I STARTED this portfolio last week buying OceanCash Pacific Bhd.
The primary objective of this portfolio is to find companies listed on Bursa Malaysia that operate with sustainable business models, improving productivity, offer unique products or services, have innovative ideas or disruptive technologies, trading on low stock valuations, with good growth prospects and have strong balance sheets.
Obviously it is a challenging task but I believe there are still a number of companies with many, even if not all, of the above characteristics.
And I believe these companies that meet many of the above criteria will do well in the longer term, even as the overall stock market valuations consolidate. As stated last week, I believe the overall stock market is overvalued, especially when viewed against a backdrop of rising internal and external economic challenges, and a more worrisome political, racial and religious outlook. Even at the micro levels, the outlook for productivity and private investments is not positive.
This week, I bought two other Bursa listed companies that meet my criteria.
On Oct 13, I bought 6,000 shares of Crescendo Corporation Bhd at RM2.84 per share, following this stock being picked by Insider Asia in www.theedgemarkets.com and The Edge Financial Daily (FD) in the morning.
Crescendo is a Johor developer with a landbank of 2,921 acres, of which 54.8% is within the Iskandar Malaysia (IM) region. More critically, 65.7% of its gross development value is industrial properties. This remains a high growth area into the future, catering to both the needs of Singapore SMEs and the growing economic activities of IM itself. Singaporeans bought 56% of the Nusa Cemerlang Industrial Park development by Crescendo.
Its other developments are mostly the bread and butter type of mixed landed residential and commercial. Unbilled sales stand at RM128 million with RM800 million worth of launches for the next two years, for a company with a market capitalisation of RM637 million.
The stock is trading at a trailing 12-month P/E ratio of only 4.3 times and a yield of 5.8%. Net gearing is 9.2%.
Price to book is 0.8 times. Based on Edge Research revaluation, it is trading at about 60% discount to asset value, as most of its landbank was acquired between 1996 and 2006. Two of its largest tracts of land are in Bandar Cemerlang (1,390 acres) and Kota Tinggi (794.4 acres), carried at RM3.08 psf and RM1.12 psf respectively.
Given its low P/E valuations, low gearing, high dividend yield, large discounts to asset value and good growth prospects while operating in a sector of minimum risks, Edge Research (see www.theedgemarkets.com) assigns Crescendo a fundamental score of 2.3 out of 3.0 and a valuation score of 3.0 out of 3.0. It has a rising ROE of above 20% for a company with very small net debt. Beat that.
On Oct 14, I added 10,000 shares of Willowglen MSC Bhd at 73 sen each to my portfolio. Again, this was done after the stock was highlighted at Insider Asia in www.theedgemarkets.com and FD.
This is a technology company, highly scalable with a proven track record. It provides systems and solutions for Supervisory Control and Data Acquisition (SCADA), a computerised system for gathering and analysing real time data.
Its clients include the Housing Development Board of Singapore, Singapore Power, Public Utilities Board of Singapore, Prasarana Malaysia and Petronas Gas. 82.6% of its revenue is from Singapore, with the rest from Malaysia. The company is expanding not just in the two countries but also in Indonesia.
Its revenue and pre-tax profit have grown consistently the past three years, increasing at 23% and 27% annually respectively. The company carries inventory of less than RM1.5 million, which is less than 1.5% of sales consistently. ROE has improved from 15% to a whopping 25%.
Willowglen is cash rich with RM53.6 million, representing 30.3% of its current stock price. At its current market capitalisation of RM174.03 million, its dividend yield is 4.1% and its trailing 12-month P/E is 8.8 times.
Edge Research gives Willowglen a fundamental score of 3.0 out of 3.0 and a valuation score of 2.4 out of 3.0.
Willowglen is a technology company with a proven track record that has excellent prospects to grow regionally. Given its cost structure, ROE will continue to rise faster than sales growth.
A company growing at over 20% annually, cash rich, ROE of 25% and trading at 8.8 times net P/E? I think this is value investing.
A summary of my portfolio is attached with the stocks I bought, when I bought and at what price. Given the overall depressing stock market over the last week, this portfolio of three stocks, only bought a few days ago, is performing reasonably well.
This article first appeared in The Edge Malaysia Weekly, on October 20 - 26, 2014.
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