,Property activities: An artist’s impression of the Lavanya Residences. Kobay expects to complete phase two of the Langkawi project by the end of financial year 2022.
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ONE of the top performing stocks on Bursa Malaysia year-to-date is Kobay Technology Bhd. It isn’t entirely clear what has driven investors to it but they have done so, driving up its share price more than six times in that period.
At around RM5 a piece, its shares have never traded this high since its listing back in 1997. The company’s market capitalisation has grown from a mere RM244mil at the beginning of the year to hit RM1.56bil currently.
The stock now trades at a historical price-earnings multiple of 60 times. The question is, can the company deliver earnings to support that high valuation?
Penang-based Kobay is a manufacturer of precision metal components and a property developer – two businesses which are quite diverse from each other. And it is entering into yet another sector, namely the retail space with its recent acquisition of a 70% stake in the Avelon Group.
Kobay managing director and chief executive officer Datuk Seri Koay Hean Eng says the acquisition is part of the group’s long-term strategy of diversifying into other industries and creating another income stream.
“We chose the pharmaceutical industry because of its strong growth prospects underpinned by the heightened health awareness since the emergence of Covid-19, plus the ageing population is growing in Malaysia.
“The industry is also non-cyclical, which will enhance earnings visibility and sustainability,” he tells StarBizWeek.
He adds that at RM47.7mil for the block of shares in the Avelon Group, the business is being bought at an attractive level, translating to a price-earnings (PE) multiple of eight times based on pro forma financial year end Dec 31, 2020 net profit. This is lower than the market average PE of 16 times.
Where bottomline is concerned, the deal comes with an aggregate net profit guarantee of RM25.5mil for three years to financial year 2023 or an average of RM8.5mil per year. It also has the option to buy the remaining 30% stake in the Avelon Group for RM16.8mil, which is exercisable after Dec 31, 2023.
Avelon Group has four pharmacies under the Park@City brand name, one retail store selling healthcare products under the brand name of BioBay and one warehouse – all of which are located in the Klang Valley.
From here, Kobay plans to expand upstream to manufacture health food and supplements.
“For starters, we are looking at the manufacturing of fast-moving consumer goods, grains and milk powders. We also plan to expand our pharmaceutical product range for the wholesale division,” Koay shares.
Having a presence in countries like Singapore and the United States, Kobay intends to grow the geographical footprint of the segment. For this, it will be forming an export team to promote its health food and supplements to countries in South-east Asia, including Singapore, says Koay.