A FEW months ago, a fund manager and an analyst paid a visit to the management of OYL Industries Bhd. The fund was contemplating selling its OYL shares after making a decent profit, but on hearing about the prospects of the company, it decided to hold on to the shares.
It is still keeping the shares under lock and key, and judging by the huge move in the OYL share price since then, it made the right choice.
OYL's share price has risen to a record high and catapulted the company's profile to a new level. It now has investors asking: “Is this the new BAT?''
Discarding the old plantation stocks such as Kluang and Sungei Bagan that do not yet meet the KLSE's minimum share capital requirement, British American Tobacco Malaysia Bhd (BAT) has held the perch as the highest priced stock in absolute terms on the KLSE after the worldwide dotcom bubble burst.
Its share price has hovered above RM33 since January 2001, except for a day, and reached the record high of RM42 in August this year. BAT closed at RM39.50 yesterday. It is up 11.3% since Jan 1.
BAT's share price has remained high given that it is a dividend play, and is backed by a local business that is stable and solid. Its expected dividend yield for the financial year ended December 2003 is slightly above 8%.
Revenue expectations rely on the increase in population, which is in the low single-digit range, plus the rise in prices every time new taxes are imposed.
“OYL is different from BAT. It is a global growth stock that offers capital appreciation and it also gives good dividends. It fits into the risk profile of a lot of investors,'' said OSK Research assistant general manager of research Pankaj Kumar.
It is growth prospects at a time when expectations are that world economic growth will be robust, and the company's exposure to the Chinese market, that have investors interested. China is the main driver of OYL's revenue.
The stock is up 74% since the beginning of the year when it opened at RM20.50. In a scorching run, it gained 23% from RM29 at the start of the month to RM35.75 yesterday, after hitting an intra-day high of RM36.
“Asia is a high growth market and the company sees strong growth potential from its business in China,'' Hwang-DBS analyst Raymond Choo said in a research note. Hwang-DBS initiated coverage on OYL on Oct 16 with a price target of RM40 per share.
OYL's plant in Suzhou, China, which is sited on a land twice the size of its other plants in that country, is expected to be ready at the end of next year.
Hwang-DBS said the company's current manufacturing facilities in China were running at full capacity, and most of its plants in the United States, Malaysia, Indonesia, Italy and Britain were operating at 90% capacity.
OYL is expected to register an earnings per share of about RM2.30 for financial year ending June 2004, a nearly 20% increase over the preceding year.
Hwang-DBS's target price for OYL is, however, not the highest in the market. Another local brokerage has pegged a target price of nearly RM50 for each OYL share.
Another factor than has shored up OYL's share price is that the company itself has been buying back its shares from the market. OYL currently has 6.15 million shares in its treasury.