Although I have revealed my portfolio and the remaining of my Big Ideas recently, but I have been wanting to writing about this company that I purchase since June 2018 – my Big Idea 8.
I had previously stated I will reveal the company on my Facebook Page post upon reaching 20 likes for that post. It hit 68 likes in almost 3 hours. I was flattered.
Despite the short vested period, I have actually known this company since I started practicing value investing. In fact, I will say this company was initially made famous by Bigfatpurse (Currently known as Dr Wealth) at that point in time.
Reasons Why This Counter Qualifies as a "Big Idea"
1. Understanding Of The Total Asset and Return of “Operating Assets”
Return of Asset of the company based on the latest annual report is 7.65% (Net Profit of $4.5 Million vs Total Asset of $58.9 Million).
Nevertheless, it is important to identify what the assets are made up of before making any assumption if the ratio is good.
Out of $58.9 Million of the Total Asset:
$17.2 Million belongs to investment property;
$8.2 million belongs to financial assets, and
$27.3 Million belongs to Cash and Cash Equivalent.
Thus, the remainder are operating assets amounting to $6.2 Million.
This meant that with only an operating assets of only $6.2 Million, the company is able to generate a net profit of $4.5 Million. This meant that the “Return of Operating Assets” is actually a whopping 72.5%!
This meant that majority of the assets are generating low return and investors will deem this as the management do not know how to use the cash.
But in my opinion, despite the low return, these assets will still be able to generate a return for the investors for the long term. A return of cash in form of dividend will most probably be a 1 time boost for the share price, which will not have a long term effect. Furthermore, these assets are also not really crucial to the company and can be converted to cash if required/necessary or when opportunities appears.
2. Improving Financials
A picture speaks a thousand words. Take a good look at the figures.
3. Undervalued Despite Price to Book near to 1
The Chairman’s statement is what I deem as the most important portion of the annual report.
In its latest annual report, the Chairman statement stated that:
“The Group adopted the cost model to measure its investment property. The carrying value, including the self-occupied freehold office unit, was S$19.144 million as at 31 March 2018. Fair market value as determined by Colliers International Consultancy and Valuation (Singapore) Pte Ltd, was S$33.65 million. The excess of fair market value over carrying value was not recognised in the Group’s balance sheet. The property is unencumbered.”
If investors do not dig deeper into the financials, he will not know that the investment property is currently valued at cost – which is a missed conception.
4. No Debt
The company do not have any debt and holds very little liabilities. This can also infer as the company is able to leverage up if it wants to.
5. Strong Business Model with a focus on R&D
From my readings, the company have a focus on research and development and seem to be working with some NASDAQ listed companies.
As per Chairman Statement in the latest annual report, it has also stated that “two patents on 4x4 wave 2 wireless module we filed in FY2018 in China were approved in April 2018, giving us a good platform to market our proprietary products”. This meant that it could possibly expand its footing in China.
These are potential catalyst that can push the revenue to greater heights in future.
Many of the information stated above can be found from articles in NextInsight, threads in Valuebuddies, and Simple Investor FB page.
Prior to my purchase of the company, I was still a bit skeptical about purchasing this company. It was through many of the readings, and verification of each reading that convinced me of purchasing this company, and listing it as a Big Idea.
In my opinion, Big Idea 8 is a company with a widening moat.
Please do your own due diligence before you invest this counter (if you knew what it is).
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