Value Buy: Hirotako

May 7, 2008

Hirotako Holdings Berhad, an investment holding company, engages in the manufacture and sale of automotive components in Malaysia. It offers safety restraint systems, including seat belts, airbags, and steering wheels to original equipment manufacturers. The company also provides acoustic, thermal, and composite materials, such as noise dampers, sound insulation and absorption products, interior trims, and electrical components. In addition, it offers precision metal forming and machining components and services, including steering wheel, air compressor, shock absorber, and seat belt; components for electrical and ventilation fans; components for audio and video, air conditioner, washing machine, refrigerator, gas cooker, and television cathode ray tubes; and CNC machining components, such as steering and motor shaft.


Hirotako Holdings Bhd is the only airbag manufacturer in Malaysia. Any vehicles which want to install an airbag (import/local) must go through Hirotako.

The company is building up its cash coffer which will be used for potential acquisitions. Currently, it has 47 million in cash or RM 0.28 / shares. Its operating margin is above 20%.
Hirotako’s performance relies on Proton’s and Perodua’s performance. Proton contributes about 40% to Hirotako’s revenue. Its other customers ­mostly for seat belts are Perodua, Toyota, Honda, Naza, Mercedes-Benz and BMW. Only Proton currently uses Hirotako’s airbags.


Hirotako’s reliance on the local automobile industry is due to the arrangement between Hirotako and Swedish company Autoliv AB, which prevents Hirotako from exporting its airbag modules to other countries. Despite this setback, there is room for growth. At the moment, less than 50% of the passenger vehicles sold locally is equipped with airbags. The increasing demand for safety features in passenger vehicles will benefit the group. Autoliv is Hirotako’s partner in Autoliv Hirotako Safety Sdn Bhd, in which Hirotako holds 51% equity. Autoliv Hirotako is the country’s largest seatbelt maker and also manufactures steering wheels. Also, Hirotako supplies acoustic products through its wholly owned subsidiary Hirotako Acoustic Sdn Bhd. Hirotako Acoustic is involved in the manufacture of acoustic and thermal control products used in automobiles. Hiratako has a technical tie-up with Swiss Rieter Automotive International AG for the transfer of technology.


Hirotako has been paying dividends of four sen per share. At the current price of 55 sen, the company has a dividend yield of 7.25%. It has P/E around 10, fully loaded with cash for acquisition, no debt, low Price/Book Value and actively buying back its own shares.

Swee Joo Berhad : A VALUE BUY

April 19, 2008

Swee Joo Berhad, an investment holding company, provides container shipping and related services primarily in Malaysia. The company operates vessels of various sizes that provide liner services between peninsular and east Malaysia in addition to regional routes that cover Thailand. It is also a box operator regional routes that cover Ho Chi Minh in Vietnam, Jakarta and Surabaya in Indonesia, and Singapore. Swee Joo also offers transportation and haulage services; containers warehousing, handling, repairing, and washing services; and shipping agency services. The company was incorporated in 1997 and is headquartered in Kuching, Malaysia.


Swee Joo Bhd is transporting crude palm oil (CPO) and related products to China, India and Indonesia. The company is in expansion trail and planned to invest RM500mil in more tankers and container vessels in the next few years to expand its fleet. Currently, the group plans to add one or two vessels to transport logs from Papua New Guinea and Solomon Islands to China and Vietnam in view of the strong demand.

The group now owns 34 vessels, comprising a 7,000-tonne chemical tanker, 15 container ships, 10 general cargo ships and eight support vessels, which ply domestic, intra-Asean and international routes.

Swee Joo at RM 1.13, P/E around 7, and directors are accumulating more shares since a few months ago.

Read more about Swee Joo over the here!



What is Free Cash Flow?

March 22, 2008

Cash flow statement is a more reliable source than balance sheet and P/L. Businesses pay all its bills and expenses using its positive cash flow. Whatever left for growth and value is free cash flow (FCF).

Let’s me explain FCF using an example Company X.

  1. Company X spent RM 100,000 for advertisement for its products.

  2. It received RM 400,000 from revenue because customers paid for the products.

  3. RM 200,000 (50% of revenue) is spent by the company on utilities, salaries.

  4. RM 400,000 – RM 300,000 = RM 100K left in the bank at the end of the year.

How to calculate the final FCF?

  1. RM400,000 of revenue,

  2. RM300,000 of expenses that required cash,

  3. RM 50,000 of depreciation deduction. (No real cash involved but for tax purposes).

  4.  Taxable income is RM 50,000

  5. 20% of corporate tax for RM 50,000 is RM 10,000.

  6. So, Net income is RM 40,000

  7. But, Net Income is not Free Cash Flow

  8. To calculate the actual free cash flow, use revenue and subtract any cash expenditures and add back depreciation. RM 400K – RM 300K – RM 10,000 = RM 90,000

For Company X, free cash flow would be RM 90,000 even though net income reported to shareholders was RM 40,000. The company use RM 90,000 to grow its company further.

Let’s repeat the last operation.

  1. Company X spent RM 100,000 for advertisement for its products. This time, the company needs to borrow RM 30,000 from bank.

  2. It received RM 400,000 from revenue because customers paid for the products.

  3. RM 200,000 (50% of revenue) is spent by the company on utilities, salaries.

  4. Finance cost is RM 3000. (Assumption)

  5. RM 400,000 – RM 300,000 – RM 3,000 = RM 97K left in the bank at the end of the year.

Again, we deduct another RM 50,000 for depreciation; Taxable income RM 47000. Tax is (RM 47000 x 20% = RM 9400). Net income is RM 37600; free cash flow is RM 87,600

Why did the net profit decrease? The company did not generate enough cash to maintain and grow its earnings. Do you check how much FCF your company is making? My point is, without increasing FCF, a business cannot survive for long. It must keep on depending on borrowings to fund growth.

If Company X makes a Revenue of RM 600,000 due to market monopoly and branding, it will not need to borrow to fund its growth anymore. Remember,growth needs money. And Cash is King.

Opinion on Corporate Governance

February 6, 2008


Corporate governance is the first test I will do when I pick a stock. Why is it so important?  

If you are investing for a long term, corporate governance matters a lot to you. For short term investing, it does not matter.  For example, you are an investor in Transmile for the past 5 years. ..continue here