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Sunday, September 20, 2009

Value Buy ALUMINIUM Company of Malaysia Bhd (ALCOM)

Aluminium Company of Malaysia Berhad, engages in the manufacture and trade of aluminum sheet and foil products in Malaysia, other Asian countries, and internationally. It offers pre-coated finstocks for use in air-conditioners. Aluminium Company of Malaysia Berhad is a subsidiary of Novelis Inc.
A few keys point of ALCOM:
1) Alcom does not produce aluminium but uses it as a raw material for its products. Due to the rise in the commodities prices and depressed demand last year, Alcom suffers a small net loss in its previous financial years. That has been causing the lag in its share price recently.
But many didn't know,when the commodities prices were stable from 2007 to 2008, Alcom were able to consistently produced about RM 14 mil p.a. Alcom has established customers in India, Hong Kong, the Philippines and Thailand.Recently,the company was looking at new markets in India and Middle East.
Alcom has a market cap of RM 142 mil and consistently reward its investors with 10% dividend. Its currrent asset is RM 133 mil against total liabilities of RM 40 mil. Hence, by paying RM 142 mil for the business,investors are getting RM 90 mil net-net current asset plus non-current asset of RM 93 mil. In short, investors are paying RM 50 mil for ALCOM's business which produces RM 14 mil p.a (or P/E = 3.5 x) and gets non-current asset of RM 93 mil for FREE.
2) ALCOM is controlled by Novelis Inc. Novelis Inc. is the global leader in aluminum rolled products and aluminum can recycling. The company operates in 11 countries, has approximately 12,500 employees and reported revenue of $11.2 billion in fiscal year 2008. Novelis supplies premium aluminum sheet and foil products to automotive, transportation, packaging, construction, industrial and printing markets throughout North America, South America, Europe and Asia. Novelis is a subsidiary of Hindalco Industries Limited, one of Asia's largest integrated producers of aluminum and a leading copper producer. Hindalco is the flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India.
3) ALCOM has RM 62 mil cash with no debt. Alcom can easily raise another 100 mil from debt market (assuming debt/equity = 0.50). In total, Alcom has access to RM 160 mil to acquire other companies with the assistance from Novelis. Or Alcom can distribute its cash to shareholders through bonus issues / special dividend.
To sum it up, Alcom gives you:
a) Stable 10% dividend due to stable business and balance sheet. Potential special dividend
b) Future appreciation due to business link with Novelis which opens up vast acquisition opportunities
c) Great margin of safety at current entry price. The share price has been almost stagnant for the past 1 month. It didn't follow the recovering market sentiment.
d) Good business at cheap valuation. Investors are paying RM 50 mil for ALCOM's business which produces RM 14 mil p.a (or P/E = 3.5 x) and gets non-current asset of RM 93 mil for FREE.

Thursday, September 3, 2009

Value Buy Pan Malaysia Corporation

Pan Malaysia Corporation Berhad, an investment holding company, engages in manufacturing, marketing and distributing confectionery, and cocoa-based and other food products primarily in Malaysia, Australia, Singapore, and Hong Kong. It also involves in operating departmental and specialty stores, and property investment activities. The company is based in Kuala Lumpur, Malaysia.

PMCORP is in the process of restructuring.Recently,it posted a positive net income compared to losses in the last few year.the attraction of PMCORP comes from its assets. Its book value is at around RM 0.45/share.This gives a safety margin of over 50% at current price of RM 0.135.

PMCORP has come a long way to 'cut some of its rottenning poisoned limbs'. It has let go subsidiaries which are loss making and focus on its profit making businesses such as retail and manufacturing. So,PMCORP does not need to consolidate any losses and will be able to report good profit.

A few good points on PMCORP:

a) The cash level is at RM 127 mil while total liabilities is at RM 54 mil.This means by paying off its liabilities,investors will own some of the assets (properties,businesses,subsiadiaries and fixed assets) at half the value plus a clean balance sheet.

b) Expected to post cumulative earning per share of RM 0.013. At current price of RM 0.135, its forward P/E is 10x

c) It's a closely held company

Since it is in black now,PMCORP should be trading at around its Net Asset per share. PMCORP is a classic story of a frog turning into a prince.