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.

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