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Monday, March 3, 2008

The allure of Melati Ehsan

RM1 BILLION ORDER BOOK: Yap (right) and Melati Project Director Mohd Zainudin Badarudin explaining a plan for a Johor project

WHEN Lembaga Tabung Haji doubled its stake in Melati Ehsan Holdings Bhd recently, one can't help but wonder: What's so sexy about Melati?

So far, two research houses have put the construction and property company under their radar. Both told clients to buy the stock, tagging a 12-month target price of between RM2.35 and RM2.50.

This would give investors a potential upside of at least 63 per cent based on Friday's close.

"Valuation is at single-digit, and it is ridiculously low at this time. It's a good value buy with limited downside," said Jeremy Goh from OSK Research Sdn Bhd.

Currently, the stock trades at a price-to-earnings multiple of around 3.6 times, versus 9-12 times for most of the other small construction companies.

Analysts are also attracted by the amount of jobs the company has.

"The main selling point is that the company has a huge order book, relative to the size of the company. Usually, for a construction company with a market cap of about RM200 million, order book is about RM800 million," said another analyst.

He declined to be named due to company policy.

Melati has an order book of over RM1 billion, which is expected to keep the company busy over the next three years. It is also bidding for RM2 billion worth of jobs.

Tabung Haji, which had about 3.94 million shares or 3.26 per cent of Melati in 2007, currently has over eight million shares or 6.7 per cent.

"There are three things Tabung Haji look at before buying stakes in a company: Sustainable earnings, solid valuation and good management team," said a Tabung Haji official who does not want to be named.

The company is 49.7 per cent held by managing director Datuk Yap Suan Chee.

Another interesting shareholder is Kuala Lumpur Kepong's Datuk Seri Lee Oi Hian. It is believed that he holds 1.67 per cent through Malay-Sino Formic Acid Sdn Bhd.

By New Straits Times

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