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

ORIENTAL FOOD INDUSTRIES HOLDINGS BERHAD VALUE EVALUATION

Oriental Food is a local manufacturer of confectionary and snacks. My attention is converged to the company’s snacking division line. Already known for its cheese balls which fill up the childhood for most people, its snack series come with a rather low price and guaranteed recipe. Although the snacking market is already filled up with popular international brand like Lays and Mister Potato, Oriental Food’s line market share has never deteriorated. Utilizing its position of cheap and unique recipe, it continually captures the taste and preference of fellow Malaysians. The group further extend their advantageous position by offering their products at a smaller quantity. With the already low price offered, it just get cheaper and reach extensive target groups than usual. The group has also done quite a splendid job by allowing plenty of factory visits for charitable organizations and schools. Marketing efforts are seen where the group seeks distribution channel through family carnivals by sponsorships. Capital expenditure is undergoing a rather inconsistent pattern as there is a high of annual RM14 million spending and there is zero spending on the other extreme. However, the chairman indicates that the group is focusing on innovating new products to defend their market share. As there will be large scale research and development going on, I don’t see the group’s cash reserve allows it with only RM15 million which is equivalent to only 1 year spending.

As mentioned above, the company is competing in a market where a lot of competitors are aggressively fighting for their own market share. ( Note that it’s not the word ‘increase’ I’m using, instead it’s FIGHTING) Promotion of lower prices are often held regardless of festivals or special events. Also, people’s awareness has increased towards their diet. With this trend going on, snacking business will be more difficult to survive with stricter monitoring of the food process. 

The operating cash flow is growing steadily with an annual growth rate of only 4.61%. ROA and ROE has rather poor performance. With the three poor quantitative indicators, the firm has still spaces of improvements. Filtered out of my list.

Stock: OFI Code: 7107

LONDON BISCUITS BERHAD VALUE EVALUATION

London Biscuits Berhad is a confectionary conglomerate which hold its presence in Malaysia food industry. It is well known with its comprehensive cakes production line. Different from other snack manufacturers, London Biscuits focuses half of its resources towards the manufacturing and innovating of cake. This enable the company to operate with the advantage of very large economic scale as most of its plants and machineries are dedicated for single major type of product.  As the market is getting competitive than ever, existing conglomerate are fighting for their own pieces of pie, not to mention the entry of foreign products. Price war is often seen via promotions in different markets for this kind of products. In order to capture some market niche, the company has especially apply for the use of Disney characters trademark to distinguish their products from their competitors. This enables London Biscuits Berhad to leverage on Disney’s strong branding which is well established via media industry. Unfortunately, this kind of strategy cannot last long as consumer will eventually ignore the original brand with their mind positioning influenced by the package.

In my very own observation, consumers in Malaysia prefer crackers rather than cakes some of the time. As crackers consumption of the same price can last longer, it is more worthy than purchasing cake products. Thus, it eventually push down the sales of cake products. Also, cost of producing cakes are a lot higher as they need to undergo more procedures of manufacturing compared to other snacks which further heightened the cost. Tin box package is often used with crackers which ultimately makes it convenient for storage and also treated as a gift upon special occasions. This small difference leads to tremendous purchasing behavior in the end.

Based on its cash flow, recent figure incurred by the company is lower than it is 10 years ago. It is understood that this company undergo several acquisitions in the past. However, buying into companies that eventually suck up your cash, I don’t think it is worth it. Worse, return on both assets and equities are astonishingly low, which reflects the company poor deployment their resources. With its poor quantitative performance, I will filter this company out from my list. 
Stock: LONBISC Code: 7126

KHEE SAN BERHAD Value Evaluation

Khee San is Malaysia’s largest manufacturer of sweets and candies. Its products undergo a very intensive marketing strategy where we can witness its existence in different level. From small retail markets to mobile retailers and giant markets, we are able to purchase its products for either small or large quantity where it shows that the firm possess an excellent distribution channel. In terms of the company’s size and its well-developed product mixes, they have far surpassed their competitors. Although it is not as dominant as Wrigley the famous chewing gum ever existed, its chewy candy possess the potential to compete with Wrigley’s (It’s just my personal taste and preference anyway). With the company’s momentum picking up, acquisitions of new plants and machineries were done in recent years to increase the production efficiency to replace the obsolete ones. This indicates that the business nature itself need not much capital expenditure for a long time. Furthermore, with such excellent product mixes, the company is able to retain the market’s preference for a long time until its cash flow is able to finance further product discoveries.

Unfortunately, the market is flooded with a huge variety of candies and gums that put Khee San in a situation where there is no regulated competition. In other words, ability to raise price is quiet low when it comes to such stiff competition. Also, as Khee San is now an associate of London Biscuits Berhad, its future intrinsic value will never be in a good position ( No offence, but figure indicates that London Biscuits’ track records is quite weak). If there is any magic combination for these confectionary that lead to a possible food industry evolution, my view might be changed.

According to the operating cash flow for the past ten years, it undergoes a mild fluctuations. The cash level was low until 2012 where it enjoys sudden boost. No consistent upward growth is shown. Also, both ratios are not showing satisfactory results where it is significantly below standard. In my opinion, this company fails to show values consistent to the growth of future earnings.

Stock: KHEESAN Code: 6203

KAWAN FOOD BERHAD Value Evaluation

Kawan Food Berhad produces mainly frozen food which is easily found in retail markets. As all of the company’s products are Halal, it is meant to target a large portion of market share worldwide. Compared to other frozen products, Kawan Food Berhad adopt continuous innovations to diversify its product line and creates more possibility to satisfy the consumer’s taste and preference. In terms of branding, names like Kawan and KG pastry dominate most of the refrigerator in the retail markets which reflect its popularity indirectly. With the fast pace life style nowadays, low fat frozen food like Paratha capture the taste of urban folks pushing the sales to next level. Throughout years of innovations, search of low cost production method and application of Halal license, barriers of entries are heighten which decrease the entry of potential competitors. However, recipes of these pastries are rather easily imitated by others.

As 60% of the company’s revenue is generated from overseas, this increases the company exposure to series of international events. Market shares in certain emerging region are also difficult to penetrate as local manufacturer possess cutting edge cost saving factors such as labor and raw ingredients. 

According to the cash flow in past ten years, factoring out 2005 and 2006, the annual growing compound rate is 7.89% which is above average but not resilient enough. With decreasing profit, return on both ratio has decreased as well with ROA on the sidelines while ROE is below standard expectations. Cash management is also deploying a conservative utilization which is beneficial at times of global uncertainties. My calculation of intrinsic value after 10% margin of safety is 1.82 which is basically not far from the RM1.8 level. It is an average and conservative company.

Stock: KAWAN Code: 7216