The art of investing is all about minimizing losses and maximizing returns.

Many knows it, but only a few can really grasp and identify it. Please allow me to explain why Ancom Logistics is a low-risk-high-return idea, as mentioned in my previous post.

Ancom Logistics (AL) and Nylex (NX) are associate companies. Based on latest AR, NX contributes ~20% of AL’s revenue. i.e. AL has been providing logistic services for NX.

To reorganize the group businesses and improve efficiency, NX sold part of its logistics business to AL back in 2018. Unfortunately, the transaction occurred right before the trade war which had affected NX’s performance. It also means that AL has not reap the full potential of the transaction. 

Given the robust ethanol demand AND the absence of trade war impact (details please visit my previous post on NL), AL would benefit from NX’s robust business volume. AL’s revenue will expand.

Fuel cost is a major cost component for logistic companies. So low oil price is a mega positive factor for logistic businesses. It could run-up to more than 60% of operating cost depending on business models. And our local fuel price has been slashed numerous rounds YTD.

AL’ operating profits improved rapidly in the past 2 years despite its assets being under-utilized. Now that with higher revenue and lower fuel cost, earnings will improve exponentially.

Factors in the operating leverage – details refer to my previous post, earnings will likely receive positive surprise.

And best is, AL is coming off from a low base. Its miniscule ~RM 2.2 mn TTM PBT is on an uptrend since mid-2018. I don’t think a 20 - 30% revenue improvement (i.e. RM 6 - 9 mn) is a stretch. Factor in the fuel cost savings while the rest are broadly fixed costs… you make your own earnings projection. My own conservative calculation surprises me on the upside. 

The market is now clearly hunting for healthcare related exposures e.g. gloves, sanitizer, hospital beds and accessories suppliers and healthcare providers. Although the trend is very much positive and resilient – likely to continue as long as the coronavirus continues to haunt – it is fair to note that many of these ideas are no longer cheap based on traditional valuation metrics.

So contrast AL against the market backdrop – share price has barely moved and is only back to its pre-crisis level – while operating performance was already improving for the past 2 years, and considering the huge improvement in future earnings, investors’ risk is immaterial.

If healthcare stocks are going berserk because of the healthcare theme, Nylex and Ancom Logistics will benefit from the healthcare PLUS low-oil price theme.

Voila! you have yourself a low-risk-high-return investment idea. 

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P/s: One might wonder, why has market not taken notice of AL?

My answer is – negative perception. How many of you were shaking your head looking at AL’s historical records? or even worse by just the name itself?

There are those who could see the future, and those who are fixated on the past.