Saturday, August 14, 2010

Review Of TSM Global

Ok, this posting is a freebie and please do realise it's not a tip at all. (LOL! But if you insist it's a tip, then please know what to do! LOL! LOL! ) Just sharing some views on how I would review a stock to see if there's any justification for an investment. Yeah, just ass-u-me that you have someone telling you that this company MNO is worth an investment.

Now I will base this posting on this stock mentioned in a chat by one local residential head-banger and the reason I chose this stock is because the company belongs in one of the hotter sectors in the local market, the motor industry. The stock name is called TSM Global or formally known as Juan Kuang.

Firstly, first thing first, although this posting would focus on investing from a business perspective, I would always, always look at the stock chart. The reasoning is simple. Have you heard words of wisdom from your wise Auntie telling you not to buy stocks whose charts show a clear flag pole position (i.e the stock has rocketed straight up! see Mieco chart yesterday? ) Why? The stock could easily make a fool out of you and your money. Needless to say, it would be rather foolish to attempt an investing approach on the stock! Yeah Auntie would say 'Don't be Soh Gua!' :P (LOL! But then Auntie is not the stock market. And yes, sometimes some rocket stocks are really 'powderful!' :P )

Here's TSM chart. (ah.. do note the 12 month lows! Yeah.. this review could be 12 months too late! LOL! Yeah, this stock review could really, really make a fool out of you and your money! :P)


Now that the disclaimer and what not is out of the way.... what's investing from a business perspective?

1. The earnings track record.

  • From a business perspective, that is, if I were to be approached by someone and offered a stake or a partnership in the business, one of the very first thing, I would like to know is how profitable this company is.

There are always tons of folks who always, always say the past isn't important. What's important is what a company can earn in the future!

That's very true but sometimes the future is always, always given an incredible optimistic outlook by the so-called market 'siputs' or 'see fool'. From making losses of 1.4 million for fist half year, these 'see fool' can dare shout out loud the company can end up the year making 32.87 million. And to make matters even more seductive, the company's valuation is not based on the 32.87 million but based on the next year projection of 43.47 million! With such insanely rocket projections, stocks would look really cheap and target prices would look really seductive! Hey, I bull you not! See Regarding P&O: The Stock That Flew Into Orbit!

Anyway, here's TSM track record.

The above table represents the most recent 5 year earnings track record.

The good point is that there is clear sign of earnings growth during this 5 year span.

The margins are less than ideal. It's less than 10% but the positive point is the margins are improving each year.

Ok the 2010 revenue looks stagnant but this represents the fiscal year period ending 31/1/2010 and I would assume TSM minority shareholders and investors would be quick to point out that this period represents a really tough global business environment and that TSM did well considering all the circumstances.

Now would that be a fair assessment? ( PS: no point in trying to make our eyes see what's not there! :P)

2. How is the company faring CURRENTLY?

Yes, this question needs to be answered. One cannot rely 100% on the past data ALONE. One need to assess the current business economics and also the future business economics too!

Here is how TSM is doing currently.




The TTM (or trailing twelve months) earnings is already indicating that based on current quarterly earnings trend, TSM earnings could potentially hit 29 million. Which would represent another impressive year of earnings growth from TSM.

How? Do you like what you see so far?

Ah this question should be answered as honest as possible because if you do NOT like what you have seen so far, walk away. Flush the review down the toilet paper or send the file to the recycle bin! There's not much point in reading any further unless of course, you reckon a company's earnings is not important from a business perspective. Yes, from a business perspective, if someone approached you and ask you to be their business partner, and if their business does not have a strong financial track record, would you still want to be their business partner? If the answer is NO, then why should it be any different from stocks?

3. The FUNDAMENTALS of the COMPANY - Ze Balance Sheet



Cash is clearly building UP nicely, yes? And the debts have been pared down. I believe the table itself says it all and I do not wish to add any extra ingredients to spice things up.

Receivables are building up but given the size of its business, it 'should' be acceptable.

Again, the silly questions: How? Do you like what you see so far?

Anything from the cash flow statements?


Couple of comments.

TSM value of depreciation is '2.453 million' for the current quarter. The column next to it represents the fy 2010 cash flow numbers. For TSM's fy 2010, some 10.471 million was depreciated from its assets value. Yes, on one hand, depreciation is really, really, really needed. It's a must. However, depreciation does 'eats' up 'cash' and for some true 'value' or 'bargain' hunters, this is where the 'value' is. :P

And yes... I saw the two ugly words: 'Quoted Investments'!!!

3. The company and its products!

How exactly does TSM do? What does it sell?

And NO, TSM Global is not the TSM‎!

This is TSM Global website: http://www.tsm-global.com.my/

  • TSM Global Berhad is principally engaged in the business of letting of properties and investment holding. TSM through its subsidiaries is engaged in the manufacture and supply of automotive wiring harnesses, automotive high-tension ignition cables and the manufacture of polyvinyl chloride (PVC) wires and cables. TSM, through one of its subsidiaries also offers hundreds of classes for yoga, pilates and other wellness exercises to strengthen and improve the the condition and wellbeing of its community

Yeah, TSM is also involved in yoga and pilates classes!

LOL! Are you offended to invest in such business?

Time to check out the company's business segmental reporting!


And as expected, that segment business is poor. :P

How about articles in the news?

Frankly, there's isn't much coverage at all in the media. (Ah from the pure stock-ist point of view and perspective, they might not be keen at all. No coverage means a less than active stock. Much harder to trade. Hey it's a 'pak-woo-ying' stock!)

July 2008:

  • 28-07-2008: TSM cautiously optimistic about FY09

    KUALA LUMPUR: Motor vehicle parts maker TSM Global Bhd is cautiously optimistic on its outlook, leveraging on the expected continuing strong demand for Perodua’s Myvi and Viva, said TSM executive director Lim Kheng Chye.

    He said the group was confident about its sales in its financial year ending Jan 31, 2009 as demand for small cars remained resilient despite the partial lifting of petrol subsidies recently and it had locked in orders for the next five to six months.

    “Compact cars like the Myvi and Viva are very much in demand due to the increase in fuel prices, with Myvi having the lead in sales,” Lim told The Edge Financial Daily .

    TSM supplies wire harness, automotive accessories, high tension ignition cable sets and PVC wires and cables. Perodua contributes 30%-33% to the group’s revenue. It also supplies its products to Korean makes, including Inokom, and Daihatsu.

    He also said that TSM had been facing rising production cost due to the increase in raw materials but it had been able to pass through the rising cost to its customer.

A good long write-up on TSM on the Edge Malaysia back in 2009: TSM takes a safe and sound strategy ( do give it a read for the article does focus on TSM's bossie! ) and see this one also: Kheng Yew on a smoother flight (important read because one would need to know more about the person whose business we are eyeing on!)

In April 2010:

  • TSM Global expects to double revenue in 2011

    By Francis Fernandez Published: 2010/04/07

    TSM Global Bhd (8842) , the country's biggest wire harness supplier for Japanese automotive firms in Malaysia, expects to double revenue to a record RM400 million in 2011 as it completes an acquisition.


    The group, which posted revenue of RM258.2 million for the year to January 31 2010, is in the process of buying the Malaysian affiliate of Japan's Kenseisha Co Ltd.

    Doubling revenue would be achievable, said TSM executive director Lim Tze Thean, as it plans to restructure hard disk drive maker Kenseisha (M) Sdn Bhd and expand its capacity.

    "We are expecting to almost double Kenseisha's revenue via improved efficiency and capacity output," Lim told Business Times in an interview at his office in Kuala Lumpur.
    Kenseiha's revenue last year was in the neighbourhood of RM100 million, but Lim is confident that in the current financial year, the HDD company's sales could be expanded to between RM160 million and RM170 million.

    TSM has also earmarked to spend as much as RM40 million to set up a factory for Kenseisha in Thailand. Currently, Kenseisha operates from its sole factory at the heart of the Bangi Industrial Estate in Selangor.

    "We have chosen Thailand, as it was requested by our client Nidec," said Lim, adding that expansion plan will see Kenseisha's output capacity improve to 4.8 million HDD components a month from the present two million a month.

    Kyoto-based Nidec Corp is the world's leading manufacturer of the tiny electric motors that power hard disk drives on personal computers and other digital electronics.

    The company supplies about two thirds of global demand for the so-called spindle motors that spin hard drives as data is recorded and retrieved.

    On the financial side of the restructuring process, Lim said TSM is in talks with as many as 11 Japanese banks to buy some RM50 million Kenseisha debts.

    "We prefer to buy back them at a discount, rather than seek an outright haircut, as in the longer term, it allows us, at the TSM level more leeway for corporate exercises involving Kenseisha," said Lim.

    The Lim family controls about 28 per cent of TSM, while Koperasi Polis Diraja Malaysia Bhd, is the second largest stakeholder with 6.73 per cent stake.

    The purchase of the 85.47 per cent stake in Kenseisha for RM15.08 million is not expected to loosen TSM's bank balance as the takeover will be done by issuing 6.5 million fresh TSM shares to Sierra Indah Sdn Bhd. ( source: here - yeah the article could not be found on Business Times website and I have to search for it on a mirro website. LOL! )

Ah... that article is rather significant because it represents the future of TSM.

Kenseisha's acquisition announcement is posted here on Bursa website and I would use this pdf file for my reference.

The purchase requires the issuance of new TSM shares. Important to know if one wants to know the eps/per/dy etc, etc.

According to TSM's last reported earnings, it has some 55.886 million shares (increased slightly due to ESOS) and some 6.500 million shares would be issued for this purchase, which means one is looking at a share base of 62.386 million shares for TSM Global. (Ah.. some don't like the size of such a share base because it's simply too smallish!!! Err.. this is just stating a fact because different people, different strokes!)

Of course, I am reminded too few times that apparently I am not too optimistic! LOL! Well from an optimistic point of view, surely I have to say that this acquisition have indeed a strong chance to give TSM a brighter future prospect.

From the article, I would search for more info on Nidec and here is Nidec's website: http://www.nidec.com/ncaindex.html

And Kenseisha's expertise is "spindle motors that spin hard drives as data is recorded and retrieved". Nidec's page on the spindle motors it sells in America: http://www.nidec.com/spindlemotor.html. From Kenseisha's webpage, its products: http://www.kenseisha.com.my/IE6/products.html.

Looking great, yes? That's potential yes?

Ahh... but from the other side, the cynical side, one would be looking at what Kenseisha (KMSB) has to offer.

The proforma numbers: From TSM's announcement here on Bursa website:


Ahh.. the Kenseisha (KMSB) acquisition would see TSM saddled with KMSB debts and the 'cynical' would worried that KMSB recorded a massive 58 million worth of losses! WTF! (pardon me! :P )

Page 2 of the file:

  • FPE 31 January 2010
    Sales decreased significantly due to the reduction in demand of HDD based products as a
    result of the global recession during the first quarter of 2009. Moreover, KMSB reassessed the fair value of its assets and wrote off approximately RM51.7 million of the assets’ carrying value during the financial period under review.

    Resultantly, KMSB’s gearing increased, despite the bank borrowings having been reduced.

And with the acquisition of KMSB, this would put a huge dent to the point that TSM is one 'hidden gem' with a huge 'cash per share' yardstick. Yup, TSM Global's balance sheet in the near future would not look so sparkling rich!

Of course, the optimistic Auntie would remind me clearly that nothing ventured, nothing gain!

How? What do you think of this purchase?

Me? I think it's way too early to pass judgement. Seriously. It's too early.

Now yes, on one hand, TSM is venturing into the HDD business sector, a sector where big boys like Western Digital had already warned about its current future earnings and local boy, like Notion Vtec was hit bad. And to make matters worst, it's looking extremely competitive for HDD makers here with Western Digital to invest US$1.2b in Malaysia.

However, the optimistic Auntie would probably reasoned that it's all bullocks because KMSB main product is the 'spindle motor, motor/base assembly and base plate market of the HDD production.'. An important component in the HDD business and since it's merely the component, KMSB might actually benefit if companies like Western Digital set up shop here for it could even be a potential customer.

From TSM announcement again:


How?

Now this is where the bread and butter time. One need to weigh out the pro and cons. From a business perspective, would TSM benefit from this purchase? Since this is a new business acquisition, surely TSM's earnings could improve more, yes? Is this the future prospect?

But what if it fails? Not possible?

How? Again.. decision making time and as usual, I cannot be providing any answer. LOL!

Dude and dudettes, mind I remind you that I ain't no Sotong! :P

4. The management issue.

Mentioned earlier...

From the second article..

  • The Edge: Since TSM is trading below cash per share, would you take it private?
    Lim: I could have taken it private previously. I didn’t need to come out with any money to take it private. When it was 60 sen... when it was RM1.50... even at today’s price, I could have taken it private. But I thought I could move this (listed) company forward. (TSM was 60 sen a share at various points in time between 2001 and 2004).

    KYM Holdings Bhd, where you are also a major shareholder, is selling 409 acres of land at Manjung, Perak, to Vale for RM101.8 million cash, and the Brazilian mining giant has an option to buy another 756 acres for RM93.7 million cash. What are KYM’s assets after it sells these pieces of land to Vale?
    It will still have more than 100 acres in the area. There’ll be businesses for KYM there, like quarries, with the huge investment in Manjung by Vale.

    The public has a very negative perception of Tan Sri Tajuddin Ramli who sold his Malaysia Airlines (MAS) shares back to the government at RM8 apiece when it was trading well below that. That perception rubbed off on you too since you did corporate finance work for him.
    He was asked to take the MAS shares at RM8 from Bank Negara when the stock was trading at RM5. There was an understanding that he could sell it back at the same price.

    What went wrong when Tajuddin and team ran MAS?
    It was very difficult to manage MAS when the government held the golden share. The domestic flights lost RM1 million a day. There were also international flights that were not viable. Like the KL-Johannesburg-Argentina route that we had to fly with our Boeing 747s on empty planes. That’s not a small plane. That’s a 747. And these were daily, not weekly, flights. The Los Angeles-Mexico route was the same.

    There is also negative public perception of Technology Resources Industries Bhd’s (TRI) directors, including yourself, who paid themselves millions before they left the company.
    I didn’t want to join TRI when Tajuddin called me. I was managing TSM. When I then joined TRI, there was a contract for compensation of about RM9 million. I had successfully restructured the TRI group.

    When did you first come to know Tajuddin?
    I worked under him in an investment bank.

    What do you plan to do after you retire?
    In two more years, I’ll be 60. I want to do some social work, church things and travel a bit. There are 12 executives in the company. I tell them: “Your job is to replace me.”

Ok, I have to give Kheng Yew some credit. At one pont, TSM Global did traded below its cash per share and yes, huge money could be made if TSM was taken private and needless to say, the past association with Tajuddin could be sticky for some investors. And also, he's turning 60 soon. LOL! And Kheng Yew had stated he wanted to retire!

So for some... this could be an issue.

5. Any dividends?

Last but not least, the company's not a big dividend payer. It does pay but not big. A usual 5 sen tax exempt per year.

6. Any concerns?

The venture into the HDD business is one. Some might call it an extremely risky business venture but some do see it as a possible prospect? Me? I think it's way too early to pass judement on this business venture.

And oh.. quoted investments. LOL!

Needless to say, I don't like but then many would remind me that it's too smallish to make a remark.





So how? Does an investment in TSM excites you from a business perspective?

With all the excitement and growth in the current motor business, shouldn't TSM have a good future prospect? And shouldn't the HDD business give TSM an additional boost?

Now on the other hand, some says this is not enough. One needs to add in some extra out-of-the-box thinking, especially from a stock market perspective.

Well, for one, again TSM is NOT an active stock. It's smallish and it's a PWY stock! (PWY = Pak Woo Ying! :P )

And there's isn't much coverage on the stock.

It's only covered on CBRS by S&P and NetResearch.

Netresearch:

S&P

S&P last words on TSM Global: We are suspending coverage of TSM pending a universe coverage change, as the CBRS II scheme is completing. Our last recommendation and target price are Buy and MYR4.30 respectively.

So a valid arguement is that this stock is lacking serious coverage. Not many knows about this stock and what it does and because of this reasoning, many would give such a stock a pass and they would also ask why TSM? Isn't there a much better automotive stock than TSM?

How?



Here's TSM 5 year stock chart.



And here's TSM chart since 2003.

20 comments:

said...

Hi Moola,

Here have some further research on TSM.
http://www.investalks.com/bbs/viewthread.php?tid=220&extra=&page=3

How do you feel its newly acquired business that involved of HDD? (Kenseisha (M) Sdn Bhd)

What do you think about the management as well?

Moolah said...

Hi,

I am sorry sorry regarding my slow mo post.

Long article, hence much thought is required before posting.

Yes, I am aware of the new business potential and I am in the midst of writing on it.

Stay tuned. :D

tklaw said...

I thought you were sotong while reading the first part of the story. This company has maintained a healthy earnings and balance sheet over the past few years....seductive. The second part of the story is interesting...diversifying into HDD business??? I may need to consider twice before making a decision.

Moolah said...

LOL! This is not a tip.

Seriously.

:D

Moolah said...

tk: Ok, this posting is a freebie and please do realise it's not a tip at all. (LOL! But if you insist it's a tip, then please know what to do! LOL! LOL! ) Just sharing some views on how I would review a stock to see if there's any justification for an investment. Yeah, just ass-u-me that you have someone telling you that this company MNO is worth an investment

:D :D :D

solomon said...

Review and not Reveiw.

It looks a good chick review, start off with seductive good figures, suddenly handbrake with BIG sorry she is married and now with wrong partner??

Can someone provide some insight what is the beauty of Kenseisha and how is synergy with the core biz of TSM??

Richard Cranium said...

haiya, Mr Moolah, I still don't know if this is a buy, wait, or skip la.

Can you like, tell us to buy or not, without like, be too obvious about it? Like, can you, like, just spell it out B-U-Y or S-K-I-P using some fancy acronyms.

Like this, we working stiff want to make money also don't know how.

tklaw said...

It is a tip if you ommit the second part of the story. That's what most analysts did.

I was impressed by your analytical skill. You really go into very detail of a stock before making a decision. You treat an investment like doing your own business. The chances of steeping on a landmine is extremely low.

I feel pity for those analysts...They are unable to lure you falling into a trap.

:D :D

Moolah said...

solomon: LOL! I need spelling lessons. :P

richard: b-u-y or s-k-i-p?

LOL! I need to get a license to s-c-r-e-w first.

:P

tklaw: :D

tklaw said...

Moolah, a cynical bugger would ask “ Given the sustainable profit generated from the existing business and your planning for retirement in two years, will you want to acquire a loss making company which doesn’t offer substantive synergy to its current operation?”

Why this guy is enthusiasm in restructuring the unprofitable entity? A charitable business….I am a layman so what I normally heard is “ Hey young guys, don’t give me more trouble. I am retiring soon.”

Yoga classes? It was amusing to learn that the company involves in this business. I guess the yoga classes are provided to its employees for release tension after suffering from a day long hard work in the factory.

solomon said...

My observation from this blog if there is no take off to the orbit, means this stock will soon do the Murphy Law? Not sure better check with the investment guru.

My sense still tell me Moolah is or used to be one of the top analaysts in the country. The rationale simple, the approach and the presentation u used.....

Moolah said...

solomon: huh?

The Emperor said...

Dear Moola,

Is Tajudin Ramli involved in this company ?

Moolah said...

Emperor: It's a known fact that the major shareholder, Lim Kheng Yew, used to work for Tajuddin esp during the TRI restructing.

From the anuual reports there is no link that suggests Tajuddin is involved in this company.

Here is link to TSM annual reports: TSM annual reports

bonny b said...

Dear Moo,
My two cents' worth is, this stock is too complicated...mgmt losing focus (HDD? Do they have the $$-stamina, or expertise?), too many 'ifs'. Also, impending merger between Perodua and Proton may make her a widow (or she already expects it?).
Why bother with an old( but rich) girl with too many conditions when there are many other sweet eligible ones in waiting???

Moolah said...

Bonny b: Regarding the stock being complicated and the HDD issue.

I believe that's fair reasoning to NOT buy the stock.

However, regarding the proton/perodua thingy, that would NOT be fair because TSM is merely an auto parts maker and its products which consist of "wiring harnesses, automotive high-tension ignition cables and the manufacture of polyvinyl chloride (PVC) wires and cables" and a merger between Proton/P2 would not spell the end for TSM.

However, say if an investor does not want to be over invested in the auto sector, despite the current boom, the investor might ask themselves if TSM is the best business option in the auto sector.

And then the investor might want to delibrate if they want to invest in companies selling cars or do they want to invest in auto parts makers sector.

In that sense, I would agree with your comment "Why bother with an old( but rich) girl with too many conditions when there are many other sweet eligible ones in waiting???"

Gamelion said...

Yes it is too late to invest in this
counter now. Whatever good news u had
mentioned in this article r already
discounted by the over-stretched price in this stock (too expensive)!

Loke said...

hai,

could you review LonBis?

thanks

jitseng said...

please heck yhe minoritity int as tsm only ctrl maybe 60% of harnessing business.So cash has to take out propotionately.Do not misled by the whole amt of cash.

Moolah said...

jitseng: LOL! You should know better that a review like this is not 100% accurate and you do know that I cannot do a 110% review and breakdown every single details and explain it all in full glory.

Furthermore, you are probably aware that I am not a cash per share investor. I never do believe in such yardstick and if you have followed this blog, you should have known that.

And yes, since KMSB would be fully incorporated 'soon' (need to check when exactly), it was already mentioned in the blog posting that TSM Global would be carrying a huge set of loans passed on by KMSB.