TAN CHONG MOTOR HOLDINGS BERHAD VALUE EVALUATION

Tan Chong is no stranger to the dealership of foreign car in Malaysia. Tan Chong also lengthen its business arm by venturing into other field such as financial services, property and education services. Tan Chong group sees the market in a packet where such industries are interconnected with each other which we can observe from automobile assembling to after sales service and nurturing its workers with skills and knowledge. Designs of Nissan is never inferior compared to the others. By capturing the niche of upper middle class with its world class features, Nissan is undoubtedly standing firm challenged by different factors. When we look into Nissan itself, its brand is well established with its sports car featuring in blockbuster movies which to me, is undoubtedly a strong publicity advantage. Also, with its own financial sector, Tan Chong is able to provide extra options for its customer such as leasing where there is tax break element when it is utilized for business use. 

 When it comes to automobile industry in Malaysia, foreign brand encounters disadvantages as in heavy duty imposed which ultimately boost up the price. Price war is eventually scrolling in as local players are launching low deposits with their already low prices. Also, judging from the statement of the new Proton chairperson, it is likely that heavy duty will be continuously imposed to protect the local players. Furthermore, Malaysia government encourages mostly on the sale of locally assembled energy efficient vehicles where the rest will left vulnerable to heavy duty and challenges. 

Based on the disadvantages above, it disregard my interest towards such well-managed company. It reminds me of the textile business hold by Berkshire Hathaway in the 1970’s where good management must be tied with good business in order to strive. Filtered out.

Stock: TCHONG Code: 4405

SPRITZER BHD VALUE EVALUATION

Being the sole listed drinking water company in Malaysia, Spritzer has always being thriving in water business. Although there are competitors in and out of the business, Spritzer is standing firm on its feet all these years. Focusing on the market specifically for natural drinking water with the least flavouring, Spritzer did a pretty good job differentiating themselves with the greenish and bluish labelling which enables easy recognition. Despite establishing a strong branding within Malaysia, Spritzer is not contained by their own achievements. Instead, they go all out evaluating different kind of trends and expanding their market shares by identifying those needs such as water dispenser and vitamin water which is highly sought by modern families demanding equipment to ease their house works burden and at the same time being able to maintain their health in shape. As for their business nature, Spritzer don’t need much research and development to survive in the market. With only one water reservoir, all they need is to improve the extraction of mineral water. However, this doesn’t apply to their recently launched water dispenser product.

When it comes to consumer side, pricing is a major factor to be taken in consideration whenever purchase is being made. With guaranteed quality, Spritzer is of course priced higher than most of its competitors in the market in terms of drinking and mineral water. Furthermore, water purifying systems are made for easy maintenance and repairmen nowadays. Expansion of the use of system will directly damage Spritzer newly launched water dispenser. (When you have a trusted water dispenser or purifier, why would you buy the liquid behind the plastic bottle anyway? No offense.) Finally, I notice that there is only one water reserve which is able to provide raw water for the company. I mean like what if something happens because it’s actually the company backbone? (Touch wood)

According to the table above, operating cash flows is growing at an annual rate of 5% for the past 10 years. Looking into its efficiency ratio, both ratios performance are moderate but not superior. Personally, I hope to uncover some of company with higher efficiency, filtered out of my list. 

Stock: SPRITZR Code: 7103

PPB GROUP BERHAD VALUE EVALUATION

PPB group is a giant conglomerate venturing into the food, property and entertainment industry. This enables the company to ride on a bullish trend and receive less shock when there is a global financial slowdown with their diversification products and services. As Malaysia sole largest private flour miller without much government intervention, PPB group leverage this position and offer cake baking flour series while producing breads out of its own wheat. As there is no middle chain in between extraction and manufacturing, this low expense margin segment turns out to be a profitable venture. Aside of that, frozen food with “Marine” branding is a deluxe picking by households with their exceptional and restaurant suited taste. Compared to other frozen products, Marine raises a sense of enjoyment instead of staple food which specifically targets for higher middle group. Making its way into entertainment field, the group owns Golden Screen Cinema which can be found all over Malaysia. Their standings are further established with the opening of two new cinemas in Sarawak. With the trend of youngsters favouring cinema movie, screening business is never too obsolete which enables the group to continuously enjoy their cash inflow from cinema business. The benefits prolong with the group acquisition of Vietnam’s Galaxy Entertainment where they capture a rising market over there. At the same time, it is also a great sources of collecting advertising revenue where airing time is quite costly and lucrative.

For the bread manufacturing industry, PPB group distribution network is sort of left behind compared to Gardenia. Take into the example of Sabah where there is local bread manufacturer by BTC, Gardenia’s bread is still able to survive and its coverage is wide be it the rural or urban areas. The moderate distribution network can also be reflected through its frozen products where it is only found in certain urban areas where foreign products are also brought in making the competition more crowded. Golden Screen Cinemas are also cornered in a five ways battle with so much theatre operators already in Malaysia. Consumers are able to choose which cinemas to go to despite of having the same movie. Therefore, a lot of marketing expenses and collaborations are needed to attract the respective markets.

Obviously, the operating cash flow for PPB Group is sliding down from years to years. With  extensive expansions for the several years, failing to boost up and even maintain the cash from below reflects that the business is not generating enough cash altogether. Thus, it is not a desirable picking.
STOCK: PPB CODE: 4065

POWER ROOT BERHAD VALUE EVALUATION

Power Root is one of the major beverage producer originating from Malaysia itself. With products such as coffee and energy drink, it is targeting the growing market within Malaysia as well as markets in the Middle East where demand for energy booster is rising high up. In terms of branding, Power Root formulates its marketing plan in ways such as lucky draw, sponsorship and events organizing. With all these promotional activities, Power Root has established a very strong goodwill foundation. It’s remarkable marketing milestone also include Ah Huat white coffee blending in the diversification of Malaysia’s cultures which capture its audience easily. For an energy drink manufacturer, the company might as well retain its drink formula and generates strong cash from it without reinvesting much of their cash into research and development. As Power Roots focus much on Islamic consumer with their packaging which includes “Tongkat Ali” and “Kacip Fatimah”, it can successfully capture the unique market shares compared to other energy drinks such as Red Bull. As the asset gaps is relatively huge, no comparison can be done but the advantageous position owned by Power Root is undeniable. Power Root has also done a very good job in terms of distribution network where their products can be seen not only on major retailers, but also restaurant and rural area outlets which is exceptional.

However, competition is levelled at an extremely competitive bound. In terms of pricing, even an ordinary Red Bull is able to match RM2.5 set by power root where their economics of scale is far more superb than Power Root. As for their Middle East market, some countries have started to restrict the sale of energy drinks which might damage the revenue growth for Power Root in the future. Also, as for my own observation (no offense), Power Root products are less desirable when it comes to consumer’s preference. This is further supported by my long study of power root’s shelves spaces where it has been reduced by over 30% in the past one year. When it comes to a fundamental of business, you can have the best packaging, networking and marketing in the whole world but without the co-existence of sound products, the business itself hardly come to a success.

Since the fundamental is not sound enough, Power Root might just be filtered out from my list.

Stock: PWROOT Code: 7237

PANASONIC MANUFACTURING MALAYSIA BERHAD VALUE EVALUATION

A long time branded electrical appliances manufacturer, Panasonic has successfully positioned the consumer’s brand with its high quality products. When it comes to durable goods, purchases are only stimulated when economy is considered stable and don’t fluctuate much. Therefore when the trend is there, consumers tend to pick electrical appliances that are branded rather than the low ends because of the utilization of their money value. With the emergence of popular retailers like Harvey Norman and SenHeng, these outlets further provide credit for consumers to pay in instalments which further diminish the price difference between Panasonic high ends to the other products. Of course, it is undeniable that the presence of multiple competitors in the market is stiffer than ever, making it difficult to expand its market shares. Therefore, Panasonic started to emphasize on controlling their operating cost in a more efficient and stable way. In electrical manufacturing industry, much research and developments are needed to satisfy the every complicating consumer’s demand. In Panasonic case, an average of RM15 million capital expenditure is utilized which is in my opinion insignificant with its strong RM600 million revenue.

As company like this is consider a cyclical revenue generator, its income is highly affected by the economic situations domestically and internationally. Upon economic downturns, durable goods are the first thing to be listed off from the consumer’s wish list. At times of global index positioning at the price earning of 17, I don’t think it’s a suitable time for a cyclical stock to strive. Aside of that, surviving in appliance manufacturing industry, maintenance of inventory is extremely complicated compared to food and clothing industry, regular checkup is needed for stocks with low turnover. 

In order to obtain an average growth rate, growth of cash flow is derived from 2005 to 2013 figure which makes up 9% of compounding rates for eight years which is still satisfactory. As for ROA is above standard unlike ROE. It’s performance reflects a moderate growth which does not fulfil my stock picking criteria. Filtered out. 

Stock: PANAMY Code: 3719

PADINI HOLDINGS BERHAD VALUE EVALUATION

Established as a garment industry player, Padini is no stranger to the Malaysian locals especially the youngsters from teens to their 30’s. We all might have known each company builds up their branding by targeting certain consumer groups. As for Padini, it is mainly going for the 20’s to 30’s where their spending power is not too dynamic but with a certain degree of fashion adoption. Going through the chairman statement, I notice that the company takes a different approach by putting themselves into the shoes of their customer group where they are concern about how the youngsters optimize their spending. This leads Padini to manufacture their products up to the money value and at the same time, putting their design in line with their international competitors. Padini group also owns Vinci, famous shoes outlet dedicated specially for ladies. According to my observation, their pricing and products never fail to attract consumers regardless of geographical and culture factors. Again, there is many kinds of fashion outlet, however, the reputation and branding built by Padini along with its strategic pricing and designing model, it stands out from the aggressive competition. Provided Padini is able to continue to fulfil customer’s expectation, I can see its positive position in ten years’ time. With fashion conglomerate like Mark&Spencer striving in the market for decades, Padini itself is certainly filled up with a lot of potential prospects. Capital expenditure is being allocated at a very minimal amount where purchase of new plants and equipment is aimed at boosting manufacturing capacity and driving cost efficiency up.

 Venturing into an industry that is not only by local but also international competitors, it is another dog eat dog situation. Compared to 2008, the company selling and distribution cost increased by almost 100% from RM100,000 to RM 200,000 in just 7 years. Advertisement cost has never been so high when especially, invention of smartphone has changed the rule of marketing. With so much people using smartphone now, conventional method hardly reaches its audiences effectively and thus driving the company to search for more marketing channel. As mentioned by the chairman himself, the company finds it hard to fulfil the consumers’ every changing preference. Failing in prediction might drive their customer flows openly to their competitors.

According to the operating cash flows, there is a wild movement between these ten years. However, the cash flow shows a result of upward trend. Annual compound rate for the cash flow is calculated at 25%, however, taking into the recent spike, it’s adjusted to 20%, which is still superb. As for both ratios, they are no issue as the company is efficient in utilizing their assets and equities. As for cash management, the group does the financing by termed loans, short borrowings and issuance of shares. With a combination these sources, it is able to decrease its gearing which is currently at only 5%. There is a strong RM135 million cash reserves which shows the group readiness for future expansions and plans. Intrinsic value (Calculated with 8% rate and Margin of Safety for 40%) is valued at RM2.75 which are above the market price of RM2.0. Despite these fair results, I noticed that there is a change in boardroom and audit committee with the reason being personal commitment. However, resignations from these independent personnel which are submitted on 30^th of April 2014 might raise a few eyebrows. It’s better to stay cautious before jumping in.

Stock: PADINI Code: 7052