Member Profile
i4value  |
| Total Cumulative Posts |
545 |
| Joined |
Aug 2020 |
Blogs
| Blog Title | Total Posts | Last Published |
| Investing for Value | 168 | 08 Jul 2024 |
Comments
| | User Comments |
 |  14 Sep 2024, 9:05:14 AM
DKSH Malaysia got a one time boost with its 2019 acquisitions
2019 was a crucial year for the Group. It acquired Auric Pacific that had a strong presence in the food service channel. It also covered chilled and frozen products in both food service and grocery channels.
The acquisition boosted DKSH revenue growth. Furthermore, returns that were declining for some time seemed to reach the bottom in 2019 and began to improve. But these improvements seem to be tapering off suggesting that the 2019 acquistion was a one-time boost.
The positive sign is that there is more than 30% margin of safety at the current market price. These suggest that if you are going to invest in DKSH, it should view it as a cigar-butt investment rather than investing in a compounder.
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| 10 Sep 2024, 10:03:16 AM
Plenitude – a new hope
The performance of Bursa Malaysia Plenitude over the past decade was nothing to shout about with an average ROE of 4%. But this was because not all its cylinders were firing. Plenitude had 2 main businesses – property development and hospitality.
The hospitality business used up about half of its capital. For most of the time over the past decade the hospitality business delivered losses. The profits for the group were contributed by property development.
But over the past 8 years, the group had been refurbishing and improving the operating efficiency of the hospitality business. Then in 2023, this business began to deliver profits. I would expect growing contribution from the hospitality business.
Can you imagine the potential returns when both property development and hospitality pull their own weight? I think the market price has yet to reflect Plenitude’s turnaround.
For more insights refer to page 20 of INVEST
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| 05 Sep 2024, 3:52:59 PM
For more details visit Is Crest Builder a value trap?
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| 03 Sep 2024, 11:10:51 AM
Is Lysaght a value trap?
Lysaght Galvaized Steel has been able to maintain its revenue and profits over the past 12 years. While not fantastic considering that global demand is projected to grow at around 4% CAGR, the company is profitable.
The company is also financially ok with about half of its total assets in cash form. There is also currently > 30 % margin of safety from its Asset Value and Earnings Value. It is not in a sunset sector and there is no sign of digital disruption. As such I do not think Lysaght is value trap.
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| 27 Aug 2024, 2:32:22 PM
OSK – will we see a profit boost?
Over the past 8 years, OSK has transformed itself from a financial services company to a property group although financial services still accounted for more than half of the net assets.
Because of this set-up, while OSK's main operation is property development, a big part of the profits still came from its investment in RHB. The Malaysian property market had been soft for many years, but there are signs of recovery. Hopefully we will then have both cylinders firing thereby boosting OSK performance.
For more insights go to page 20 of INVEST
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| 23 Aug 2024, 11:44:04 AM
FoundPac – will its share price trend the Notion way?
FoundPac is a precision engineering company. It is in the same sector as Notion. While Notion share price has seen a quantum leap since May of this year, there is no such jump for FoundPac
While FoundPac had been able to deliver revenue growth over the past 9 years, profits were declining. This was because revenue came from the Group venturing into new product segments that did not have good margins.
But its precision engineering business has delivered good returns. But the newer segments such as cables and connectors and even automation are not pulling their weights.
Notion share price uptrended because of the ramp up its precision engineering business. Is FoundPac going to have the same business benefit in the coming few months?
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| 18 Aug 2024, 2:54:42 PM
You would think that with the popularity of online businesses, logistics companies would be having a roaring time.
When I looked at the performance of CJ Century, I found that its share price had been trending down since peaking in mid-2022. When I looked at its ROE, I also found that it had declined from its 2014 peak.
CJ Century is focussed on its legacy logistics businesses – total logistics and procurement logistics. The EBIT margins for these 2 businesses have been declining since 2015. The Group needs to improve its operations to arrest the decline. However, it does not have a clear track record of delivering operating improvements.
To deliver a sufficient same margin of safety from the Earnings Value, CJ Century needs to achieve 11% better performance than its past 2 years average. Can it deliver this with just the legacy businesses?
CJ Century ventured into the couriers services sector in 2016 but have since divested this loss making venture. You wonder why it did not tap big into serving the growing online fulfillments services.
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| 13 Aug 2024, 7:20:32 AM
A decade ago, KFIMA manufacturing segment was the key driver for the group due to its supply of travel documents. Unfortunately it lost this lucrative supply contract and the group business suffered so that it did not achieved any revenue growth over the past 12 years.
But the Group had managed to offset this by growing the business in the 3 other segments – Plantation, Food, and Bulking. The returns with the current business profile have yet to reach the levels of that before the loss of the supply contract. But the Group is making progress.
The Group is fundamentally sound. It has managed to deliver returns greater than the cost of capital. At the same time, there is a sufficient margin of safety based on both the Asset Value and Earnings Power Value.
For more insights visit INVEST
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| 07 Aug 2024, 8:52:03 AM
In the mid 2010s, Bumi Armada performance deteriorated due to the low crude oil prices. It had to re-organized itself and the company's performance over the past few years had improved.
There were improving gross profitability and contribution margins over the past few years. Its facilities are operating at high utilization levels. It had also improved its financial position. But this is a Group whose performance is tied to the expenditure of the oil and gas companies. This in turn is tied to crude oil prices.
Crude oil prices are cyclical and I do not expect the current high prices to continue forever. So when crude prices decline, I would expect Bumi Armada performance to follow suit. If you are a long-term investor, you should be looking at this performance over the cycle rather than just the current performance.
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| 02 Aug 2024, 1:53:18 PM
Can One – can it remain No 1?
There was a change in the business profile of Can One in 2019. Post-2019, the average returns over the past few years were lower than the respective cost of funds, implying that there was no shareholders’ value creation.
While the Group is financially sound, there are no signs of improving operating performance.
The Group may be the biggest packaging company on Bursa Malaysia but size alone does not mean that it is a wonderful company in the Buffett sense.
Nevertheless, the market is pricing the company below its NTA. From a brick-and-mortar company perspective, this does not make sense unless you think that its assets are going to be impaired.
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| 25 Jul 2024, 8:32:10 AM
Astino – slow and steady
When Warren Buffett first started, he focussed on finding “cheap” companies without paying too much attention on the quality of the business. He referred to this as cigar-butt investing. He likens this to finding a cigar butt that still has one or two puffs left.
I would put Bursa Malaysia Astino in the cigar-butt category. This steel roofing companies faced two headwinds over the past decade – soft property market and cyclical steel prices.
Nevertheless, it is a profitable business and is financially sound. Astino delivered single-digit revenue and earnings growth over the past 12 years
While it is in a mature sector, it is not a sunset industry. I do not see any digital or other disruption on the horizon.
Based on the past 12 years' performance, I estimated that there is more than 30% margin of safety from both the NTA and an Earnings Power Value perspective. It is not a value trap but a cigar-butt investing opportunity.
For more insights, refer to Is Astino a value trap?
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| 20 Jul 2024, 10:32:08 AM
Apollo Foods - have you missed the new dawn?
For many years prior to Covid-19, Apollo Food was boring company with declining returns. All that changed post Covid-19 with profits shooting up.
Then came the change in controlling shareholders in Dec 2023. The new controlling party are the people behind the Baskin-Robbins franchise in Malaysia and Singapore.
The market price today at RM 6.70 per share is much higher than the RM 5.80 the new controlling shareholder paid for Apollo.
My valuation of Apollo based on the past 12 years performance came to about RM 5.11 per share. The confectionary business is not a high growth one and to drive 30% business improvements (implied by comparing market price with my business value) would be challenging.
Unless of course there is some plan to inject other profitable business into the company. Why would anyone pay a premium for a company unless they have plans to do magic with it?
For more insights visit Is Apollo Food an investment opportunity?
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| 17 Jul 2024, 2:08:47 PM
Ajinomoto – a new hope from its relocation
Ajinomoto bottom line over the past 12 years was boosted by 2 land gains that resulted in about the same contribution to the past 12 years' earnings as the operating profits. The land gains are one-off items and moving forward we have to rely just on the operations.
Ajinomoto is a mature company with revenue growing at 6.1 % CAGR over the past 12 years. So you may think that there is not much hope for better results.
But the company relocated to a new plant in 2022 and its operating results since then provide a good picture of its future. It is also financially sound. On such a basis I found that there is more than a 30% margin of safety making it an investment opportunity.
For more insights refer to Is Ajinomoto an investment opportunity?
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| 04 Jul 2024, 7:32:49 AM
Bursa Malaysia NAIM Holdings Bhd is an integrated player focused on the property development, construction, and oil & gas sectors. Despite its diversification, NAIM's performance over the past 12 years has been poor with declining revenue and volatile, declining PAT.
I attributed its poor performance to the soft Malaysian property and construction sectors as well as the problems it faced with its investment in Dayang, an oilfield services company. I do not expect the property and construction sectors to be soft forever.
Despite this, NAIM maintains a strong financial position with significant cash reserves and low debt. The company's market valuation suggests a margin of safety.
So when the soft property and construction sector recovers, I would expect Naim’s performance to follow suit. Do you have the patience to wait for this?
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| 30 Jun 2024, 4:29:42 PM
Ta Ann is a Bursa Malaysia timber cum plantation company. Since Oct last year, its price had gone from about RM 3.30 per share to as high as RM 4.30 per share. Today it is down to RM 3.80 per share. Does this represent an investment opportunity?
I would consider Ta Ann a wonderful company in the Buffett sense. There were topline and bottom-line growths. It had diversified into the plantation sector delivered a big part of the growth.
The are signs of improving operating efficiencies as exemplified by the gross profitability, asset turnover, and leverage. It is financially sound and had been able to create shareholders’ value.
My valuation as shown in the Chart shows that there is more than 30% margin of safety. Surely Ta Ann cannot be a value trap.
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| 22 Jun 2024, 2:54:33 PM
At the turn of the century, Mesiniaga delivered double-digits ROE. It was in its heydays with more than 50% dividend payout ratio. Fast forward 20 years and the company is a pale shadow of itself. Its average ROE over the past 3 years was only 5%.
Mesiniaga is an ICT services provider and over the past 20 years the technology landscape had changed. To be fair that company had long ago recognized this and had sought ways to venture into new ICT areas.
Its Annual Reports over the past decade were full about how it is venturing into new tech areas, etc. Unfortunately, while the products and services may be new to the company, whatever it had done was not enough to return it to its glory days.
We all know that the tech industry evolves quickly, and tech companies continuously innovate to stay competitive. But it does not mean that innovation will always turn out to be the killer one. I think this is the fate of Mesiniaga. So while it is financially sound, it would not be a share market darling until and unless it finds the right “new tech product.”
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| 18 Jun 2024, 1:45:48 PM
When Bursa property development MKH ventured into the plantation sector in 2008, little did it know that it was to provide a lifeline to the company a decade latter.
Prior to 2016, MKH property development segment was the key revenue and earnings contributor. But since then, the Malaysian property market began to soften and the contribution from the property development segment began to decline.
At its 2016 peak, the property development and construction segment contributed nearly RM 250 million EBIT but this declined to RM 70 million in 2021.
On the other hand while the plantation segment performance was cyclical, its 2021 EBIT of RM 110 million was better than the 2016 RM 90 million EBIT. You can see from the chart that without the plantation business, MKH performance would have been worse.
Moral of the story? The property sector is cyclical and if property companies want a “stable” performance, diversification to a non-property sector is critical. For more insights to MKH refer to page 20 of INVEST
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| 14 Jun 2024, 12:58:52 PM
One the thematic play today is that a some Bursa tech companies will benefit from the US “trade tiff” with China. Notion Vtec has been touted as one such company. Over the past few weeks its market price had jumped more than 4 or 5 times.
If you are investing based on this thematic play, you might have missed the boat already. Its current price of RM 1.68 per share has run ahead of its long term business fundamentals.
One of my concerns was that over the past 12 years, the Group generated RM 128 million PBT. A breakdown of this PBT showed that the operations did not generate any profit. Rather the bulk of the profits came from non-operating sources specifically insurance claims.
I have other concerns to suggest that the market is currently sentiments-driven. Refer to Notion Vtec if you want to see details of my argument.
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| 05 Jun 2024, 7:02:23 AM
Bursa Malaysia Smelting Corp (MSC) is one of the world’s leading integrated producers of tin metal and tin-based products.
If you consider its net assets, about 2/3 is deployed for its smelting operations with the bulk of the balance for its tin mining operation. But when you look at the PBT over the past 12 years, 4/5 was from the tin mining operation.
Is this then a smelting company with a tin mining arm or a tin mining company with a smelting arm? This has implications for its valuation.
If this was a tin mining company, you would value it based on its tin reserves. If it was a smelting company, you would valued it based on its tin refining business. So what is the appropriate way to value it?
For more details on MSC, refer to “Is Malaysia Smelting an investment opportunity?”
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| 01 Jun 2024, 5:36:21 PM
Ben Graham, the father of value investing, made famous the valuation metric known as the Net-Net. It is computed by deducting the total liabilities from the current assets. Many consider the Net-Net as a short hand for the liquidation value.
In Ben Graham days, he focussed on buying companies trading at a discount to their Net-Net. The logic was that if these are viable businesses, there is no reason for them to be trading below the liquidation value.
White Horse currently has a Net Net value of RM 1.39 per share compared to its market price of about less than RM 0.80 per share. Is this a viable business or is this a company going out of business?
White Horse is a leading ceramic tile manufacturer in the region and its performance over the past few years were impacted by the soft property market. It incurred losses.
If you believe that the property sector is cyclical and we are now leaving the bottom of the cycle, the performance of White Horse would improve. More important if it survived so far and is financially sound, ie not a company facing liquidation, the market must be wrong to price it below its liquidation value.
Is the market wrong or do you follow the crowd and avoid this Net Net? For more insights into White Horse refer to page 20 of INVEST
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