Saturday, November 30, 2013

Thong Guan Good For Long Term

Thong Guan was founded by the late Ang Thong Guan with a mere Capital of $50.
Established in 1942 as a tea merchant under the 888 brand name and also in the business of  packaging, the company has grown well over the years. Its base is in Kedah where it has 30 acres of factory land.

Today the company is one Asia Pacific's largest plastic packaging companies. Its main products are : cast pallet stretch film and garbage bags. To a small extent, it is also a trader in tea, coffee and biscuits. 

In the latest quarter ended 30.9.13, the company reported EPS of 10.51 sen. This is a big jump from the previous quarter of 5.05 sen. 

In the corresponding period of 2012, its EPS was only 5.65 sen. The management attributed this improvement in profits to better margins and higher demand for its products. Appended below is an extract from its filing with Bursa regarding its prospects going forward:

Current year prospect
The Group's stretch film division which was boosted by the full production of two new European cast stretch film lines last year has seen the increase in production volume, margin has also improved especially in the third quarter due to the group's efforts to focus on more value added products.
The PVC food wrap division had seen continuous improvements in profitability since the full operations of the second line last year. The group is expanding its operations further with the installation of 2 new lines which is expected to be commission in the first quarter of 2014.
The Group's new subsidiary company, TGSH Plastic Industries Sdn Bhd has continued to improve on its bottom line with its more aggressive pricing strategy and contributions from newly installed machineries. Its operations will be further expanded as well. Its garbage bag divisions in both Malaysia and China has continued to be profitable while the industrial bags division in Malaysia has witnessed marked improvements in the third quarter. There are plans to further expand the operation of this division.
The Group's compounding division which was expanded last year has continued to be consistent, contributor to profitability. New machineries will be installed before the year end and early next year to further increase its production output. The Group's operations in Sabah has also been profitable as well.
The food, beverage and other consumable business unit has continued to grow and is expected to continue its steady progress despite suffering a drop in profitability this year. The Group is confident of the continuous progressive contributions from its business units and has chartered further growth prospects.

The stock was lasted at RM1.80 per share. It has a solid balance sheet with little borrowings. The dividend for last year was 7 sen. I expect this dividend to be improved to 9 sen for fiscal year 2013. This will give a dividend yield of 5 sen if you buy it at RM1.80 per share.

For those who wish to buy and hold, this stock merits consideration.

As usual, you buy at your own risk.

Thursday, November 21, 2013

What You Need to Know To Invest Successfully in the Stock Market.

Business is all about profits.

Investing in the stock market is most intelligent when it is most businesslike. This is advocated by Benjamin Graham, the father of value investing.   

Business is all about profits. Therefore, earnings are the first thing you look at when you analyze a company. When you look at earnings, look at earnings per share (EPS) instead of the total amount. 

When I look at earnings, two things come to my mind. One is whether these earnings are sustainable, and two, whether they will have further growth. 

Whether these earnings are sustainable or not, depend to a great extend on the core business of the company, the integrity of the management and the competency of the CEO. If you are not convinced that earnings are sustainable and growing, avoid the stock. 

Dividend Policy
A company should always take care of its minority shareholders. It should have a good dividend policy. Paying 30 to 50% of its earnings as dividends is to me a good dividend policy. The value of a stock depends on the amount of dividend it pays. 

Major Shareholders
A strong major shareholder is very useful. It gives added advantages and protection to a company. 

Barrier of Entry
Two companies that have the strongest barrier of entry are: Genting and Bursa. Why? Because even if you have money, you cannot go into this type of business, simply because you can't get a license for it. 

Banks also have a strong barrier of entry because bank licenses are limited. Plantations, construction and Properties do not have such a strong barrier. This means that if you have money you can easily go into such businesses. A strong barrier of entry prevents competition from becoming too intense and is therefore valuable.

Heavy borrowings can cause bankruptcy. In fact all companies that go bust have heavy debts which they cannot repay. So avoid companies with high debts.

The Balance Sheet
The balance sheet shows you what the company has and what it owes others. You have to study this carefully. I like to look at the current assets, and compare them to its current liabilities. The bigger the current ratio is the better. A current ratio of less than one is a red flag. 

The rest of this article is posted in my Facebook. If you wish to read it, just send me a "Friend Request."  If you don't have a Facebook a/c, open one. It's easy. 

Sunday, November 17, 2013

Verdezyne to propel our palm oil industry to a greater height

Verdezyne is an US-based company. It has the technology to produce a variety of bio-based chemicals used in nylons and plastics. The company has been awarded BioNexus Status by the Malaysian Government. It is going to set up its base in Malaysia soon. Already the company is in talk with many plantation companies to bring about downstream activities in the palm oil industry.