We dive into companies that offer interesting solutions for businesses. According to RHB, these three solution plays offer investors good risk-to-reward, given its strong cash flow and attractive yield.
Investors Takeaway: 3 Solutions Plays With Good Risk-To-Reward By RHB
- CSE Global
CSE Global is a worldwide systems integrator that focuses on the provision and installation of control systems. It also installs communications and security solutions. CSE Global’s key markets are the oil & gas, infrastructure and mining industries in the Americas, Asia-Pacific, Europe, the Middle East, and Africa regions.
According to RHB, CSE Global’s growth has always been built upon well-executed acquisitions. CSE Global is currently in the process to confirm the acquisition of 1-2 companies and investors might see finalisation in FY19. M&As in the pipeline will be one of the catalysts that will drive CSE Global’s share price. CSE Global’s positive recurring operative cash flows also give investors strong visibility of its sustainable and attractive yield of 5 percent.
BUY, TP $0.61; Current share price $0.495
- Frencken Group
Frencken Group is a global integrated technology solutions company that serves world-class multinational companies in the automotive, healthcare, industrial, life sciences and semiconductor industries. Frencken Group has seen its revenue from industrial automation surge since FY18 thanks to increased orders for storage drive production equipment from a key customer that is setting up a new factory. The management foresees robust year-on-year growth in 1Q19 till 3Q19 from increased orders.
Apart from its automation segment, investors can also expect revenue growth from its analytical and automotive segment. RHB projects that year-on-year growth will come from both new customers and new projects.
RHB believes that Frencken is a potential Venture in the making, with its technology also making rapid advancements in recent years to be able to provide more solutions to its customers. Frencken is currently trading at just 7.8 times FY18 P/E, which is well below its peers’ 12 times for FY19F. Coupled with potential bumper growth in FY19F and increased dividends on a 30 percent payout ratio, investors are now looking at a Frencken that is significantly undervalued.
- Fu Yu Corporation
Fu Yu Corp is a company that provides vertically integrated services for the manufacture of precision plastic components and the fabrication of precision moulds and dies. It is now one of the largest manufacturers of high precision plastic parts and moulds in Asia with a strong presence and manufacturing facilities in Singapore, Malaysia and China.
Fu Yu Corp has seen its revenue reverse the decline with an exceptional FY18 as it added new customers in the automotive, medical and consumer space. This growth is likely to be sustained into FY19 as Fu Yu works on other new projects in the medical, consumer and automotive front, as well as help existing customers with their newer projects. Gross margins also saw improvement as higher margin projects in automotive and medical sector ramped up.
The strong FY18 allowed Fu Yu to declare dividend of $0.016, which represents a dividend yield of 7.4 percent. With a sound balance sheet (i.e. net cash of $80.3 million), positive cash flow and an improving business, investors can expect to be reward with higher and more attractive dividends.
BUY, TP $0.24; Current share price $0.210