Posted by kcchongnz > Jun 16, 2013 03:40 PM

Is Muar Ban Lee a good company? Is it a good investment? 

Posted by houseofordos > Jun 15, 2013 05:21 PM | Report Abuse 
KC, Nice sharing... I think Muar Ban Lee, Willowglen also fits nicely into this criteri 

First I would look at the business of the company if it is durable. A durable business is whether the business is a good one and will still persist many years in the future. 

MBL is principally engaged in three core businesses: the design and manufacture of oilseed expellers and ancillary machinery for oilseed crushing plants; the design, fabrication, installation and commissioning of oilseed crushing plants, and the manufacture and sale of spare parts. It has evolved from a small scale manufacturer to the current position as one of the top manufacturers of oil seed expellers in Malaysia. It went public listing on 11 January 2007. 

MBL being closely tied to the palm oil industry which is a durable business. Cheap palm oil is the cooking oil of choice in many parts of the world, and accounts for more than 30% of the world’s vegetable oil production . Palm oil exports bring Indonesia and Malaysia US $40 billion a year. 

Secondly I would like to see the quality and credibility of the management of MBL. Dato’ Chua Ah Ba, aged 67, the Executive Chairman is the founder of our Group and has accumulated more than 39 years experience and expertise in the design and manufacture of oil seed expellers, ancillary machinery and spare parts. He is incharge of the overall business operations and strategic planning of the group. He is training his son Chua Heok Wee to take over his place. The business seems to be tightly held and controlled by the Chua family, with a couple independent directors. There doesn’t seem to be any unfair related party transaction. 

Total management compensation for last year for the 5 executive directors of RM4.142m, or about 5% (>3%) of the revenue appears on the high side. That may be because the company is small with revenue less than 80m. If we gauge from the profits they made at 17m, or a net profit of 22%, it may be justifiable. 

Next important thing for me is the quality of the business. The gross margin and net profit margin of MBL of 43% and 22% is pretty good to me. This is also shown in the high ROE and ROIC of 21% and 36% respectively. The high EBITDA/IC of 40% also demonstrates the high quality of its business. 

Fourthly regarding the growth of its business. Revenue and profit has grown by 46% and 26% a year for the last three years since listing. This is a very good growth indeed. Actually if a good company can have a growth rate of 5-10%, I would be happy enough. 

So taking all these into considerations, I would rate MBL as a above average company. What how about its price? We have discussed before that a good company may not be a good investment if it is very pricey. 

At the close of RM1.15 on 14/6/2013, MBL is selling at a PE ratio of just 6.2. Market Enterprise Value is only 3.7 times EBITDA. Price-to-book is only at 1.3 (<2). I would say a good company of MBL is selling very cheaply. 

Yeah, the first quarter result 2013 has shown MBL’s revenue and profit dropped substantially by 35% and 55% respectively. But that has not result in overvaluation of MBL even basing on this “bad” results. Not yet. 

So I would say MBL fits in very well as a good company worthy of investing for long term.