.2
2012 410.9 27.9
1H2013 181.1 20.8
   Fitters Financial Result

Despite higher net profit, Fitters revenue for 1HFY13 drops slightly due to significant lower contribution (RM90.8mil in 1H12 to RM47.8mil in 1H13) from its renewable energy segment as the work was suspended to give way to upgrade & expansion work.

The management said that the work has re-started since April 2013, so I expect Fitters's revenue in renewable energy to increase substantially in the second half of 2013. However, will this segment increase Fitters profit significantly? Probably not. Historically this segment made loss or little after-tax profit (RM1mil) despite having high revenue.

RM Mil FY2012 FY2011
Manufacture Revenue 129.9 114.6
Manufacture PBT 8.4 10.9
Property Revenue 209.5 179.3
Property PBT 30.7 16.1
Energy Revenue 181.1 236.7
Energy PBT -3.1 2.4
Total Revenue 410.5 446.5
Total PBT 37.9 29.7
   Fitters segment result

The manufacturing & trading segment for fire-fighting related equipment, which was Fitters bread & butter before joining the property segment, has been rather flat in revenue and earnings.

It is worth to mention that Fitters is also a specialist in theme park design and construction. It is involved in almost all recent famous theme parks in Malaysia & Singapore and some others in the Middle East, China & Russia. The notable ones include Legoland, First World, Puteri Harbour, Kidzania, Resort World Sentosa, Universal Studios Singapore etc. However, this type of job is hard to come by and Fitters does not have such job currently.

So the 2-fold rise in Fitters revenue & net profit from FYE2010 to FYE2012 is largely due to its property development activity. For FYE2012, 51% of revenue and 83% of PBT are contributed by its property segment.

It is obvious that Fitters is extremely dependent on its property segment at the moment. Can the property segment sustain its growth for next year?

Fitters first property development ZetaPark started in 2010 when it constructed the Festival City Mall in Setapak for Parkson. It built SOHO & serviced apartment above the shopping mall.

       ZetaPark @ Setapak

Fitters launched its first property project SOHO @ ZetaPark in June 2010, followed by Zen Suites @ ZetaPark in Nov 2010 and Loft @ ZetaPark in Nov 2011. Overall, ZetaPark has 424 units of SOHOs and 470 units of serviced residence, with an estimated GDV of RM500mil.

It has already been 3 years since Fitters launched ZetaPark, I presume all the construction is near the end now. Fitters will not have a lot of new property sales in FY2013 as 85% of its latest Loft @ ZetaPark has been sold at the end of FY2012. How much revenue can Fitters generate in 2HFY13 from its property development progress?

We can roughly calculate from Fitters financial report. From FY2010 until 1HFY13, Fitters has already registered RM413mil total revenue & RM61.9mil PBT from its ZetaPark development (excluding Festival City Mall construction but including small KLCC job). If the GDV is RM500mil, then it will be about RM90mil revenue & RM13.5mil PBT (15% PBT margin) left until all development get their vacant possession.

Compared to RM209.5mil revenue in property segment in FY2012, the possible RM90mil that remains seems to be small.

Next, we can see from the balance sheet that the development properties category (which includes property development cost) under current assets has shrunk tremendously from RM44.6mil (Q1FY13) to RM4.1mil (Q2FY13)! 

Does this mean that after 1HFY13, Fitters property segment from ZetaPark will only contribute very little to its future revenue & profit? Or the whole construction suddenly stop for some reasons for that period?

If property segment goes down sharply, Fitters overall profit will crash.

I'm not too sure on this and it all remains to be seen.

In July 2013, Fitters completed the acquisition of 2 pieces of land, 50 acres in Rawang and 2.84 acres in KL Jalan Ipoh.

The Jalan Ipoh land will be developed into a 2-block 284-unit condominium Zeta DeSkye. It has an estimated GDV of RM154mil.

If I'm not mistaken, Zeta DeSkye is just receiving booking and the SPA is not signed yet. So it won't contribute much to Fitters Q3 or even Q4FY13 financial results.

       Zeta DeSkye

I think Fitters will still surpass its record net profit of RM27.9mil in FY2012 slightly for FY2013. Thus, its PE ratio will remain relatively low. However, for FY2014, it will not do well if it just depends on ZetaSkye development.

The 50-acre land in Rawang may come to rescue though.

I should continue to leave Fitters in my stock alert list pending future financial results. The RM4.1mil figure in the development properties part of the balance sheet is very disturbing indeed.


  1. Good analysis. I have learned something new about Fitters

  2. Good analysis. I have learned something new about Fitters

  3. FYI, The Edge Weekly Oct28, 2013 (page cc6) had an article entitled Fitters targets Rm2b project launches in the next year.

  4. tklaw, thanks, i'm learning as well.

    maverick, this article cannot be found on the internet right? RM2b is an enormous figure for Fitters. Thanks for sharing.

  5. I have tried searching for the article on the internet, but can't find it.

    Here is a snippet of the article :

    More projects in the pipeline
    Currently, Hew (new CEO of Fitters Property Development Sdn Bhd) has its hand full . Fitters Property Development is looking to roll out a few new developments.

    Zeta D'Skye, located on Jln Ipoh in KL, is its latest offering.Comprising two 24-storey towers, it stands on 2.84-acre of freehold land and offers 284 units of condos. The units will be sold at Rm600 psf with sizes ranging from 900 ~ 1200 sq ft. It is already fully booked and Hew expects the development to be fully sold by year end.

    He adds that Zeta D'Skye is considered a low-density, high-rise condo targeted at young couples liioking for a nice condo close to the KL city centre.

    Meanwhile, Fitters is looking to offer its landed dvlpment pjt, dubbed Zeta Residence, to the mkt after Zeta D'Skye.

    The Zeta Residence is located on a 50-acre leasehold parcel in Rawang, Sel, and is expected to be launched by year end. The dvlpment commands a GDV of Rm300 mil and offers super link and semi-D homes in a gated and guarded environment.

    While the company is still fine-tuning the details, Hew says the super-links will be sold for Rm700,000 onwards while the semi-D units will be priced from Rm1.2 mil. There will be 4 phases.

    "There are plenty of parcels left in Rawang especially near the Sungai Buaya side," say Hew. "But at this moment, they are still not attractive."

    Located next to Glomac Saujana by Glomac Bhd, Zeta Residence is expected to benefit from Glomac's plan to construct a direct link from Jln Batu Arang into its dvlpment.

    "We forsee that Rawang will become the next Puchong very soon. Most of the big dvlpers are there and the Rawang community is continually growing," says Hew

    However, he expects the company's dvlpment in Cyberjaya to come onto the mkt 1st as its land in Rawang still needs to be planned carefully.

    Fitters has a 7-acre freehold parcel in Cyberjaya that it plans to develop into a township, tentatively dubbed Zeta Eco Park. it is currently fine-tuning the concept. As the land is located at the centre of a very mature Sungai Buloh area, delicate planning is needed to create a good environment for the people living there, says Hew.

    The parcel in Cyberjaya will be develop on a joint-venture basis. It will command a GDV of Rm500 mil and will be rolled out in the 1st quarter of next yr.

    The pjts Fitters has on the drawing board will continue to supply the group with the earnings that it has been enjoying for the past 2 years and this is what Wong (MD of Fitters Diversified Bhd) expects from its property dvlpment segment.

    "We have a lot to chew on for the time being, we will avoid buying too much land unless it's so attractive that we can't refuse," he says. "With the pjts in hand, we have a sizeable GDV that will keep us busy for the next 2 to 3 years."

  6. TQVM maverick for your info. I never know Fitters has land in Cyberjaya with GDV of RM500mil. Its future seems promising if the projects can be rolled out in time.

  7. Hi BD,
    Good day. You have covered this stocks end of last year. Any chance you will re-visit this stocks?

    Btw, seek your advice if I can follow your investment as your financial analysis on stocks is something I can only envy. I trust you are one of value investors based on your writing. Please correct me if I am wrong.

    P/S: Already go through some articles you written and hope to pick up some knowledge though I know this does not come overnight. Hope to get some guidance from your goodself.

    Best regards.

    1. Hi FCD,

      I have re-visited Fitters and have just published my opinion in the blog.

      You should not follow my investment blindly. I can make mistake too & not everyone agrees with my opinion. You can get the info from my articles and decide by yourself - is the company good, undervalued or has growth potential.

      I try to be a value investor but I only know a little of it by now. I'm a slow learner as well. We can learn together :)