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

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

GUINNESS ANCHOR BERHAD Value Evaluation

Guinness is another well-established listed brewery manufacturing company which possesses lots of upside potential and expansion opportunities. In terms of its product mixed, one of the most favored and unique products that are offered is Shandy with least Alcohol content where it is suitable for the light drinker. In discovery of market expansion, targeting of light drinker is one of the most strategic ways to fight for additional market share. Also, the parent company itself is also well known with the sponsoring of “The Guinness World Record” record book which gains tremendous amount of popularity worldwide via television broadcasting and published annual record books, even non-drinker realize the “Guinness” brand of the “World Most”. As for capital expenditure, the company need not rely on research and development for survival purpose however in every beverage industry, the most common ways to expand is to acquire another company or brand in order to decrease the number of competitors and strengthen its front line where huge expenditure can be incurred sometimes. Brewery industry requires heavy capital investment as well as unique brewery recipes which makes it hard for others to enter.

Similar to Carlsberg, brewery industry find it hard to expand in a large scale in a Muslim-dominated environment due to religious and political pressures. As fierce competitions are going on and companies are fighting for shelves spaces in retails and restaurants, strong marketing campaigns are deployed to sustain and increase the company’s market shares where it consumes almost 40% of the gross profit portion from the company annually.

Operating cash level in the past ten years appears to be climbing steadily where the company is performing healthily. Both ratios are also far beyond the standardized level where the company is efficiently employing its fund and assets to produce profit. Management of cash in the past was fine except for 2013 and 2012 performance where RM350 million worth of additional funds are collected and the dividend distribution is increased to the range between 200% and 300%. It is especially unhealthy when company used borrowed fund to issue dividend. Hence, it is not a good pick at the moment. 

Stock: GAB Code: 3255

FRASER & NEAVE HOLDINGS BHD Value Evaluation

Fraser& Neaver originally found in Singapore is manufacturing beverage and dairy product. With a strong brand building in the past, F&N has established a lot of reputation in terms of its product lines such as isotonic drink 100 plus which is used to sponsor countless outdoor events and gain tremendous popularity. Aside of its own production, F&N go a step further by acquiring Nestle’s Dairy line in Thailand to own the right to produce all kind of canned milk to expand its possible market expansion via Indo-China route. In addition of strong branding and product line, F&N  has also decreased external pressures from strong competitor by adapting to its acquisition strategy. At the same time, the barriers of entries are high enough to stop potential competitors from emerging as high capital is needed for all the plants and machineries. In F&N case, the company owns almost RM1 billion worth of plants and equipment with an average annual investment of over RM200 million which is a gigantic amount.

In any industry that is related to dairy product especially canned milk, F&N company encounter the risk of defame due to milk scandals which might result corrections in short term. Also, with a huge export business, although F&N is able to leverage on its order size, dealing with different regions means more credit transaction and hence lack of smooth cash flow. Competing in an aggressive industry, marketing campaign is a much and must be held in the most innovative and extravagance ways which consumes almost 35% of the company’s gross profit annually.

With the company’s extreme cash fluctuations, we take EPS as our profitability reference this time. Taking out 2010 and 2011 where the company undergoes restructure and disposed its subsidiaries, the EPS is growing steadily throughout the 8 years with an annual compounded rate of 5.44%. Both ratios are also up to satisfactory level. With intrinsic value estimated at RM5.47 after 15% Margin of Safety, the company is seen to be overvalued by the market in a huge margin. It is a great company to purchase in with the matter of time. 
Stock: F&N Code: 3689

DUTCH LADY MILK INDUSTRIES BERHAD Value Evaluation

Dutch Lady, a company which major in manufacturing in dairy products since 1988 has been building its prestigious branding with outstanding products ranging from baby use to the consumption of regular family. With its deep blue packaging, its product lines are easily recognizable compared to others. As to the quality of products, the company obtains various recognitions from ISO, HALAL and trusted brand awards which reflect the Dutch Lady firm stand in the market. When I come across Dutch Lady’s products, I realize that it breaks its consumable milk line into fresh milk and ordinary milk with lower price. In order to obtain more market share, it provides options for consumer to choose. In terms of capital expenditure, the company doesn't incur any R&D costs which is probably being bear by its the parent company Frint Beheer IV BV who owns over 50 percent of Dutch Lady Berhad’s shares. Therefore, Dutch Lady is able to benefit from all the research facilities without using their own capital.

 Recent milk scandals from the China’s milk scandal which reports thousands and thousands of milk contamination has shaken the milk manufacturer industry. Moreover, the industry is burdened more with the Fonterra Milk Scandal which exports milk formulas to most of the dairy products manufacturers worldwide.

Based on the FCF for the past ten years, cash flow from operating activities for Dutch Lady has been increasing in a steady manner. More surprisingly, it is able to withstand the global financial crises and march upwards. As for the ratios, it is both up to standard which reflects and efficiently managed company. With good cash management, future earnings of Dutch Lady is no doubt going to climb in a steady pace. With its intrinsic value estimated at RM43.38 after 15% margin of safety, the current price has fully reflected its value.

Stock: DLADY Code: 3026