"History is a great story teller but it is no fortune teller." This is a quote I am going to coin my own because it came to my mind and I just wished to share it with all of you. I believe most of you may be thinking my absence over the past 2 weeks have been due to my favorite team, Holland losing in the World Cup finals. I would like to dispel this conjecture as totally untrue and I do believe that Spain deserved their victory. So here I am continuing my long wait for my dearest Holland to win the World Cup once again. This is the one thing which seems to follow history....Holland screwing up in the finals as usual.
But why do we spend so much time reading about history of companies if its not going to tell us what will happen in the future? Simple. Track record. It is true, no matter how strong a track record a company has, it is no guarantee that it will be a success in the future. It does however lower the possibility of it screwing up. Just like watching a tv series, it is always good to start from the beginning to get a feeling of whether it is going to be a good series to follow or to just give up after watching the first couple of episodes. Yes, you are right to point out that there is a chance that the story will develop into a better plot over the longer term, but chances are slim. That is why, I love reading about history, esp economic history to get a clearer picture of whatever has happened and the consequences of the events that has passed. Even though history is no fortune teller, it gives us a good perspective of how we got here in the first place.
Why do I speak of history today? Nostalgia? Nope. But the company I am going to recommend to you is one of strong tradition and history. I decided to introduce this company to all of you because it is one that has frustrated me over the past week. I have been monitoring the company over the past month and last thursday it rose more than 25%!!! I missed it. But I do not feel I have missed the full run up. I believe it has just begun and the momentum is going to push it much higher. Lets see if I am right.
Thong Guan Packaging is one of Asia Pacific's largest plastic packaging companies with over 30 years of experience and distinguished track record. They are the largest producer of cast pallet stretch film in this region with annual combined production output in excess of 100,000 metric tons.
Their core manufacturing operations are situated in northern Malaysia,Kedah that covers an area of over 20 acres, with established manufacturing operations in Suzhou, China and a joint venture in Bangkok, Thailand. As the pioneer in plastic packaging in Malaysia, TGP is regionally known for its uncompromising quality in the manufacturing of plastic films and bags and boasts a very impressive list of consumer product companies as their clients.
Although their packaging business has an impressive track record, but Thong Guan was actually founded was before the 30 year old packaging business. Thong Guan's operation was established in 1942. It started as a smally family oriented tea merchant specializing in black and Chinese tea which was packed under its own "888" and other brands.
Presently, Syarikat Thong Guan Trading Sdn Bhd is one of the largest processor and distributor of tea, coffee and other related products in Malaysia. It is a wholly owned subsidiary company of Thong Guan Industries Berhad, a company listed on the Main Board of the Kuala Lumpur Stock Exchange. The production of tea and coffee products at its manufacturing plants located in Sungai Petani, Kedah. The products are widely distributed in Penisular Malaysia, Sabah & Sarawak and also exported to the neighboring countries of Thailand, Singapore and Brunei.
Talk about a long history. The company has reinvented itself into the huge packaging company from just a tea packaging and distribution company which is a totally impressive feat.
Valuations wise, the dividend for FY2009 was 4 cents which translates to almost a 4% yield. Price to revenue ratio stands at 0.25 and they have grown the their revenue numbers consistently throughout the 1990s till now with the exception of 2008-09. Book value stands are more than RM2.00 which means the current price of RM1.06 is trading at a significant discount to the company's underlying value.
Another really impressive statistic of Thong Guan is its ability to generate significant cash flows over the longer period of time. Price to free cash flow ratio on average over the past 5 years has been 2 times!!! That is a really magical number because the company has demonstrated its ability to generate sustainable cash flows and with little debt on their books, it should be able to raise its dividend payouts going into the future.
In terms of track record, the management of Thong Guan has an impeccable reputation and much of its success is due to their vision and ability to steer the company to become the packaging giant that it is today. A company with such a long track record with no scandals or problems is now a rarity. I challenge any of you to find 10 companies listed in Singapore and Malaysia that has been around for as long as Thong Guan and grown so consistently. Please do not say Jardine makes up 3 different companies. Haha.
Ok thats all from me this week.
Best,
SVI
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