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(Icon) Tong Herr - Undervalued Exporter

Publish date: Wed, 31 Dec 2014, 04:00 PM
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I follow the smell of money.



1. Principal Business Activities


Tong Herr is principally involved in the following business activities :-


(a) Manufacturing of stainless steel fasterners (through 100% and 50.01% owned subsidiaries in Malaysia and Thailand respectively);


(b) Manufacturing of aluminium extrusion products (through 51% owned subsidiary in Malaysia); and


(c) Manufacturing and sale of steel billet (through 35.5% owned associate company in Vietnam).


According to the Company's quarterly report, steel fasterners and almunimium extrusion products contributed 69% and 31% of operating profit respectively. 


However, to go into more details, if you take into consideration that steel fasterners division is 100% owned while aluminium extrusion division is 50% owned, steel fasterners and aluminium extrusion will account for approximately 85% and 15% of net profit respectively.






2. Financials


Tong Herr has market cap of RM254 million (based on 126 million shares and RM2.02).


In Q1, Q2 and Q3 of FY2014, the group reported net profit of RM8.4 mil, RM9.7 mil and RM8.8 mil respectively. If the 9 months profit of RM26.9 mil is annualised, FY2014 estimated net profit would be RM35.9 mil. This translates into PER of 7 times. 


A very reasonable valuation for an established company with worldwide clientele.


The group has net assets of RM333 mil, loans of RM170 mil and cash of RM119 mil. As such, net gearing is only 0.15 times.


The Company declared 11 sen dividend for the 9 months ended 30 September 2014. This works out to be yield of 5.4%.




3. Clientele


Only about 23% of Tong Herr's sales are from Malaysia. The remaining 77% are from overseas.



  (RM mil) (%)
Malaysia 96.4 23.4
Thailand 9.9 2.4
US 46.4 11.3
Germany 69.5 16.9
Italy 31.0 7.5
Other countries 159.2 38.6
TOTAL 412.4 100.0




4. Concluding Remarks


As mentioned in my earlier articles, due to the various challenges faced by the Malaysian economy in 2015, I am particularly interested in companies that are export oriented.


Tong Herr fits into my criteria for stocks selection as follows :-

(a) low valuation;

(b) strong balance sheet;

(c) high dividend yield;

(d) export oriented; and

(e) trustworthy controlling shareholders and management team. 


This would be my final article for 2014. Hopefully Tong Herr works out well for me and everybody in 2015.


Have a nice day.



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1 person likes this. Showing 6 of 6 comments


May not benefit from the strengthening USD as a large portion of its debts are denominated in USD. Take a look at the sensitivity analysis from the previous annual report you ll know what I mean.

2014-12-31 16:58


Ya, notice that also. That is why I never mention it will benefit from weak Ringgit. I only said that they are selling to overseas customers so not so dependent on Malaysia business

2014-12-31 17:09


The new capacity expansion already implemented will bear further fruits in the medium to long term. I expect Tongher earnings , EPS and Dividend payout to improve steadily with time. Good opportunity to collect on any further price weakness.

2014-12-31 17:16


Thanks sunztzhe for the additional info.

2014-12-31 17:29


how can I find listed companies which focus on export driven business?

2015-01-21 12:13


Thanks for sharing Icon8888............

good focus on the export oriented factor

2015-01-21 12:19

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