Posted by kcchongnz > 2014-03-24 15:02 | Report Abuse

Icon888,
First I must say you have provided a factual report on London Biscuits. Hope you don’t mind I be the first to give you a totally opposite view on it. It is one of the most sour lemons in my list below:

http://klse.i3investor.com/blogs/kcchongnz/45373.jsp

I have also written an article depicting why I think so as below:

http://klse.i3investor.com/blogs/kianweiaritcles/40683.jsp

Let me provide my comments point by point to your article.

(1) Strong Results in the Latest Quarter
Yes, LB’s revenue and profit increased by 36% and 23% to 166m and 10.8m respectively for the last two quarters. But is that considered as a breakout? I beg to differ here.

LB sold more the last two quarters, which is good, but their margins actually reduced. ROE improves though due to the higher sales but it is still a very low at 5.8% with the annualized profit. This is despite its high financial leverage of 1.9 times. This ROE is way below my personal requirement of at least 12% for a company like LB. Why does LB needs such a high asset, especially a fixed asset of 528m to make a net profit of just 22m a year?

If they have done so much better, why is that there no significant improvement in its cash, or rather debt position?

(2) In the Process of Being Re-rated ?
“there was evidence of active buying.”? Who buys? The fund managers? I would advise anybody investing in this fund to get out quick.

Or is it speculation and frying (again) by insiders? I would think more of this.

I do not deny that one can make big money speculating this share because there are always frying of this stock, for the benefits of the retail investors.

(3) Corporate Governance Issue ?
Reaping the benefits of high capital expenses now? Again why does LB needs so much capital expenses and earned such a meagre return? Is that a good capital allocation? Is the money spent maximizing shareholder value? Not that I can see.

It is hard to prove bad governance in court. But good hints are available from the actions and the results of the actions.

(4) Gearing
These are some of the ratios regarding its balance sheet:
Interest coverage 1.8 times << 3
Current ratio 0.6 << 1.5
Quick ratio 0.5 << 1.0
I see the big problems of its high borrowings, don’t you?

(5) Conclusion
To me LB is a bad company as explained above. However, a bad company can still be a good investment also, if the price is right. With an annualized EPS of 13 sen, P/E is only 6 at 79.5 sen now. Is it really cheap? Not until you consider its debts.

At 79.5 sen, its enterprise value is 428m. At an annualized EBIT of 37m, its earnings yield (ebit/EV) is a meagre 4.3%.

I won’t touch this stock with a long pole.

Posted by Icon8888 > 2014-03-24 15:16 | Report Abuse

thanks kkchongnz, I am not surprised you will be the first one to response. I have gone through your write up before on London Biscuits and I am familliar with your views. My article is actually written very much with your earlier article in mind.

I admit your points are valid, and I dont think I am going to challenge them violently.

As an arm chair analyst, I am aware of my limitation. You could be right, time will tell.

(btw, I have also noted your view on Ivory Properties and I wrote an article to argue against it. It would be great pleasure if you can go through it and give me your views. It is in my blog postings)

Posted by basicinvestor > 2014-03-24 15:47 | Report Abuse

Agreed with KKC. Icon, if you are looking for a long term with LB, then I would suggest that you wait a few more years especially during reccession. Their margin is low with high gearing, which is quite dangerous. When problem arise, they will be in deep trouble. I always have doubt in their management.

Posted by Icon8888 > 2014-03-24 16:20 | Report Abuse

thanks basic. You have a point

Posted by Icon8888 > 2014-03-24 16:20 | Report Abuse

84 sen now. I dont think my little article is so powderful

this thing is beginning to smell like a take over

Posted by JaniceLove > 2014-03-24 17:18 | Report Abuse

Mr KC Chongnz..may i know what is your opinion that there was a private placement at RM1.00 for 20 million shares when the shares at that time was 0.65 as mentioned by Icon8888.

Posted by kcchongnz > 2014-03-24 17:50 | Report Abuse

In investing, it pays to be skeptical. I am skeptical about all insiders' move, especially when I find London Biscuit does not worth that much.

There are many things we don't know about the corporate moves. We can be easily deceived. That is my sincere opinion.

Posted by sense maker > 2014-03-24 20:40 | Report Abuse

Its PPE is RM527m and still requires upgrading. Its facilities must be very big and elaborate. One must go for a factory visit to believe it. All shareholers' money has gone to PPE but the good thing is profits are looking up recently.

RM50m annual operating cashflow bodes well for debt elimination in 5 years, assuming modest capex amount. With inflation low and raw material prices contained, the profit improvement is expected. Going forward, it is unclear if the current profit can be maintained.

I rate Lonbisc 70 points at current value. RM130m market cap is achievable for now, given the obvious liquidity or solvency risks. The risks of course is if profits swing down, it will go for another cash call quite soon to pay its current debts. This is a turnaround story for those who believe it.

Posted by Icon8888 > 2014-03-24 22:11 | Report Abuse

Today 10 mil shares changed hand. Let's see what happen tomorrow

London biscuit is a very attractive target for private equity investors. I am not surprised if existing owner team up with PE to take it private

Posted by RonnieKimLondon > 2014-03-24 22:39 | Report Abuse

The gem that London Biscuit has is its 32% associate Khee San. Khee San is the largest manufacturer & distributor of confectionery and sweets in Malaysia.

It is trading at a PER of 13x based on the earnings of the latest quarter. The market cap is ridiculously low at RM45mil.

Financial management leaves a lot to be desired. Balance sheet is below average.

The factory is sitting on a gold mine. The market price of the factory land is RM40-50mil. Will not be surprised if Khee San relocates it factory and sell the land. It has other landed properties worth RM8-10mil.

Khee San is worth RM1-1.20 per share.

Posted by sense maker > 2014-03-25 00:46 | Report Abuse

London Biscuit has no associated company as per its BS.

Posted by saltedfish > 2014-03-25 11:27 | Report Abuse

Fake 2013 Private Placement of 20m shares at $1.00 when market price only 0.65. Money moved from left pocket to right pocket

The churning of Kheesan shares on a monthly basis says it all

Posted by Icon8888 > 2014-03-25 12:30 | Report Abuse

don't understand. Please elaborate with figures

they place out 20m shares to investors at RM1.00. This brought in RM20 mil cash.

and then ?

Posted by kcchongnz > 2014-03-27 06:19 | Report Abuse

Posted by JaniceLove > Mar 24, 2014 05:18 PM | Report Abuse

Mr KC Chongnz..may i know what is your opinion that there was a private placement at RM1.00 for 20 million shares when the shares at that time was 0.65 as mentioned by Icon8888.


Who was that stupid "private investor"? Or was there something behind the scene which we didn't know?

Fundamentals of London Biscuits have changed for the better? Really?

I always say, in investing, it pays loads to be skeptical. But if he is still keen in investing in a particular stock in a similar situation, he has to do at least some analysis, something like what I did here. (Sorry, trying to entice people to read my posts)

http://klse.i3investor.com/blogs/kcchongnz/48584.jsp

Posted by Icon8888 > 2014-03-28 11:54 | Report Abuse

"Losers whine about their best. Winners go home and fxxk the prom queen"

Sean Connery, The Rock

Posted by Laughgaodiemeliao > 2016-01-28 20:58 | Report Abuse

biscuit exploit

Posted by Integrity. Intelligent. Industrious. 3iii (iiinvestsmart) > 2019-12-28 15:32 |

Post removed.Why?

Posted by abang_misai > 2019-12-28 16:05 | Report Abuse

kawan, do focus on his strength.