Sunday, November 19, 2017

A "Rubbish" Company

Nowadays, my analysis of counters is fast and easy with the help from Fundamental Scorecard website. I used to require hours to analyze counters. But with the website, all I need is "time on the bus in the morning" to decide on a counter. I will even have extra time to look for additional information - especially those qualitative information.

Anyway I had wanted to write a review of all the counters I wrote in 2017. But I decided to write a review of this counter instead that I bought 2 weeks ago, during one of the morning on the way to work.

I had actually targeted this counter MANY YEARS AGO when it was still 15 cents. However, I was stubborn and only wanted to purchase it at a lower price. To my dismay, it's share price just kept on climbing. After a few months, I reach a conclusion then that its share price will never go back to 15 cents and I completely ignore it ever since.

Share price shot up!
It was only until recently that it caught my attention again, when it passed the Ultimate Scorecard and had a high score for Full Analysis as per Fundamental Scorecard website.

Profile In Short (As per SGX)

Colex Holdings Limited (aka Colex), an investment holding company, provides waste management services in Singapore. The company primarily engages in the provision of waste disposal services for domestic, commercial, and industrial waste; the sale and rental of equipment; and the repair of waste compactors. It also offers recycling, refuse disposal, and contract and general cleaning services. Colex Holdings Limited provides its waste disposal and recycling services for various clients, including commercial offices, shopping complexes, food courts, cineplexes, residential buildings, and warehouses. The company was incorporated in 1971 and is based in Singapore. Colex Holdings Limited is a subsidiary of Bonvests Holdings Limited.


How did it fare against Fundamental Scorecard?


Colex passes the Ultimate Scorecard as of 13 Nov 2017 based on a share price of $0.390.


Colex has a high score on the Full Analysis as of 13 Nov 2017 based on a share price of $0.390.

Other reasons why I purchase the counter...

1. Barriers of Entry


As per NEA website, it is stated that "NEA appoints public waste collectors (PWCs) through open tenders to serve domestic and trade premises in Singapore by geographical sectors. The tenders are open to companies that meet the pre-qualification criteria*. Successful bidders are awarded licenses to provide waste and recyclables collection services for the respective sectors over contract periods of seven to eight years.

Currently, there are four PWCs operating in Singapore. The sectors they serve are indicated on the map below. The seven sectors will be further consolidated into six sectors when the new contracts for Pasir Ris-Tampines and Bedok commence in 2018."

The barrier of entry is high in this industry;
- You have to be appointed as a PWC by NEA.
- There is a list of pre-qualification requirements by NEA in order to bid for the tenders.
- Once you are awarded the tenders, it will be a contract period of 7 to 8 years.
- There are only 4 PWCs at the moment serving 7 sectors.

Thus, in order to enter into this industry, there are very high capital expenditure cost and you must have significant experience.

Colex is currently 1 of the selected PWC serving 1 of the sectors in Singapore, and has won the tender to serve the jurong sector till March 2020.

2. Increase in Revenue, Net Profit, Operating Cashflow and ROE


Base on the information above (screenshot of Full Analysis), you can see that the revenue has been increasing over the years, expect for the latest trailing year. This has also led to the increment in net profit and operating cash-flow over the years, which also led to the increase in ROE as well.

3. No Debt

Despite having a rising ROE over the years, Colex has never taken on any debt.

4. High Insider Shareholding

78% of the shares are owned by Goldvein Holdings Pte Ltd, which is a subsidiary of Bonvests Holdings Ltd. This will be able to stabilized the share price and not allowing it to drop significantly suddenly.

5. Future Growth of Colex

Colex has recently proposed to purchase Vemac Services Pte Ltd. The latter is a company that
carries on the business of the repair and maintenance of refrigerating, air-conditioning and ventilating machinery and equipment.

It seems that, other than rubbish collection and cleaning services, Colex is intending to transform into a full fledged service company. This could potentially increase Colex recurring income ONLY IF the proposed acquisition went through.

The Risk Involved...

1. Low Dividend Yield

Despite the generation of Free Cash Flow on an yearly basis, Colex has not been really increasing its dividend.

Colex current dividend yield is still less than 3%.

2. Higher Future Cost

Salary has been a significant major cost to Colex and it is set to increase in future as stated in their 2016 Annual Report due to the Tripartite Cluster for cleaners on the revised Progressive Wage Model (PWM) for the cleaning industry.


As per the information above, it can be shown that staff cost is a significant factor towards Colex profitability.

However, when compared to one of their most direct competitor, 800 Super, the latter has a higher amount of staff cost.

But on a deeper look, it can be analyse that 800 Super's revenue growth is much faster than its growth in staff cost as the ratio got smaller. For Colex, the ratio has been increasing which meant that the increase in revenue is much slower than the growth in the staff cost.

3. 800 Super Highly Possible In Winning Pasir-Ris Bedok PWC Contract



As per the thread on Valuebuddies and article on the Edge, 800 Super will have a high chance of getting the Pasir-Ris Bedok PWC Contract.

This will meant that Colex will have lost a short term catalyst for the share price.

In Short

If you invest in Colex now, you should be expecting a stable company but with a slow rising share price. If you are looking for significant short term gain or one with possible explosive share price, I guess you are looking at the wrong counter.

Do note that there are significant risks ahead for Colex, especially when it comes to staff costs. Net profit could suffer and "propaganda news" will have push the share price down.

Nevertheless, in view of the positive points that I pointed out, I decided to go ahead and purchase the counter!

In addition, although the 3rd Quarter results are not out yet, but there has been a financial disclosure that its net profit for the current quarter has gone down.

Current Price: $0.400 as of 19 Nov 2017.

Please do your own due diligence before you invest in this stock. 

Do note the author is vested in this counter/company at an average price of $0.408.

If you are interested to know more about The Ultimate Scorecard or Full Analysis, do visit the Fundamental Scorecard website for more information! Do sign up to get the latest scorecard of the SGX counters now!

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