i3investor Stock Pick Challenge 2017: Fibon Berhad kcchongnz

kcchongnz

Publish date: Sun, 19 Feb 2017, 04:36 PM

In 2017 i3investor stock pick challenge, I have chosen Fibon, when it was trading at 55.5 sen on the last day of year 2016, as one of my five stocks in a portfolio as shown in the link here:

http://klse.i3investor.com/servlets/pfs/71070.jsp

On 17^th February, it closed at 74 sen. The gain for this one and a half months is 30%.

Here was a good question posted in the link above:

[Posted by fatty_tang > Jan 10, 2017 08:42 PM | Report Abuse

mr. kcchongnz why fibon btw?]

Someone has answered in my behalf in the same link, albeit partially:

[Posted by Op3rs > Jan 3, 2017 09:32 AM | Report Abuse

all cash cow.]

Since I have posted Fibon as a stock pick for 2017 in i3investor, as usual, I would like to share the reasons why I have chosen it for sharing purpose.

The business

Fibon is a technology company that formulates and produces advanced polymer matrix fibre composites and manufacturing and sales of electrical insulators, electrical enclosures and meter boards. Its main markets are in Malaysia, Singapore and Australia.

Fibon has acquired a factoring company not long ago. However, its whole business doesn’t really grow much since it was first listed in Bursa in the year 2008, with group revenue and earnings peaking at just RM18.14m and RM5.77m respectively for the last twelve months ending 30^th November 2016.

Share price performance

Fibon was listed in Bursa in 2008 at an IPO price of 84.5 sen. Its share price went up to RM1.10 in early 2010 due to the initial good financial performance. However, due to a drop in its net profit by more than 50% for the year ended March 2012, its share price plummeted by more than 40%. Since then it never seems to be able to recover and remained as a fallen angel for a long time. On 2 August 2013, its share price stayed at its low level at 32.5 sen as shown in Figure 1 below.

That was when I picked Fibon for my “Stock Pick Challenge 2013 2H” as shown in this link.

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/34374.jsp

Immediately after that, its share price shot up to 60 sen within about three months, and then retreated to 40 sen in the third quarter of year 2015, before going up again and close at 55.5 sen at the end of year 2016 when I selected it again as one of my stock picks. It closed at 74 sen last Friday on 17^th February 2017 as shown in Figure 1 below.

Figure 1: Historical share price of Fibon

Selection criteria for Fibon

I have deliberated my selection criteria of the 5 stocks for the 2017 i3investor stock pick challenge as published in i3investor in the link below.

http://klse.i3investor.com/blogs/kcchongnz/113511.jsp

Fibon’s business is nothing great in term of growth as mentioned above. The selection of Fibon was based on the principle my favourite Magic Formula Investing of choosing good stock selling at cheap price as discussed in the above link. The goodness is manifested in its high return on invested capital, ROIC, of 48%, 4 times its cost of capital. This “Return” of just a few million Ringgit a year, is nothing to shut about, but it is consistent. It also has consistent free cash flows, and a healthy balance sheet with no debts, but plenty of cash, in excess cash amounting to half of its market capitalization then.

A good company is not necessary a good investment. It all depends on what price it is offering.

Investors who are just looking at the simplistic price-to-earnings ratio may not see it as an attractive investment as at 55.5 sen, the PE ratio was closed to 10, not cheap for a small capitalized and little growth company. However, if one takes away its excess cash and look at the core PE ratio, or the enterprise value of its core business, it was selling very cheap at a Ebit multiple of less than 5.

A high ROIC, good FCF, and zero debt company, with consistent earnings and FCF, zero debt and plenty of excess cash, selling at that ebit multiple, is very cheap.

That was why I choose Fibon as one of the stocks in the i3investor 2017 stock pick challenge.

“It is not necessary to do extraordinary things to get extraordinary results.”. Warren Buffet

I am still teaching investors who wish to find as well as providing good companies selling at cheap prices to invest in for building long-term wealth. If you are interested, please contact me at

ckc13invest@gmail.com

KCChong

FIBON (0149)

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2024-11-18

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