Highlights of Cold Eye’s 30 stocks

Malaysia famous fundamental investor Fong Siling, also known as Cold Eye, organized an Investment Seminar on 5 November 2016 for the launching of his new book <Sun Tzu Stock Market Art of War>. 30 stock picks were given on that day, and on the very next trading day, almost all of them went up. The crowd seemed to have no problem remembering the 30 “tips,” but perhaps missed out one important message from the master, that is: “Do your own research, beware of the valuation, and understanding the company’s future prospect.”

 

In this post, we have shortlisted our favourite 10 out of the 30 stocks, and present some of them in coming weeks.

Here are our Selected 10:

 

1) RGB

A change in Cambodian gambling law to ban sloting machines in gambling clubs in end of 2008 has caused RGB to suffer first loss since listed. However, the management used only 4 years to turn around the group, to be profitable again in FY12. Not only that, the debt of the group has been reducing significantly over the years and turned into net cash position in FY15. We are amazed by the management ability to react during downturn, therefore decided to explore further.

 

2) SUPERLN

SUPERLN has been achieving tremendous growth in its business performance over the past 5 financial years, with CAGR of 10.9% & 104.3% in Revenue & Net Profit respectively.  Its latest trailing twelve months Gross Profit Margin (41%) & trailing twelve months Net Profit Margin (20.1%) suggests us the existence of Economic Moat in the business and have enticed us into further research.

 

3) HEVEA

HEVEA’s impressive growth in Free Cash Flow (CAGR of 40.2%) over the past 5 financial years has caught our attention. The management efforts in reducing the company’s debt with its free cash flow is commendable. The company turned net cash in FY 15 and we do not discount the possibility of higher dividend once debt are paid off.

 

4) MFCB

While MFCB Balance Sheet has always been healthy with net cash position, its business performance is only OK (well, not extraordinarily impressive). However, in the previous 2 quarters, we have seen how Don Sahong Hydropower Project, which is still at its early stage of construction, has contributed significantly to the Revenue of MFCB. Moving forward, this project might be the growth driver for MFCB and has attracted us to look into it.

 

5) ASIAFLE

Despite being a cash rich company with consistent revenue, ASIAFLE shows lack of growth and it’s the definitely not the “Sexy” type you are looking for. However, the plunge of share price from RM 5 in February 2016 to RM 3.60 at time of writing suggests us value may have emerged with the better dividend yield.

 

6) HOMERIZ

Just like many furniture exporters, HOMERIZ is a strong beneficiary of strengthening USD. However, its latest quarter came in as a disappointment due to shortage of foreign labour, with Net Profit fell (-31% yoy, -16% qoq) on Revenue of (-11% yoy, -29% qoq), causing its share price to lose some momentum, despite recent surge in USD. We think this might be an opportunity and decided to explore further.

 

7) IQGROUP

Being an EMS exporter with zero debt and strong Free Cash Flow (CAGR of 50% over the past 5 financial years),  IQGROUP is one of those expected to shine while MYR is taking a beat. However, what differentiates IQGROUP from other EMS Exporters is, rather than only providing OEM Services, IQGROUP also involved in ODM and manufactures its own brand. IQGROUP is more like a technology company, rather than a pure manufacturer, and this has caught our attention.

 

8) SOLUTN

The growth in Net Profit for SOLUTN has been tremendous. Ever since Q2 of FY13, SOLUTN has been making consistent growth in Net Profit yoy for every quarter (with the exception of 4QFY15). With recent announcement of 3QFY16, SOLUTN 9MFY16 Net Profit already exceeded every previous FY results. Furthermore, its ability to increase Net Profit Margin (22.8% for 9MFY16) over the years got our curiosity to explore further.

 

9) TAANN

Despite reporting a weaker Net Profit (-23% yoy), TAANN revenue has improved (+17.1% yoy) driven by better CPO Price and FBB production. The weaker Net Profit was attributable to lower contribution from its timber earnings. Considering two factors, stronger USD RM 4.445 at time of writing (positive to timber segment), and strong CPO Price RM 3,079/tonne at time of writing (positive to palm oil segment), we decided to explore more on top of its relatively strong cash flow and balance sheet.

 

10) TGUAN

Even though current price RM 4.23 at time of writing is close to its historical high price backed by Net Profit growth of 41% (comparing latest trailing twelve months vs FY15 ), TGUAN actually has a lower valuation (P/E 8x ; EV/EBIT 5x) compared to its peers. With part of its revenue contributed by food packaging products, and recent acquisition for a noodles manufacturer, we think TGUAN may be a proxy to consumer sector, which often offers a richer valuation.

 

Of course we won’t just stop here! These are just the snippets of full posts, just like trailers to the movies! We will pick some of our full posts and start publishing every Sunday. So, stay tuned!

 

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