"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
Friday, July 23, 2010
Saturday, July 10, 2010
Loyalty to a winless football team vs Loyalty to an incompetent bank. Which is worse?
Today is the world cup finals between Holland and Spain. If there is something I am sure of, that is it will be one cracking match between 2 deserved teams. I have been a supporter of Holland over the past 18 years and trust me it has not been an easy road because of the constant disappointment due to the underachievement of the team. Considering the fact that the team has not won anything since 1988, many Oranje fans will agree with me on the frustration of watching talented dutch teams fight within their own ranks in the past causing them to perform badly on the world stage.
Talking about supporting a football team unconditionally reminds me of something which I feel compelled to bring up an incident that was pretty comical and yet frustrating for many people this week. As a supporter of Holland and Liverpool, I believe many supporters will understand my pain of watching my teams screw up year after year. I only hope that I will see one of these 2 teams win a major title (Holland the world cup and Liverpool the premiership) before I die. Chances are slim and maybe be wishful thinking but one needs to have hope right?
Much like my loyalty towards my team, many Singaporeans have a similar foolish following of our very own national bank. Splashed all over the pages of local papers were reports on how this particular bank's consumer banking system grinded to a stop due to some system glitches last monday. Some may think that I am really anal to pick on DBS for such a technical glitch, but lets be honest here, this is the nation's largest bank and most people use their accounts with DBS as their key account for transactions. The glitch definitely caused much inconvenience to many Singaporeans and DBS really has to admit that it was a disgraceful incident as the other 2 local banks have never gotten themselves into this kind of situations before.
Funny thing is, almost every Singaporean has a DBS account and considering the constant queues at the ATMs nationwide, it really makes me wonder why that is so. More often than not, whenever I walk past a DBS atm, I see a long long queue while the OCBC or UOB ATM next to it is as deserted as the restaurants at Boat Quay. If I did not know better, I would have thought that there was a "run on bank" with DBS. Why do people not just use UOB or OCBC and spare themselves of the pain of queuing? That just baffles me. Now with this technical glitch, it just supports my argument of blind faith of human beings. Loyalty to a football club can be disappointing and painful but as a supporter you do not suffer from financial losses (unless you keep buying their merchandise) but if you stick to a bank that cannot even manage their basic banking system properly then there is no guarantee on what could happen down the road.
Yes yes, some will tell me that I am too hard on our nation's bank, but look at their track record. Who got hit hardest in 2008 in terms of exposure to toxic assets? Poor investment decisions, investing heavily in Suzhou? Which bank destroyed their Hong Kong customers' safe deposit boxes with their precious belongings? I do not need to mention the name but honestly ask yourselves, with a track record so blemished, you still have confidence in them? Is that blind faith and stupidity? I am not here to judge you, but I hope my readers have better sense to think logically for themselves without me to spell it out. There is a reason why DBS stock is still far from their 2007 highs while UOB and OCBC are getting recovering nicely. Being the only govt backed bank, it has a natural competitive advantage and analysts continue to speak favorably on the company. On paper, they are right to point out the competitive edge, in theory and reality, things can diverge quite drastically.
Ok enough bank bashing on this post. Lets discuss about something else that maybe more interesting than incompetent banks. Since today is a big day for me, I have decided to just write about more general happenings of the market rather than writing specifically on any stocks.
S chips came back into the limelight this week, with 2 large (should I say 2 largest) private equity firms taking strategic stakes in China Animal and China Fishery. Frankly, looking at the entry prices of the two investors, they were not bought at a cheap valuation. China Fishery is currently trading at a premium to its peers listed in Norway, yet Carlyle was willing to enter at this price. China Animal placed out shares at a premium to their last closing price. No doubt the convertibles will allow Blackstone to lower their average price but still it is a show of their confidence in the company's prospects over the longer term. The fact that both companies are agricultural and food producers, it ties in with my bullishness on agri land.
There is no doubt that the corporate governance of S chips have been a major deterrent to investors over the past 2 years, with FerroChina and Fibrechem shredding up what was left of S chips reputation after the China Aviation Oil debacle. I do not deny there are many question marks on many S chips, till the extent of one of them (China Hongxing) needing to bring their bank statements to their analyst briefing to assure them that they really do have the cash stated in their accounts. Confidence once lost will take a long time to regain. Once a wise man said, it takes a lifetime of hard work to gain confidence of others and it only takes a second to throw it all away. In the case of S chips, it took a few companies to destroy confidence.
Wen confidence is high, prices get euphorically high, that is when valuations get stretched and irrational. When confidence is low, prices get depressed and opportunities appear. I have been a big fan of depressed stocks and where there is fear, there is money to be made. There are quite a few quality S chips with strong cash flows and balance sheets but are totally unloved, hopefully the events of the past week will make investors wake up to the reality that not all S chips are the same and see value in them.
I will leave it up to you guys to seive out the peaches from the lemons. Sorry, I would love to write about a certain stock but I am really too preoccupied with my Holland to concentrate on writing on specific stocks. However I can point you guys towards the right direction...China Merchant Pacific, FabChem, Fung Choi Media...The rest is up to yourselves.
Go Oranje!
Best,
SVI
Talking about supporting a football team unconditionally reminds me of something which I feel compelled to bring up an incident that was pretty comical and yet frustrating for many people this week. As a supporter of Holland and Liverpool, I believe many supporters will understand my pain of watching my teams screw up year after year. I only hope that I will see one of these 2 teams win a major title (Holland the world cup and Liverpool the premiership) before I die. Chances are slim and maybe be wishful thinking but one needs to have hope right?
Much like my loyalty towards my team, many Singaporeans have a similar foolish following of our very own national bank. Splashed all over the pages of local papers were reports on how this particular bank's consumer banking system grinded to a stop due to some system glitches last monday. Some may think that I am really anal to pick on DBS for such a technical glitch, but lets be honest here, this is the nation's largest bank and most people use their accounts with DBS as their key account for transactions. The glitch definitely caused much inconvenience to many Singaporeans and DBS really has to admit that it was a disgraceful incident as the other 2 local banks have never gotten themselves into this kind of situations before.
Funny thing is, almost every Singaporean has a DBS account and considering the constant queues at the ATMs nationwide, it really makes me wonder why that is so. More often than not, whenever I walk past a DBS atm, I see a long long queue while the OCBC or UOB ATM next to it is as deserted as the restaurants at Boat Quay. If I did not know better, I would have thought that there was a "run on bank" with DBS. Why do people not just use UOB or OCBC and spare themselves of the pain of queuing? That just baffles me. Now with this technical glitch, it just supports my argument of blind faith of human beings. Loyalty to a football club can be disappointing and painful but as a supporter you do not suffer from financial losses (unless you keep buying their merchandise) but if you stick to a bank that cannot even manage their basic banking system properly then there is no guarantee on what could happen down the road.
Yes yes, some will tell me that I am too hard on our nation's bank, but look at their track record. Who got hit hardest in 2008 in terms of exposure to toxic assets? Poor investment decisions, investing heavily in Suzhou? Which bank destroyed their Hong Kong customers' safe deposit boxes with their precious belongings? I do not need to mention the name but honestly ask yourselves, with a track record so blemished, you still have confidence in them? Is that blind faith and stupidity? I am not here to judge you, but I hope my readers have better sense to think logically for themselves without me to spell it out. There is a reason why DBS stock is still far from their 2007 highs while UOB and OCBC are getting recovering nicely. Being the only govt backed bank, it has a natural competitive advantage and analysts continue to speak favorably on the company. On paper, they are right to point out the competitive edge, in theory and reality, things can diverge quite drastically.
Ok enough bank bashing on this post. Lets discuss about something else that maybe more interesting than incompetent banks. Since today is a big day for me, I have decided to just write about more general happenings of the market rather than writing specifically on any stocks.
S chips came back into the limelight this week, with 2 large (should I say 2 largest) private equity firms taking strategic stakes in China Animal and China Fishery. Frankly, looking at the entry prices of the two investors, they were not bought at a cheap valuation. China Fishery is currently trading at a premium to its peers listed in Norway, yet Carlyle was willing to enter at this price. China Animal placed out shares at a premium to their last closing price. No doubt the convertibles will allow Blackstone to lower their average price but still it is a show of their confidence in the company's prospects over the longer term. The fact that both companies are agricultural and food producers, it ties in with my bullishness on agri land.
There is no doubt that the corporate governance of S chips have been a major deterrent to investors over the past 2 years, with FerroChina and Fibrechem shredding up what was left of S chips reputation after the China Aviation Oil debacle. I do not deny there are many question marks on many S chips, till the extent of one of them (China Hongxing) needing to bring their bank statements to their analyst briefing to assure them that they really do have the cash stated in their accounts. Confidence once lost will take a long time to regain. Once a wise man said, it takes a lifetime of hard work to gain confidence of others and it only takes a second to throw it all away. In the case of S chips, it took a few companies to destroy confidence.
Wen confidence is high, prices get euphorically high, that is when valuations get stretched and irrational. When confidence is low, prices get depressed and opportunities appear. I have been a big fan of depressed stocks and where there is fear, there is money to be made. There are quite a few quality S chips with strong cash flows and balance sheets but are totally unloved, hopefully the events of the past week will make investors wake up to the reality that not all S chips are the same and see value in them.
I will leave it up to you guys to seive out the peaches from the lemons. Sorry, I would love to write about a certain stock but I am really too preoccupied with my Holland to concentrate on writing on specific stocks. However I can point you guys towards the right direction...China Merchant Pacific, FabChem, Fung Choi Media...The rest is up to yourselves.
Go Oranje!
Best,
SVI
Subscribe to:
Posts (Atom)
Posts
