Undervalued Gems in Bursa Malaysia
5 stocks in Bursa with Gold-standard Balance Sheet
InvestingPlaybook
Publish date: Thu, 31 Mar 2022, 08:27 PM
With more than 900 companies listed on Bursa Malaysia, every now and then there will be hidden gems with great value for investors. Through this blog, I will uncover these hidden gems and show you very simple logic on why its undervalued. No complicated & hypothetical projections, my approach is simple analysis that everyone on the street will find it logical to deem these gems undervalued.
From rising interest rates, ongoing COVID pandemic disruptions to war in Ukraine, global markets and businesses are being roiled by these events on a daily basis. Being a trade-based nation, Malaysia has been materially affected by these developments. Consumers’ purchasing power is being eroded by inflation while more businesses are failing due to declining demand & supply chain disruption. In difficult times like this, a business with rock-solid balance sheet will be best positioned to survive and capitalize on opportunities left behind by failing rivals. Here are the benefits of going for companies with strong balance sheet:
- Companies with strong balance sheet have more resources to support their share prices through share buybacks.
- Companies with strong balance sheet can weather through temporary business disruptions & maintain their dividend payout, giving investors a more consistent dividend income
- Stronger balance sheet means better capacity to overcome short term losses and lower chances of business failure
From gearing ratio to current ratio, there are many metrics available for use to measure the strength of a company’s balance sheet. In this article, we use the simplest, yet strongest metric of all:
Net Cash to Market Cap Ratio = (Total Cash & Equivalents – Total Debts) / Market Capitalization
Here our reasons for emphasizing on this ratio:
- A high net cash means the company has more than enough cash to settle all of its debt. This means low or no chance of debt defaults
- A high net cash means the company has resources to maintain dividends & share buyback regardless of economic conditions
- A high net cash to market capitalization reduces an investor’s risk of overvaluing the company. This argument should be carefully and selectively applied to cash-shell companies.
The following is our list of companies in Bursa Malaysia with fortress level balance sheet. Additionally, we have also filtered only companies which have shown profits over the past 3 years. This helps us avoid companies which are cash-shell or withering business.
|
Symbol (Code) |
Net Cash (Cash – Debt) (‘Mil) |
Market Capitalization (‘Mil) |
Cash to Market Cap ratio |
Profit over 3 years |
|
LCTITAN (5284) |
4,550 |
5,010 |
91% |
Yes |
|
ORIENT (4006) |
2,910 |
3,790 |
77% |
Yes |
|
INSAS (3379) |
760 |
568 |
133% |
Yes |
|
HLIND (3301) |
1,260 |
2,980 |
42% |
Yes |
|
UOADEV (5200) |
1,790 |
4,160 |
43% |
Yes |
All the companies listed above also have a consistent track record of paying out dividends, even during the peak of the COVID-19 pandemic in FY2020. Besides knowing that the companies will survive hardships, as an investor of these companies, you will be able to enjoy the regularity of such dividend which is backed by their strong balance sheet.
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Discussions
Be the first to like this. Showing 34 of 34 comments
Gold standard balance sheet but no growth, no point.
UOADEV and HLIND used to be my darlings too, but sold. Cannot see growth.
2022-04-01 09:50
Philip ( buy what you understand)
Now we invert the question, how come these companies market cap do not increase by leaps and bounds over the last 5 years?
By inverting we find out why these companies do not have good share price increase:
1. LCTITAN - taken private, relisted, lost favour with institutional investors in malaysia who have long memories of the management of Titan (still owned by the same koreans), not enough land to grow, and production is not as competitive or as efficient or spend enough R&D as the other chemical majors.
2.Oriental - management is 3 generations. mr honda boon siew died in 95, but he brought with him meteoric rise and partnership with honda. problem was the son has no interest to take over the business, and the sister managed until her death. now the 3rd generation oriental is run by the grandson kian chong and his cousins, who are already wealthy, young and not hungry to grow the business. I know this because my wife has invested in oriental for a very very long time. They even call my wife auntie respectfully. However, the drive is not there, and they are happy with status quo. you expect a 45 year old boy to grow the market?
3. Insas - a brokerage company that lends and IPOs companies to get a share in the business which they then flip as a business model. they got very very lucky during the penang semiconductor crash, when valuations were cheap and helped inari to get listed and grow. Run by a very dynamic individual who works his ass off, kean chong didn't have money but had a lot of experience working his first job in intel penang ( a lot of successful companies come from penang). Insas owners piggy back on this amazing individual to list and become a huge force in tech malaysia, as the rest all died during the crash. Insas however does not have talented individuals, or great asset managers or investors, as can be seen by their bad investments in roset, vigsys, omesti, dome cafe, melium clothing line, sengenics. All taken from selling shares in their bottled lightning inari and all the dividends and given to buy many bad prospects, including property developments that were poorly run and managed. However the main reason why a comnpany with 4 ringgit in shares and assets but only valued at 0.82 dollars simply is because of the poison pill defence from the owners of insas, where 33% is the maximum ownership, or you must offer full takeover. As no major institution is silly enough to touch the business being managed as it is, it remains as mr Kok has told everyone who would listen, "insas is the most undervalued company in bursa malaysia." The rebuttal to that is, why?
https://www.theedgemarkets.com/article/newsbreak-insas-controlling-shareholders-may-seek-waiver
2022-04-01 10:08
Philip ( buy what you understand)
4. hong leong industrial - one look at the last page of every annual report will tell you all you need to know. yes it is very very profitable, yes it has boatloads of cash. and yes the management is wonderful. However, since it is owned 75%+++ by hong leong group who are perfectly happy to treat the random shareholders not as partner shareholders in growth, but as a necessary evil to keep listing alive for show. They are happy to be enjoying 20% dividends every year to the bank, keep money in for eventualities and they know there is nothing you can do about it to ask them to give more to you. Why would they? the very definition of a value trap stock. I am majority, you are minority, you can either keep quiet and enjoy your 5% dividend, or you can sell. matters not to me. I wonder why they even bother to keep listing. WEIDA has already delisted, as well as many of the big industrial suppliers.
5.UOADEV - a very strong developer with a REITS arm that it can unload its properties to and manage the load. One of the few that previously gives out 10% dividend (or a reinvestment plan) which I liked. However, as they are very very conservative, and tend to build very simple safe buildings, their inability to diversify and add new skillsets (like adding leasing and managing of malls), or adding a trading industrials arm, or even diversifying into distressed lending with their cash profile, shows that they take little risk, but also little profit outlook
2022-04-01 10:19
Well analysed by Philip. Thumb up
By the way Insas already sold roset, vigsys and sengenics.
Insas Golden Goose is Inari and Inari is now provide insas with tax free dividend income of about RM 15 million per quarter.
2022-04-01 10:46
Dato' Sri Thong and PIC officially hold 32.96% of Insas as controlling shareholder. Hence Insas cannot do SBB nor Dato Sri Thong and PIC allowed to buy from open market without trigger the 33% threshold for MGO.
For the past 4 AGM I had urged the BOD to give better dividend and to formulate a dividend policy with not much success. ( dividend increase from 1 sen, 2 sen, 2 sen then 2.5 sen)
I ask CEO when Insas going to employ their cash hoard to generate more incomes and his reply; tough operating enviornment moving forward, esp with Ukraine crisis. Looking for good Businesses to invest but M'sia political enviornment also no good. And ask me is Indonesia better?
2022-04-01 12:44
"A high net cash" also means these companies are stagnant and bankrupt of innovation.
2022-04-01 12:49
With injection of M&A securities sdn bhd to SYF then a lot of cash can be free up as currently cash in Insas is used to support M&A securities sdn bhd broking business, advisory and underwriter services for IPO, PP, RI and merges and acquisitions.
I am looking forward to a better day for Insas and by the way I am at number 30 of last year Insas top 30 shareholders list.
2022-04-01 12:56
If you like negative equity with controlling shareholder full of innovation then you are welcome to invest in CapitalA
2022-04-01 13:18
Philip ( buy what you understand)
This is exactly why insas share price will never go up. everything need to beg and ask nicely from insas CEO, while he looks at you blankly and ask... who are you? why do I need to share my company with your grubby fingers?
>>>>>>>
Posted by Sslee > Apr 1, 2022 12:44 PM | Report Abuse
Dato' Sri Thong and PIC officially hold 32.96% of Insas as controlling shareholder. Hence Insas cannot do SBB nor Dato Sri Thong and PIC allowed to buy from open market without trigger the 33% threshold for MGO.
For the past 4 AGM I had urged the BOD to give better dividend and to formulate a dividend policy with not much success. ( dividend increase from 1 sen, 2 sen, 2 sen then 2.5 sen)
I ask CEO when Insas going to employ their cash hoard to generate more incomes and his reply; tough operating enviornment moving forward, esp with Ukraine crisis. Looking for good Businesses to invest but M'sia political enviornment also no good. And ask me is Indonesia better?
2022-04-01 14:08
Philip ( buy what you understand)
or join you investing in tunepro. funny how the tony fernandez decided to put all his innovations into his own company instead of sharing with the partner shareholders which helped him kickstart airasia.
tunepro under own name.
santan put under girlfriend.
maintenance under another trusted liutenant.
all the other country airasia rent and take liabilities while all the profits and assets park under malaysia airasia.
anyone that even thinks of putting money into airasia better think twice. why did they sell all their aircraft and lease back again and give dividend?
>>>>>>>>
Posted by Sslee > Apr 1, 2022 1:18 PM | Report Abuse
If you like negative equity with controlling shareholder full of innovation then you are welcome to invest in CapitalA
2022-04-01 14:14
If you are rich enough maybe you can make a hostile take over of Insas and make yourself a few hundreds million richer.
By the way Insas CEO is Dato' Wong a very friendly, humble and likeable person.
Unlike controlling shareholder Dato Sri Thong, an introvert, poker face and unapproachable.
As of Stony of CapitalA, he is a good snake oil salesman
2022-04-01 14:30
I had traded all these 5 before.
Once in a while, in the past, I used to have a "fundamental craze" which made me buy ONLY so called "deemed quality companies".
as times passes by, invariably it always dawns on me that all these .... 5 companies are really very sick sickos. Then I invariably dump it off, usually at small loss.
Nowadays, I do what I do .... and totally refuse to buy anymore so called sick "quality companies"
My craze for fundamentalism is now totally over. I had learned my lesson the hard way.
I believe future generations are always doomed to repeat the mistakes of their forefathers...
2022-04-01 20:21
Hahahaha i3lurker,
I have no problem keeping Insas in my portfolio.
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2022-04-01 21:39
Actually Oriental is a good company, their plantation make a lot of profit and Oriental give a very good dividend.
2022-04-02 13:16
Ya Good company does not means that the company's shres price will be increased in short term...right ???
2022-04-02 13:47
FCF > NCF, given any day
Property management business example:
https://i0.wp.com/www.rentalstowealth.com/wp-content/uploads/2017/08/Cashflow-Infograph_v2.png?resize=576%2C1024&ssl=1
More: https://klse.i3investor.com/web/blog/recent/fundamental_trading
2022-04-02 16:58
In terms of MC/FCF (lower the better)
INSAS = 543/218 = 2.5
LCTITAN = 5170/748 = 6.9
ORIENT = 3840/353 = 10.9
UOADEV = 4118/214 = 19.2
HLIND = 2829/88.4 = 32
2022-04-02 17:07
Philip ( buy what you understand)
A simple logic Lee, if I did a hostile takeover for Insas, do you think the family will sell at 80 cents or will they ask for full value 4.5?... Would you take a cheap price to sell shares in Insas?
With such a value trap in place, why do you think no one in their right mind would want to even touch Insas?
The moment you show interest everyone will tap you... Not so easy la. First have to understand why it is called a value trap.
>>>>>>>
If you are rich enough maybe you can make a hostile take over of Insas and make yourself a few hundreds million richer.
2022-04-05 21:03
Look at logic mah!
If u want to go for a hostile takeover of insas....do u start from a zero base with zero insas share meh ?
Of course not mah!.
U start to accumulate slowly from 70 sen...then 80 sen...then 90 sen....then 110 sen....then 150 sen.....180 sen.....then u reach a position that u can challenge the position of Mr Thong....like aacumulating something like 25% mah!
At the time insas maybe something like Rm 1.80 in which your average cost be something like rm 1.35 mah!
Then U offer to buy out the rest of Insas at Rm 2.50 mah!
Thong having only 32.9% have to decide whether....if he want to counter offer u mah!
2022-04-05 22:31
If he refuse to counter offer U....u may gobble up another 20% of insas at rm 2.50 mah in which end up having higher share position then Mr Thong loh!
In that case being the major shareholders of Insas...u ask for Board representation and Executive Management position of Insas to safeguard your interest loh!
Then 6 months time later after u have...understand the position of Insas better in terms of operation better...U can then Offer to buyout Insas again at Rm 3.50 loh!
Mr Thong have to decide....whether...he want to counter your offer loh!
If he decide not to counter your offer....u may end up taking majority control of insas with more than 50% share mah!
Then Mr Thong need to decide whether he want to be your junior partner or sell out to u his personal holding of 32.9% mah!
In any case....it is win win for u....If Mr Thong....counter your price at Rm 3.50.....the price may bid up to above rm 4.50 loh!
Then it is up to whether u r willing to sell out to Mr Thong at Rm 4.50 or whether u r willing to remain in partnership with Mr Thong as a junior partner with a sizeable 25% share loh!
This how a scenario of intelligent hostile takeover would be mah!
Lu tau boh ?
If he refuse to counter offer U....u may gobble up another 20% of insas at rm 2.50 mah in which end up having higher share position then Mr Thong loh!
In that case being the major shareholders of Insas...u ask for Board representation and Executive Management position of Insas to safeguard your interest loh!
Then 6 months time later after u have...understand the position of Insas better in terms of operation better...U can then Offer to buyout Insas again at Rm 3.50 loh!
Mr Thong have to decide....whether...he want to counter your offer loh!
If he decide not to counter your offer....u may end up taking majority control of insas with more than 50% share mah!
Then Mr Thong need to decide whether he want to be your junior partner or sell out to u his personal holding of 32.9% mah!
In any case....it is win win for u....If Mr Thong....counter your price at Rm 3.50.....the price may bid up to above rm 4.50 loh!
Then it is up to whether u r willing to sell out to Mr Thong at Rm 4.50 or whether u r willing to remain in partnership with Mr Thong as a junior partner with a sizeable 25% share loh!
This how a scenario of intelligent hostile takeover would be mah!
Lu tau boh ?
2022-04-05 22:32
Stockraider is so clever. But I think you just need to buy up slowly to RM1.00 and q buy at RM1.00 there will be a lot of people very happy to sell Insas at RM 1.00
2022-04-06 08:48
The gold standard balance sheet relative to its share price, Insas is the best.
2022-04-07 08:21
Key success investment is low risk but very high potential return on investment mah!
That means ;
Stick to very high margin of safety with solid gold standard balance sheet selection which got high profit earnings capacity mah!
2022-04-07 14:29
The Mr market theory says....stick to undervalue promising stocks for investment....with fundamental aligned...n buying with margin of safety, eventually the stock will move mah!
Predicting stock will move....without aligning to fundamental justifications, is just technical analysis which another school of taught
2022-04-07 16:55
the Han Tang was not stupeeeeed enough to have a 1 child policy
and the Han Tang did not print unlimited money
and the Han Tang did not increase borrowings to 400% of GDP to become one of the most indebted country in the world since the dawn of civilization.
in company terms it means that your borrowings is 400% of your revenue
net profit is not calculated yet, it could be a net loss that is unable to service the 400% of revenue.
As China increased its debt, economic activity actually decreased and not increased.
2022-04-07 21:37
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Sslee
Insas beside selling below its net cash, one of its listed associate Inari is worth about 3 time of insas market cap.
Substantial Shareholder's Particular:NameINSAS BERHADDetails of Changes:Currency-
Date of ChangeTypeNumber of Shares08-Mar-2022Acquired810,000Registered Name M & A Nominee (Asing) Sdn Bhd for Media Lang Limited
Nature of Interest Indirect Interest
Nature of InterestIndirect InterestSharesOrdinary sharesReasonAcquisition of shares in open marketTotal no of securities after changeDirect (units)0Direct (%)0.00Indirect (units)536,808,575Indirect (%)14.49Total (units)536,808,575Total (%)14.49
Date of Notice11-Mar-2022
2022-03-31 22:05