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Sunday, August 16, 2009

Value Buy Suiwah Corporation

Suiwah Corporation Bhd., through its subsidiaries, operates supermarkets, departmental stores, and hypermarkets primarily in Malaysia. It operates four retail outlets, including Sunshine Square, Sunshine Farlim Hypermarket, Sunshine Jelutong, and Suiwah Air Itam. The company also engages in the research, design, development, manufacture, and prototyping of flexible printed circuits boards; property investment and development; money lending; electrical goods retailing; and trade of garment, construction materials, and general merchandise. The company was founded in 1961 and is based in Penang, Malaysia. Suiwah Corp. Bhd will open its latest lifestyle concept store cum supermarket at the Penang Times Square in October. The store, called Sunshine City, is the latest addition to the Suiwah Corporation chain of retail stores and will also be the anchor tenant of Penang Times Square phase one.
Why Suiwah is attractive?
a) Damn cheap valuation,partly due to its weaknesses to deploy capital. Market cap is around RM76mil but the company is in net cash position of RM39mil. Separating the business with the cash will price the business at RM 37 mil (P/E around 3.7 based on 10 mil net profit)
b)Expansion through concept store in Penang to tackle middle high income group.Penang people knows Sunshine very well and income from middle low remain stable.
c) Implementing share-buy back to return 'some lose change' to shareholders (to calm shareholders due to stupid mistake of JV)
d)Going to declare first and final dividend of 8 cents/share in Nov 09 (not generous at all)
e)Majority shares are owned by friends and family (more than 50%).
f) Just opened PT. Sunshine Amanjaya in Indonesia to engage in the business as a main distributor, importer and exporter (this may provide business synergy)
g) Net Asset per share is RM 2.76 (at current price,investors are paying 45 cents for a ringgit)
The risk in Suiwah:
a) Lack of direction: Its executive directors are very old (56 and 60 years old).Due to their unexciting life,they want to try something different to spice up their life using shareholders' money.Instead of specialising in retailing business,Suiwah jumped into OIL & GAS in May 2008. It entered into an agreement with parties from India that include Valdel Investments Pvt Ltd and Valdel Oil and Gas Pvt Ltd (VOG). Suiwah took up a 15% stake in VOG, which is involved in the exploration and production of oil and natural gas in India. Luckily,this J.V has failed to win any bid for exploration project and hence,the J.V has been called off in Jan 2009.
The failure in this JV is good for investors because every tom,dick and your dogs know if the J.V successfully win an exploration project,Suiwah will still lose big time because it only owns 15% equity with no control over the cash outflow.In addition,it's risky to deal with Indian partners/businessmen.Even,Ananda Krishnan who is borned in Sri Lanka having hard time to understand them.
The sad thing here is no valid reason given by Suiwah for this JV but your dogs smell that this maybe a hanky-panky deal which does not benefit Suiwah shareholders at all.Shareholders feel happier if the Suiwah returns the cash back to shareholders. The unwillingness to explain to shareholders shows bad corporate governance (aka treating shareholders like idiots) and Suiwah has high possibility of repeating unrelated diversification again.
b) Declining revenue: This may be due to intense competition. It also shows management weaknesses to handle market dynamics.
c) It is a waiting game: Investors must wait for the 'old' management (currently,in retirement mood) to execute an aggresive startegy in related fields
Weighing the risk & rewards in Suiwah,current price will
provide investors a huge margin of safety,6% dividend and potential
growth story.

1 comment:

  1. so wht is the meaning of this entry . are u advising us consumer to buy or not buy?

    ReplyDelete