Wednesday, October 15, 2014

[SGX Portfolio] Buy: Valuetronics

Actually to me, I have never really thought about Valuetronics until I saw this latest piece about the recent fuss over this ticker.

Now, that is one fugly chart. In less than 3 months, the stock has been cut down from its high at $0.59 to $0.30 today. Now, that's about a 50% smash in stock price. I was reading the article and I was curious about this company, so I went to look at it's annual reports.

Looking at it, this is a company that has been having a very steady growth to their overall profit. Gross profit has been dropping, but Net profit is still holding up. With the increased revenue, that's all pretty good stuff to see! So earnings-wise, looks quite steady.

Total equity and NAV (pretty much the same thing to me) have been increasing as well. It's always nice to know that you stand to gain capital appreciation on top of dividends.

Debt actually FEELS pretty high to me, but the however, they look like they have good debt. Their debt is almost exclusively current liabilities, which is much nicer than long-term liabilities in my opinion. Most of their debt is payables and accruals, two sorts of good debt in my book! So although it looks like a heavy debt company, the risks of these debts do not feel as risky to me.

Their dividend track record is pretty good, on top of their constant positive EPS as well! Now in 2014, they have also resolved to have a clear dividend policy moving forward. How can this be a bad thing?

However, with the share price dropping so rapidly, one of the things as a value investor that I think about is RETURN OF CAPITAL, not return on capital. In the worst case scenario, such as bankruptcy and liquidation, how bad can it get?

Looking at their balance sheet, I feel quite relieved by seeing their huge cash position, as well as positive receivables. Even if receivables do take a haircut, it seems like investors would still stand to receive the Net Asset Value of the stock, which is sitting at $0.33.

So to me, downside looks limited. I doubt the stock can get under $0.26, because based on my logic, that seems to be the value to just buy and own all the cash in the company, with all its other assets, expertise and goodwill thrown in for free.

So, what do you think for a company selling at just under NAV, assets largely in cash and receivables, earns a decent EPS of 20% of the share price currently and aims to pay out 30-50% of its profits in dividends? And not to mention, a pretty good 8 years of running a profitable business enough through tough times.

I think this is a rare gem, and I have got myself just 1 lot to have a bit of skin in the game. Any thoughts on this ticker from my fellow investors?

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