This stock caught my eye and made me went further into research because it is trading at 60% of its book value (BV). The price at the time of writing is S$0.34. BV is S$0.53.
Background : http://www.stamfordtyres.com/
Now for some key statistics
EPS = $0.03
P/E = 9.88
Financial health looks OK but the company has a lot of inventories, although it is appearing to be decreasing. Now, buying the stocks seems to be a good deal in the BV point of view: Buy a piece of the assets at about 40% and the assets have a return of 2.3% (5 year average). The company is constantly buying plants, properties and equipment too, based on the cashflow statement. However remember majority of the assets are actually inventories. A good 80M of it out of 390M of it.
Profitably is actually not so OK. The company is recovering (somewhat) from a massive 80% decrease in 2015. (http://www.straitstimes.com/business/companies-markets/stamford-tyres-full-year-profit-sinks-83) I have not figure out what happened but it was claimed to be some forex and business climate issue. (TBD later)
Cashflow-wise, the company seems to be quite profitable organically. But I notice it has been alternating between long term loans and trust receipts and revolving loans in the years 2014, 2015 and 2016. I wonder why is that. But a huge proportion of the balance cash is actually make up of loans. For example, in 2015, it has about 15.8M of cash. But on the background there was abt 18M of loans going around. In 2014 it is about 14M of loan vs 18.6M of net cash (in all fairness, there was a huge capital layout of 22M to purchase PPE).
Its joint ventures in HK and India seems to been picking up, especially the JV in India has become profitable recently. This could make buying the stock at S$0.34 a sensible, on top of the BV consideration mentioned earlier.
There is a double-edge sword that is worth mentioning. I found that the company receivables are also very high, well around 70M. This is recorded as an asset because it is potential cash. However, the Keppel saga (http://www.businesstimes.com.sg/stocks/hot-stocks-keppel-and-sembcorp-marine-fall-more-than-6), this 70M could be greatly affected if the economy turns sour and companies that owed money start to fold.
There are also numbers that I could not make sense yet. For example for a decrease in inventory from 2015 to 2016, there is no corresponding increase in revenue. Instead the revenue reduced.
There is potential in this company if:
- Its revenue growth continue to sustain
- Its cost-control methods continue to be effective
- It controls its debt well
- Its JV remains or becomes more profitable
~Huat
