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Author: Tan KW   |   Latest post: Tue, 16 Jul 2019, 6:44 PM

 

Value picks for 2019.. - twentybaggers

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Well..I am late to this but here goes!

Success Transformer Corporation Berhad (KLSE:SUCCESS)

I bought Success and sold it at a loss a while ago (1.5 years). I overpaid as in i paid a premium to its book value when i shouldn’t have done so.

Success’s story improved in beginning at late-2018 when a new government took over. Shortly after, managements were talking about how new government will promote using local goods. This can mean one thing, a growth in sales. My previous thesis was kinda verified by the rumors of the streetlight needing to be replaced by a more efficient streetlight which is LED. That’s the growth story.

The risk here is that it is just a fiction story. However, i like to think that a company like Success should be worth at least its book value. This company has historically proven to earn profit even though some quarter might have a slight loss.  Management also seems to care about the share price when they split-ed the shares awhile ago. Also, it pays a healthy amount of dividend consistently.

Currently Success is trading at 0.7x on value book. This means if Success is trading at 1x book value, price will be around RM1.36 which is a 38% upside on today price. Note that it does not account for the growth it might have in the future. RM2 is not achievable.

Malaysia Airports Holdings Berhad (KLSE:AIRPORT)

Should we value it as a utility company or as a strong company with durable competitive advantage? I tend to not think the extreme. A good practice is to see what other comparable companies are trading at. I will give you a few..

  • EV/EBITDA for Auckland IntAirportis 21x
  • EV/EBITDA for Shanghai Int Airport is 20x
  • EV/EBITDA for Airport of Thailand is 25x
  • EV/EBITDA for Fraport is 11x
  • Malaysia Airport is trading at 8x

I can go on, and there are certainly some airport trading below 8x, but not much. Malaysia Airport is regulated so they can’t charge any airport tax as they please. But passengers growth is a real and it is said that passengers growth double every 10 years. You need to know that half or more people around the world have not travel to the other countries before. A recent survey showed that 64% of American have never left their country.

The risk for this stock is regulators might lower the price for airport tax. But i believe that Malaysia has one of the lowest airport tax compared to other countries. Therefore, i don’t think regulators will lower it much further.

I still have not figure out how much the stock should trade at so i can’t give you an answer. But i do have an idea of how much i will sell it at personally.

Perak Transit Berhad (KLSE:PTRANS) 

Its a relatively new public company listed company that whose main businesses are terminal rental, bus operations, and petrol stations. More than 90% of the profit came from the terminal rental business so we should focus on that segment. While it is trading at P/E of 8, i think the future P/E is most likely will be much more lower than the current one. Why? They are building a new terminal that is 8 times bigger than current bus operation they have right now. So my bet is that current price can easily double in a year if everything goes right. I factor out everything from subsidies from government because this leaves me a decent chunk of margin of safety. You might argue that Ptrans is heavily leveraged with a Debt/EBITDA of 4. I don’t think so. Remember 99% of profit came from the rental business and this means it has steady cash flows and debt shouldn’t be a problem. REITS normally have more than 4x Debt/EBITDa and they trade comfortably at more than P/E of 10. Its no surprise that most analysts have a price target of around 40 sen for this company. This means a 100% upside and i think it is likely.

JCBNEXT (KLSE:JCBNEXT)

If you would have liquidate this company at current price today, you would have a 50% profit. Works in theory, but let’s look inside. JCBNEXT is a holding company that hold companies that range from Taiwan, Hong Kong/China, and to Malaysia. Their biggest holding is 104 Corp which is a job board website in Taiwan. It’s basically the jobstreet of Taiwan. They have 23% ownership and its is worth 173m at today’s price. Thats about 80% of JCBNEXT market cap. I am not familiar with 104corp so i can’t make a judgement in what it should trade at but i do know Jobstreet is sold for 1.7B by JCBNEXT. I think it is too overpriced so i don’t think 104corp will be sold for this amount. But this is just to give an idea how much a someone is willing to pay for this type of company. Hint: More than P/E of 20.

Next interesting asset is Lion Rock which they own 8%. A printing company that is trading at P/E of 6 and have a 6.8% dividend yield. Interestingly, it is owned by David Webb who is a legend in Hong Kong investor who compounded more than 20% and fighting for good corporate governance. He is like a Buffett/Graham type of investor with a mix of activism in his DNA. He buys company that is trading below intrinsic value and tries to influence the management to unlock value. JCBNEXT’s stake in Lion Rock is worth 42m which i like to think it can easily go up to 60m based on current valuation.

The rest of JCBNEXT assets are small companies in Malaysia, some are traded in public, some are not.  More importantly, the company has a high cash balance of 135m. You can see my estimates  for JCBNEXT here:

JCB

This downside is that it lacks catalyst. If you are like me building a portfolio of deeply undervalue stocks, this stock will appeal to you. However, management is doing buyback which unlock value almost immediately. I hope they use a decent amount of cash to do their buyback.

Conclusion

This is by no mean going to 100% work so please do your own work. I am long all of the 4 stocks that i described. If you want to exchange idea/Share ideas, feel free to contact me at twentybaggers@gmail.com. Hopefully i will write again this year.

Happy Hunting.

 

https://twentybaggers.wordpress.com/2019/05/02/picks-for-2019/

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Related Stocks

Chart Stock Name Last Change Volume 
SUCCESS 0.915 +0.005 (0.55%) 114,300 
AIRPORT 8.78 -0.04 (0.45%) 1,451,700 
PTRANS 0.21 0.00 (0.00%) 1,943,800 
JCBNEXT 1.50 0.00 (0.00%) 40,100 

  5 people like this.
 
20bagger Some typo here and there.. I meant to say RM2 is achievable
03/05/2019 12:19 PM
paperplane Jcb good but no new direction
03/05/2019 10:59 PM
20bagger Kinda similar to Insas. Hopefully the underlying assets will grow or appreciate to widen the gap of price and value. Management should just do more buybacks as it is the most effecient/easiest way to create value.
04/05/2019 10:35 PM
paperplane Nolah.Best is growing biz
04/05/2019 10:54 PM
abangadik Mark waiting for end of the world type of scenario to have a direction.
05/05/2019 5:40 PM


 

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