Saturday, June 26, 2010

Octagon Series: The Rise

Octagon Consolidated (company's homepage) was listed in Nov 2000. Now let's assume that one adopts a more safe approach, ie it's not to safe (err.. not say cannot, it's just that it has more risks) to invest in a company so soon after its IPO. Wait a couple more years first before deciding to be an investor.

Now say in 2002, we note that Octagon had a Bonus Issue but we are not convinced. (Kiasu and kiasi lor)

So we wait till Dec 2002 - that's when Octagon announces its Q4 earnings.

So after Dec 2002, we were looking at the above set of numbers and we observe the following.

  1. Margin is good.
  2. There is some sort of growth in earnings.
  3. Cash... cash... and more cash. The cash looked so yummy! So tempting!!!

13th Sep 2003. The following article appeared on Star Business. (sorry - link broken)

  • Saturday September 13, 2003
    Octagon benefits from strong MNC ties


    WHAT is a company if not for its track record? Octagon Consolidated Bhd is
    generally viewed as a company with good growth and it is on that platform that the company is planning to expand overseas.

    The future lies in electronics, says its executive chairman Fred Yan. Octagon is in niche business of providing the finishing touches to the electronics and electrical products.

    The investment holding company, that has subsidiaries which deal with the manufacturing and
    trading of customised industrial paints, inks and chemical products, basically provides a cosmetic and protective finish to a diverse range of manufactured goods.

    “It is a growing industry,” says Yan. “
    We are fortunate that we cater to this industry and provide the finishing touches.

    “We are in a good business because technology constantly changes and because of that manufacturers constantly change models.”

    The company, listed on the main board of the Kuala Lumpur Stock Exchange, has over the years developed a reputation as being a preferred supplier to multinationals. And as a result,
    Octagon is now poised to become a global player.

    “We have always been called upon to provide our services to MNCs (multinational companies),” says Yan.

    “Over the years, things have expanded. Due to cost constraints, most of them move to countries that provide cheaper labour cost, so in a way we too are starting to go global.

    “The E&E (electronic and electrical) industry moves from place to place which is most economical. We have built a rapport with MNCs and they have always encouraged us to move with them as a support industry.”

    In 1997, Octagon started a plant in Jakarta, Indonesia. The Indonesian operation now contributes approximately one third of the group's total sales.

    Following the success of that venture, Octagon last year made the decision to go into China. Driven by the sheer size of the China market, virtually all MNCs have made the decision to enter the market. Octagon thus has little choice but to do the same.

    The outlook for the China plant is bright given the fact that many of the MNCs are existing customers of the group.

    “We see no problem in progressing well there,” says Yan. “The E&E sector is also building up there.”

    As such, Yan does not rule out the possibility of establishing a second plant in the future. The factory, which commenced operations, recently, is located in the southern China province of Guangdong. But if it proves to be successful, Octagon hopes to set up another plant in the north.

    “It is too vast a country,” he says, “one plant alone is not enough.”

    In Malaysia, the group has three plants. One is located in Penang, to service the northern part of the country while the plant in Shah Alam caters to the central region and the third one, located in Kulai, caters to customers in the south as well as Singapore.

    Apart from providing paint for electronic products, Octagon also provides paint for the automotive sector. The group provides paint for plastic parts of cars manufactured by Proton and Perodua. It is also a major supplier for one of the biggest toy manufacturers, Mattel, which has a plant in Penang.

    “Our core business will always be this,” says Yan. “Our main concentration is to develop and to move globally with the MNC's. The business is not saturated yet.”

    One of the group's strategies will thus be to focus on developing its manpower resources. The industry, says Yan, is a very technical and service-oriented one and the company is therefore intent on building a team that is capable of providing an edge over its competitors.

    The company has already established itself as being a main supplier to MNCs around the region. But in the long term, Octagon hopes to enter the American and European markets as well.

    “The focus as far as the core business is concerned is to go global,” says Octagon's executive director Mazlan Ali.

    Although the management firmly believes that it is in the right sector, it is also exploring the possibility of diversifying its market base. Some of the sectors that are being considered are aviation, military and oil and gas.

    “Our concern is only at which point of time to go in,” says Mazlan. “We are basically looking at a business that can provide us synergy.

    “Because of the nature of the technology involved, foreign companies are providing most of the products. We have the advantage of being a home grown company and are already developing products in this area.”

    Locally, the concentration will be on exploring different market sectors and developing new products, either through technical tie-ups or perhaps, through mergers and acquisitions.

    At the moment, the company is studying various options on how best to expedite growth.

    Recently, Rating Agency Malaysia (RAM), assigned an “A” credit profile rating to Octagon. The ratingwas premised on Octagon's established position in the consumer electronics and electrical niche of the industrial paint industry.

    RAM said: “Its proven business track record since 1987 has won the confidence of major multinational companies, resulting in consistent revenue growth while maintaining a high level of profitability.”

    ''With minimal borrowings and cash reserves of RM37.08million as at Oct 31, 2002, Octagon's prudent business expansion has been driven by internally-generated and shareholders' funds,''

Time to be an investor? Even RAM giving it top ratings! Wakaka Hey eh!

Now here is the chart of Octagon back then. (note: it's adjusted for bonus/rights)

So the price adjusted of Octagon on Sept 15, 2003 was around 1.30.

Assume we bought.

By Dec 2003, company fy 2003 numbers looked great.

The stock look much better than great. It was super duper.

The stock we bought around 1.30ish is now close to 3.00! (price adjusted - Actual prices was much higher back in 2003. Unadjusted price, Octagon was at 5.95 in Feb 2004!)

Yeah man! Good or whaaaaaaaaaaaaaaat!!!! We are looking like smart investors, eh?

Then came 26th Feb 2004....

Would Octagon be the one of the greatest investment? Or would it crash and burn? (to be continued in a new posting... )


  1. Octagon Series: The Rise
  2. Octagon Series: A New Octagon
  3. Octagon Series: Failed Plans And New Plans
  4. Octagon Series: The Fall


ronnie said...

Dear Moola, Thank you for covering Octagon. What about Axis Inc? All documents missing. RM100mill gone. What did directors do ?

Moolah said...

Axis is appalling. Period.

The stock surged previously and as stated in the posting, Axis Inc loges police report, one of the reason was company earnings experienced a tremendous profitable year for its fy 2007, where its earnings surged from 8 mil to 24 mil.

With it, came questionable receivables. Receivables usually comes from trade debtors and with it the sales revenue and ultimately net earnings too!

Now all the documents (which can prove if the sales are not questionable) are missing.

How? You tell me what did the directors do.