Sunday, August 26, 2012

ILB: Part 2 - Fundamental Remains Intact

As I was writing Part 2 of ILB, it announces its second quarterly report on Friday. Things don't look good at first as profit before tax (PBT) plunged 59% to RM0.54mil and profit after tax (PAT) drops into a red with a loss of RM0.356mil. This happens despite higher revenue achieved (13.4% increase).

According to the report, PBT from operation in China decrease from RM3.5mil to RM2.4mil y-o-y. On q-o-q basis, it decreases from RM1.3mil to RM0.5mil. This is caused by higher labour costs and increased financial costs. I assume labour costs make up large sum of the expenditure as financial costs only contributes RM0.2mil on the increases. Labour costs in China has been on a rise especially in the coastal area. This might post some difficulties for ILB profitability as a large sum of its profits comes from warehousing activities where payments have been agreed earlier in the contract. On the inspection of its cash flow, depreciation rose to RM1.4mil.

Higher pre-commencement operating costs of the JV warehouse in the United Arab Emirates has also contribute to the dip. However this is expected to be one-off and will back to normal in the long run.

In the near term, drama in the Eurozone could affect the still export oriented China although US data does look a little better than few months back. But still, problems are yet to be solved. Logistic business is sensitive to the macroeconomic conditions so by investing in it, we should expect the some volatility when investing in it. 

Quarterly report information as always, is never as comprehensive as the annual report. But based on my rough calculation, its NTA still worth at least RM1.08. Book value is about RM2.53 (it has jumped to RM2.50 in Q1 in fact). Decrease in cash level is used to repay debts. Its cash flow is still healthy where in fact its operating profits before the changes of working capital increases from RM9.2mil to RM9.9mil y-o-y. 

Thursday, August 23, 2012

If America was a dictatoship....

"Imagine if America was a dictatorship.You could let 1% of the people have all the nation's wealth.You could help your rich friends get richer by cutting their taxes and bailing them out when they gamble and lose. You could ignore the needs of the poor for health care and education. Your media would appear free but would secretly be controlled by one person and his family. You could wiretap phones, you could torture foreign prisoners, You could have rigged elections. You could lie about why you go to war. You could fill your prisons with one particular racial group and no one would complain! You could use the media to scare the people into supporting policies that are against their interests."

Tuesday, August 21, 2012

ILB: From a Too Cheap to Ignore Stock to A Cheap Way into China

I have to admit, I'm a bit late in covering Integrated Logistic Berhad (ILB). Well, like its title say, it has gone from "too cheap too ignore" to now "not that cheap" but still a "cheap entry into China". It is not cool to be cheap when we hang out friends but it is great to be cheap when buying stock. ILB is currently selling for about RM0.93 rallying from RM0.89 from just about a week ago, appreciating for about 4.5%. But if we were to compare to its current Book Value, RM2.10 it is still a 44% discount to its book value.

There are 2 corporate activities to note:

  1. Their CEO, Mr Tee had just bought a sizeable amount of his company shares at RM0.85 just a month ago.
  2. The company has been actively buying back its shares at RM0.83-RM0.89. Treasury shares now stands at 1.14% over total outstanding shares.

Unlike common believe, value investing works in the opposite. The lower the risk i.e. the lower the price, the higher the upside. If one was to pay for a stock below their liquidation value, the risk will become significantly lower. What's makes it more exciting, ILB isn't a bleeding business, it is a profit making business. (I'll write more about the business in my next post. This post is about "cheapness"). Think of liquidation value like this, one the management wakes up and decided to stop doing business altogether.

Assuming ILB got nothing from their receivables and vehicles (0% is worse than fire sale) and they only got back half of its value from its associate and JV in Middle East, it is still worth at least RM1.00. For a profit making business with manageable debts, fire sale is unlikely to happen. Even if it were to liquidate, it is likely to be gradual and could turn their net asset to cash close to its book value of RM2.10.