Tong’s Value Investing Portfolio: Portfolio gains 11% over 29 days

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INVESTORS on the local bourse continued to tread cautiously last week. Despite the, by and large, positive lead from global financial markets — US stocks closing at consecutive fresh record highs — the FBM KLCI ended in the red for five straight trading sessions. The benchmark index ended down 1.7% for the week. Selling pressure may have been due, at least in part, to foreign selling as the ringgit weakens.

Against this backdrop, my portfolio performed admirably. Save for Fitters Diversified, all the other stocks in my portfolio chalked up gains for the week.

Of note, Oceancash Pacific, which I bought on Oct 10, gained another 6.5 sen this week, lifting total gains to a hefty 40%. Cocoaland Holdings, which was acquired in the previous week, is now gaining some 9.2%.

For the current week, I added 17,000 shares in BP Plastics — at a cost of 88 sen apiece — to my portfolio.

This stock was featured as InsiderAsia’s Stock of the Day on Nov 6, which was posted on www.theedgemarkets.com.

BP Plastics rallied as high as 93.5 sen on the same day before paring gains to close at 90 sen on Friday. This is still up 2.3% from my initial cost.

As reminder to readers, my Value Investing Portfolio will only buy stocks that were first featured by InsiderAsia on TheEdge Markets (www.theedgemarkets.com).

A quick summary of the business and underlying fundamentals for each of the featured companies are published in The Edge Financial Daily.

All registered users of TheEdge Markets will receive a digital copy of The Edge Financial Daily — for free — via their email before the start of each trading day.

Whilst my portfolio will not buy each and every of the InsiderAsia featured stocks, it should be noted that all of these companies have comparatively solid underlying fundamentals — in terms of profitability as well as balance sheet strength — and are trading at attractive valuations, often also giving investors good dividend yields.

Table 1 shows all the stocks recommended by InsiderAsia over the past two weeks, some of which I have bought and others that I have not.

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Notably, every one of these stocks has performed, albeit to varying degrees. A few saw sharp rises on the day the stock was featured before succumbing to profit taking. Others continued to see steady price increases over time. Regardless, all have done well — and should continue to fare well in the long run.

After taking into account the purchase of BP Plastics, the portfolio is now 55% invested.

I am making 11.4% return on the RM109,620 invested, up from 7.2% in the previous week. The portfolio only started Oct 10, less than a month back.

Including the RM90,380 of yet to be invested cash, total portfolio return stands at 6.2% since inception, far outperforming the FBM KLCI, which has actually fallen by 0.3% during the same period.

The annualised return for the portfolio is 78.5%.

A little bit more on BP Plastics. The company is one of the leading producers of industrial plastic packaging bags and stretch film in the country. It also produces plastic bags according to specifications, tailored to suit packaging needs for say, the food and beverage sector.

The bulk of sales are destined for overseas markets — its customer base consists of more than 800 companies in over 35 countries. The top exporting country is Japan. The company is enjoying strong recovery in export sales, since 2H13, as the global economy stabilises. Exports accounted for 77% of total sales last year, up from 70% in 2012.

In the first six months of 2014, sales were up 38% y-o-y driven by 46% increase in exports while local demand increased 15%. Net profit grew 31.4% y-o-y to RM6.4 million over the same period.

The recent drop in crude oil prices should bode well for BP Plastics as the cost for raw materials, such as resin, are closely correlated to that for oil.  

TheEdge Research rates this company a 2.05 out of 3 on fundamentals and 2.4 out of 3 in terms of valuation.

The stock is currently trading at trailing 12-month P/E of 14 times — still low relative to its 20.1% earnings growth over the same period. It is priced at just under 1.1 times its book value of 84 sen per share.

BP Plastics has a strong balance sheet and is sitting on net cash of RM34.2 million. This is supportive of sustained dividends going forward. Dividends were consistent at 4 sen per share annually from 2010-2012 before rising to 5 sen per share in 2013. This translates into an attractive yield of 5.6% at the current share price, better than interest rates on 12-month fixed deposit. 

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This article first appeared in The Edge Malaysia Weekly, on November 10 - 16, 2014.