[Investing] Colex (567) Vs 800 (5TG)

I have been collating and filtering stocks data and Colex Holdings Ltd (567) has been appearing in the top 10 stocks for me to KIV. I have noted the stock for and been watching it appreciate from 30-ish Singapore cents to 40-ish cents. Pain, I know.

Recently a friend discussed with me about the stock again, and he was also recommended 800 Super Holdings Ltd (5TG), which is  also a similar company.

First, why Colex ((567) caught my eye:

Profile:
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Stock Symbol = 567
Price = 0.481
Dividends Yield = 0.021
Price/Sales = 0.800
Price/BV = 1.500
Price/Cash Flow = 5.590 

Profitability
------
Earnings per Share (EPS): 0.048
Net Profit Margin % : 7.960
Return on Equity % = 15.890
Return on Capital % = 12.640
Return on Assets % = 12.640
Inventory Turnover % = nan
Assets Turnover % = 1.590 

Financial Strength
------
Book Value = 0.280
Current Ratio = 4.050
Quick Ratio = 3.900
Interest Coverage = 305.870
Debt-to-Equity Ratio = nan

The data is collated from [1] using a Python script I wrote. What drew my attention about Colex is its efficiency, namely that its Return on Capital (or Assets) is 12.6%, that is, for every dollar of capital, Colex is able to bring 12.6% of earnings. It also has a very strong current ratio of 4X! Oh, and that interest coverage too! Not shown here is that the P/E of Colex is 16x.

Next, why 800 (5TG) is a potential alternative:

Profile:
------
Stock Symbol = 5TG
Price = 1.207
Dividends Yield = 0.025
Price/Sales = 1.310
Price/BV = 2.400
Price/Cash Flow = 6.160 

Profitability
------
Earnings per Share (EPS): 0.096
Net Profit Margin % : 10.800
Return on Equity % = 21.170
Return on Capital % = 11.120
Return on Assets % = 11.120
Inventory Turnover % = 31.630
Assets Turnover % = 1.030 

Financial Strength
------
Book Value = 0.480
Current Ratio = 1.490
Quick Ratio = 1.420
Interest Coverage = 27.940
Debt-to-Equity Ratio = 0.470

Indeed, 800 (5TG) seems to have a better valuation. Its Return on Equity is much higher, its Return on Capital (or Asset) is almost on-par with Colex's. Financial strength-wise it is not as impressive compare to Colex. 800 (5TG) has a P/E of about 12X. Based on this metric, it seems like it is somewhat under-valued.

Just by comparing the data I just shown, it is difficult to decide which to buy. At 11-12% Return on Capital it is equally enticing at any price. I have to dwell deeper into the financials. I did not refer to the respective Annual Reports, but rely on [2]. Again, I will be doing the Profitability, Financial Strength and Cash Flow analysis, quick and hopefully not too dirty.


Profitability

Comparing the Net Income for the past 5 years, Colex has a increasing net income, whereas 800 seems to have plateau or at least not showing a solid consistency.


Financial Strength

In terms of cash stash, 800 has more (25M Vs 14M). 800 also has a comparatively larger amount of receivables. I learnt that receivables, although is in the Asset account, can be a potential write-off risk. Total Assets for 800 and Colex are 159M and 44M respectively.

However, if we compare liabilities, based on the data [2], Colex has close to 9M, whereas 800 has close to 77M.

Both companies' retained earnings are growing.


Cashflow Analysis

In this analysis I took the Operating Cashflow and added back depreciation and minus of CAPEX. Then I divide by the outstanding number of stock. This yielded 0.62 for 800 and 0.74 for Colex. Stock to stock, Colex stock can generate more cash. Colex stock is at 40cents but each stock can churn 74 cents of cash! (OK this part I need to review the calculations, again).


Conclusion

When I look for stock, I look for efficiencies based on ratios such as Returns on Capital and the Free Cashflow generated per share. At this point, Colex at approximately 12% Returns on Capital and a better cashflow number makes a better choice between the two.

Please feel free to comment!

*** Note: This is my personal analysis and is not a recommendation for a stock buy or a stock tip. 

~ZF


References:
[1] MSN Money
[2] Yahoo! Finance

[Investment] Stamford Tyres (SGX: S29)

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:

1. Its revenue growth continue to sustain
2. Its cost-control methods continue to be effective
3. It controls its debt well
4. Its JV remains or becomes more profitable

~Huat

[Investing] Stocks List as of June 2017

So here are the 30 stocks that are selected based on my hybridized formula investing approach. Check out the link for more on the investing approach I written in another blog. More info can also be found in the Wikipedia page.

I'll be tracking these stocks for over a year to measure its performance. Right now the total value is $27.24.

~ZF