Tong Herr (1)

Undervalued Exporter

Publish date: Wed, 31 Dec 2014, 04:00 PM 

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1. Principal Business Activities


Tong Herr is principally involved in the following business activities :-


(a) Manufacturing of stainless steel fasterners (through 100% and 50.01% owned subsidiaries in Malaysia and Thailand respectively);


(b) Manufacturing of aluminium extrusion products (through 51% owned subsidiary in Malaysia); and


(c) Manufacturing and sale of steel billet (through 35.5% owned associate company in Vietnam).


According to the Company's quarterly report, steel fasterners and almunimium extrusion products contributed 69% and 31% of operating profit respectively. 


However, to go into more details, if you take into consideration that steel fasterners division is 100% owned while aluminium extrusion division is 50% owned, steel fasterners and aluminium extrusion will account for approximately 85% and 15% of net profit respectively.

  






2. Financials


Tong Herr has market cap of RM254 million (based on 126 million shares and RM2.02).


In Q1, Q2 and Q3 of FY2014, the group reported net profit of RM8.4 mil, RM9.7 mil and RM8.8 mil respectively. If the 9 months profit of RM26.9 mil is annualised, FY2014 estimated net profit would be RM35.9 mil. This translates into PER of 7 times. 


A very reasonable valuation for an established company with worldwide clientele.


The group has net assets of RM333 mil, loans of RM170 mil and cash of RM119 mil. As such, net gearing is only 0.15 times.


The Company declared 11 sen dividend for the 9 months ended 30 September 2014. This works out to be yield of 5.4%.




3. Clientele

Only about 23% of Tong Herr's sales are from Malaysia. The remaining 77% are from overseas.

		Sales
	(RM mil)	(%)
Malaysia	96.4	23.4
Thailand	9.9	2.4
US	46.4	11.3
Germany	69.5	16.9
Italy	31.0	7.5
Other countries	159.2	38.6
TOTAL	412.4	100.0

4. Concluding Remarks


As mentioned in my earlier articles, due to the various challenges faced by the Malaysian economy in 2015, I am particularly interested in companies that are export oriented.


Tong Herr fits into my criteria for stocks selection as follows :-

(a) low valuation;

(b) strong balance sheet;

(c) high dividend yield;

(d) export oriented; and

(e) trustworthy controlling shareholders and management team. 


This would be my final article for 2014. Hopefully Tong Herr works out well for me and everybody in 2015.


Have a nice day.