Tong’s Value Investing Portfolio: Why I bought Complete Logistics

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tong%27s_thumbnailsMY portfolio return was down marginally last week and now stands at 2% since inception, on the back of a mixed bag of performances. But the portfolio continues to outperform the FBM KLCI, which has fallen by 0.5% during the same period.

Shares in Willowglen MSC, Crescendo Corp, BP Plastics and Cocoaland Holdings ended in the red last week while Pintaras Jaya closed higher. Tasek and Thong Guan traded unchanged for the week.

I attribute this to poor investor sentiment in the local bourse. Selling pressure was particularly marked for smaller capitalised stocks.

The benchmark index managed to close 0.7% higher for the week, in line with gains in regional markets.  But the broader market paints a weaker picture. Market volume declined towards the later half of the week — from nearly 2.3 billion shares on Monday to less than 1.9 billion shares Friday.  Tellingly, market breadth was negative — that is to say the number of losing counters outpaced gaining ones — in four of the last five trading days.

Oil and gas stocks took another beating as crude oil prices slumped to a four-year low after oil cartel, Opec stood pat on their production output despite an oversupply in the market. This exacerbated the downward momentum in prices, leading some in the market to forecast prices will soon fall below the US$70 per barrel. The benchmark Brent crude was hovering around US$71.70 per barrel at the time of writing.

Continued strength in the greenback is no help. The US dollar is widely expected to gain ground following the surprise interest rate cut by China’s central bank and more talks of further monetary stimulus in the eurozone.

My decision to take profit on Oceancash Pacific — on expectations of intensifying selling pressure in the broader market — is looking to be a good one. Recall that I sold my entire holdings at 41 sen per share in the previous week, netting a 36.7% gain. Its share price has since fallen back to 35 sen.

Nevertheless, I have also stressed that this portfolio’s intention is to identify value stocks and that I would look to make more purchases. Hence, this week, I acquired 19,700 shares in Complete Logistics Services (CLS) at 76 sen apiece. The stock closed at 78 sen Friday.

CLS offers a range of shipping, land transportation and warehousing logistics services. The company began operations in 1995 and was listed in 2007. It currently owns a fleet of eight ships and over 200 trucks.

The jewel in CLS’ crown is the Nilai Inland Port, which contributes 30%-40% of revenue. It taps on Nilai’s growing industrial base and provides convenient clearing and bonded warehousing logistics.

Going forward, CLS plans to expand the Nilai facility and use its expertise to provide complete warehousing and transportation solutions for large corporations. To counter rising costs, it will be among the first to import compressed natural gas (CNG) trucks to save on fuel costs.

CLS is less known among investors and as such, trades at much lower valuations. The stock trades at an attractive trailing 12-month P/E of 8.5 times and price-to-book ratio (P/BV) of 0.86 times.

By comparison, GD Express Carrier trades at a trailing 12-month P/E of 65 times and P/BV of 15.6 times while Tiong Nam Logistics Holdings trades at a trailing 12-month P/E of 6.5 times and a P/BV of 1.1 times, but with earnings increasingly driven by cyclical property development.

CLS has seen steadily rising revenue since FY March 2011. In FY2014, revenue increased 17.8% to RM120.6 million while net profit rose 16.7% to RM14.0 million. In FY2012, it cleaned up its balance sheet and posted a net loss of RM16.2 million due to impairments on its ships of RM18.6 million.

Gearing is very low at just 3.5% as at June 30, 2014.  An interim payout of 3 sen per share was paid in August, which translates to a comparatively attractive yield of 3.9%. There were no dividends in the previous four years as it invested in new assets to grow its business and diversify away from shipping. But going forward, the company is likely to maintain its current payout.

Readers can find out more about the underlying fundamentals for all the stocks in my portfolio — or for that matter, any other listed company on Bursa Malaysia and Singapore Exchange — on The Edge Markets. Visit www.theedgemarkets.com.

For new stock ideas, The Edge Market also carries a Stock of the Day by InsiderAsia, a licensed investment adviser. A brief summary of the business and underlying fundamentals of the featured companies are published in The Edge Financial Daily.

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

My value investing portfolio selects and buys stocks that are featured on Stock of the Day – after it has been posted on the Edge Markets.

This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.