Wednesday, May 22, 2013

YSP: You Shall Pass?

With the recent market hike, it is really getting more and more difficult to find good deals or something which we can digest. While globally, market is on the uptrend, Malaysia included, I have just noticed Malaysia in fact is lagging behind markets like Singapore, Hong Kong, Thailand - in fact almost everywhere else now.

I would not call the market as expensive but I am surprise of its strength. What provides that impetus for the bullishness. I do not know actually. Lesser people with pessimism the last few months?

Anyway, as I was looking at some companies, one did really get me to hmmm... wanted to know more. Most companies that announced to Bursa are either doing well, I have sort of covered, but there is one which started with "Y".

Once Warren Buffett used to joke to his audience, "do read through the Annual Reports of all the listed stocks in the exchange." The other person asked, "But, Mr Buffett, there are more than 10,000 companies listed". Buffett, replied, "Start from A". I sort of did that. And now reaching "Y" although Malaysia is far from having 10,000 companies. And anyway, along the way I did jump quite a few alphabets.

YSP SAH is a pharma company, something I can digest, have a decently good growth prospect. Small (around RM150 - RM160 million market capitalisation), I can digest as well as long as it is doing consistently decent or good. It is controlled by Taiwanese. Well, if I have invested into Wellcall and Latitude Tree, previously put some money into Uchitec, did decently well, I may want to try on this. More importantly, is it consistent and is it providing good enough return previously and perhaps for the future. If you look below, there is a sense of consistencies although not too bullish.

Yes, its Return of Equity is deteriorating but this is one company which is a growing. It does reinvest. I have done some checking as well among the hospitals, well this one is pretty small, no doubt but it has been supplying to hospitals for quite a while. Started its business since the 90s, its growth is far from amazing but consistent. Importantly, the dividend is above 5% yield, which in Bursa, not many now you can find. If you are getting some 3% from FD, I would say check out this one. The PE is slightly more than 10x.

Pharma in future is probably going to be a much more recession proof and more and more generic drugs companies are doing better due to many patents are expiring or already expired. It is a competitive business but yet there are monies to be made for many companies. YSP is not a fantastic company, there aren't any with regards to pharma in Malaysia. Why? Pretty much dominated by the big brands globally. With the current price though, it is still a buyable company, pretty much like Wellcall. You would have noticed that a small portion of my portfolio is meant for dividends stocks. Wellcall is one, so is Jobstreet but with the rise, it's Dividend Yield is moving further from the 4% to 5% threshold. For a small portfolio like this I couldn't be bothered with holding cash like what most fund managers are doing i.e. holding some 20% to 30% cash. This is unless the market is grossly overvalued and I am not good at timing the market, so why bother?

Anyway, I am not going to be taking too much of a risk but I am spreading my risk a bit as Wellcall seems to be tapering off in terms of performance, although still providing good dividends. Hence, I am selling half of my Wellcall and move to another which similarly provides good dividend - proposed to be 6.5% this year.

Any wonder why Taiwanese companies some of them provide good dividends? This is your food for thought.


Unknown said...

Hi Felicity,

Recently there are a lot of property boom up amazingly. But there is a penny property stock L&G is just being stagnant.
Would you mind to take a look on it. Especially it has just proposed a iculs proposal. Which I think it is benefit to shareholders a lot. But don't know why not appreciate by most public retailer.

Unknown said...

Regarding why taiwaness company always pay out high ratio of dividend, I think it is because its mother company need money.But actually YSP company is always just paying out 6 sen every years....

P said...

Why didn't you choose Apex instead of YSP as Apex has good ROE compare with YSP ?

felicity said...

Apex is great, but more expensive as well.

K C said...

There appears to be a couple of concerns for YSP:

1) It has poor operating numbers with ROE of 6-7% for the last two years. This is way below the required return of equity shareholders. ROIC is not great either at 8.1%. With this type of ROIC, any growth will not add value to the company.

2) It does not have any positive free cash flows for the last two years. So even the dividend given is either from borrowing or from investors own extra money put in via right issues in 2011.

Hence I would not be able to classified YSP as a great company with these type of numbers.

However, a poor company can be a great investment, if the price is right. But with a PE of 12, it is hardly cheap. More so if you think it is not a great company.

felicity said...

It is not great, but I would want to look for some dividend stock which consistently pays more than 5% as part of the portfolio. I know some would ask me to look at REITS, perhaps but I like business better.

I think if you look at the article I write, I was concentrating on the return. For a PE of about 11-12x, it is good. hard to find a consistent company and sector I am confortable with at below 10x. I know some may highlight one or another company, please do.

felicity said...

Also I think its hard to put a rule on ROE. If that is the case, then distribution, supermarket businesses would probably fail that rule.

Black Ink said...

If you're just looking for DY, dividend capture game, and nothing else, why not invest in Formosa Prosonic (another Taiwanese outfit) or/and Classic Scenic. Both have a solid dividend track record.

felicity said...

Thanks. I did have a look a both Classic Scenic and Formosa. Like both companies consistency and strength.
Just uncomfortable with the indutry that Formosa is in. As for Classic Scenic, I would regard it as in furniture based industry although it has a niche.
Firstly, I have already invested into latitude, do not want to be over exposed to this industry. Have noticed of 2 very low PE companies in the industry i.e. in Latitude and Lii Hen. probably due to the volatility as compared to Classic.