Saturday, August 25, 2012

DKSH: Still good?

Looking for consumer related stocks still? One that does well, good growth prospects? Well managed?

One of the companies which has continued to do well over the last few years after its internal restructuring in 2008 / 09 but still attractive is DKSH. It has just announced another growing numbers in its latest half yearly numbers. What does it do? It does distribution for consumer related, pharmaceutical companies. From that, it owns a logistic arm and I think some would have heard of Famous Amos - which it owns as well. The revenue size is a big as Nestle Malaysia, the largest consumer stock - but obviously DKSH (much smaller) is only distributing for others while Nestle sells its own product.

This was the first company which I bought under the portfolio and I would dare to say at its performance below, it is possibly still undervalued - to me.


Current Market Capitalisation is around RM320 million. PE on course to be below 7x for the year. I will continue to say that one of the largest distributor (maybe largest) in Malaysia should at least be worth RM500 million as it has the scale, ability and name to do that. It represents many consumer stocks in Asia and with the debacle of Heineken and many others looking at Asia, there are bound to be companies looking at this region to sell their products. If you do not have a good distribution channel, who do you look for? Company like DKSH- which is why I think it will still continue to grow.

One of the biggest problem with DKSH was the parent company and LTAT owning a total combined 90% of the stock - hence it was low in float.

Last one year however LTAT has been selling down to about 10% hence increasing the float to 15% which is good. It will attract more investors which is why you already see more volume traded.


14 comments:

Benson said...

Is it Tasco comparable to DKSH? Thx~

Benson said...

Seem Tasco is great too, P/E lower, debt/equity lower, ROE 5 year average both comparable,
dividen bit higher, Operating Margin 5 Yr. Avg is also higher,EBITD 5 Yr. Avg also higher, correct me if i am wrong? Thx

felicity said...

Tasco is slightly different. It is more of a logistic company with transportation, warehousing while DKSH is more of a distribution which means they do the collection on behalf of client. DKSH is more similar to Harrisons.

felicity said...

There is no doubt Tasco is a well run company as well.

Benson said...

Hi Felicity, may i get ur opinion, currently i am looking at financial number for 5 year average like p/e (less than 15), ROE (more than 12), gross profit/net profit margin (best in particular industry)), debt/equity ratio (as low as possible), EPS growth rate( highest in particular industy), high pay out ratio, dividen (more than 3%), do u think i miss something? Hope u can advise me ya. Thx very very much~

Victory Yang said...

I am a very new investor in the share market. Would like to seek your opinion on Spritzer shares though. Its financials looks really good but there isn't much trading happening.

DKSH is a real sound company with its sales people pushing hard. As you said its only trading at x7times PE, could grow to x12times?

Will the upcoming GE affect the share market?

felicity said...

Hi Benson, you are using a formula which is not wrong but cannot be applied for all companies e.g. lending companies, insurance etc. This type of investment is more Benjamin Graham like (did you read Security Analysis or Intelligent Investor?).
Wherever you read it, it may come from that Graham's principle, which again is good, however has some limitations. These kind of method does not represent the power of intangibles which I have tried to write some on.
I give an example, DKSH which is a distributor (they do not own the brand which they promote for such as Pfizer, Wyeth etc.). Its intangibles are the system i.e. people management, distribution, contacts within Asia, collection. How much would you value that intangibles assuming you would like to own a chunk of that company?

Compared to say Mead-Johnson which owns some of the most sellable infant products. Brands such as Enfakid, Enfalac. Nestle recently paid a high price over P/EBITDA for Pfizer's S26 infant brand.

Well what I wanted to say is that there are different methods of evaluation and some would involve some gut feeling.

felicity said...

Hi Yang

Let me give you an example, Spritzer is one of the early mover in the local mineral / drinking water business. I have one friend who insists on drinking Spritzer in his home - only one of many friends though.

Now, if you read through what I wrote on F&N:

http://www.intellecpoint.com/2012/03/f-why-coke-is-going-to-derail-its.html

Spritzer may face the same kind of competition as F&N. The space that it is in is very competitive and Spritzer has not done enough to garner that "cult" following. There are too many mineral water players and Spritzer has yet to build itself to a stage where its brand is a key differentiator.

For that, I am a little sceptic on buying it. Its price and valuation is quite fair though, but I do not find anything interesting to pull me into buying it.

Vick said...

Hi Felicity,

Thank you fow your wonderful insight on shares and also for creating such blog educating us. You really do inspire us on better management of investing and i think everyone who's viewing your blog would agree on me 100%

i have a query on gold investment. I have read your article on gold investment on warren buffet but do you think the price of an ounce will project higher due to the us repuUS Republicans have all guaranteed the backing of the “gold vote” this November * got it off from Malaysian Insider.

What is your view on this ? thank you for your time on this and god bless :-)

felicity said...

Hi Vick

I do not think I warrant that kind of respect to be thinking of something even Bernanke, Obama (basically Democrats) vs Republican are on and could not solve. I however smell more politics than them trying to solve this issue.

As much as they have moved away from the gold standard, that is already 40 years have past? That would be immensely tough.

Anyway, my 2 cents - the problem with the US economy now is not the spending problem. It was the housing bubble which caused the financial system to collapse in 2008. If Bush did not fight the 2 wars and reduce taxes on the rich, it would not have come to this stage, especially their debt level. Obama is trying to spend his way to restore back the economy. Sounds familiar, even here is Malaysia we are doing the same - but to win votes.

How do we balance the account? That takes discipline. For a country (especially now), if you can't print, it is like a household which is not able to borrow, and what happens - steal? look at Euro...their problem is not inflation but unemployment.

It is a noble idea by Ron Paul - but too noble, and only for politicking.

Unknown said...

Hi felicity,
I really like your analysis. It's really conductive for the readers to think further. thx for your kind sharing.
Btw, for this DKSH, my opinion is that their profit margin is too thin...+/- 1 to 2%. which to me the management/system must be perfectly good in order to mitigate operation risk. Maybe that is why it is traded below PE<10. Just my opinion.

Vick said...

thank you felicity

lets minus the USgoverment out of this. but personnaly, do you think the price of gold will go up by end of this year :-)

felicity said...

Thanks for all the kind words.

On DKSH, seriously I do not look at the PE and its profit margin all the time. When I look at this business, my thought is what does it do to the value chain? How much value can it create and then how strong is the company in terms of delivering it.
Then I will deliberate on the financials. However to make this blog more easily understandable, for value I do include market value and PE most of the time.

I do agree on the thin margin though which DKSH should improve on but since they are a disti, most probably their business model is scale.

felicity said...

I am not sure on Gold as these would take the understanding much much more on the macro side. The problem with Gold is that there is no real demand for its use, hence the buying could be more speculative or its use as fiat money as storage by some nations like India.