Why I Like London Biscuits

London Biscuits is engaged in the manufacturing and trading of confectionery and other related food stuffs. It markets products in Malaysia and 65 other markets, worldwide. The group primarily operates in Malaysia, where it is headquartered in Johor.

Its main overseas markets include China, Hong Kong, Macau, Indonesia, Singapore, Taiwan, Thailand, Vietnam and the Middle East. London Biscuits’ products are divided into two categories, corn based snacks; and cake products such as swiss rolls, pie cakes and layer cakes.

In addition, the group also manufactures range assorted chocolate confectionery including chocolate-coated peanuts and biscuits, pancake cookies, jelly and puddings, wafer sticks, cup sticks and snack noodles. Some of the London Biscuits products are marketed under the brand names: Lonbisco, London, Kinos, Gega, Caca, Mizu, Hiro.

The group recorded revenues of RM138.2m in the fiscal year ended June2008, an increase of 17.9% over 2007. The group's operating profit was RM18m in fiscal 2008, a decrease of 26.4% compared to 2007. Its net profit was RM10.5m in fiscal 2008, a decrease of 47.2% compared to 2007. For the year ended June 2009, the company's fortunes rebounded well to RM184.3m, and net profit jumped from RM10.5m to RM13.68m.

On a paid up of just 78m shares, that worked out to be 17.5 sen. A share price of RM1.17, that translates into a historical PER of just 6.68x.

London Biscuits was acquired by Liew Family in 1994. In the following year, the group purchased a new building. In 1998 London Biscuits purchased its second factory and diversified their operations into pie cakes and confectionary segment. The group purchased its third and fourth factory and expanded into producing London roll and London layer cakes in 2000. Two years later, the group was listed on the main board of Bursa.

In 2004, London Biscuits expanded its production capacity for cakes conversion to usage of pasteurized liquid eggs for production completion of a custom built office cum warehouse facility. In the following year, the group purchased its 6th factory and acquired Kinos Food Industries with its two factory premises. London Biscuits acquired 25% stake in Lay Hong, an integrated poultry farming company, in 2006. In 2007, the group acquired a majority stake holding in Khee San Berhad, a manufacturer of sweets and candies. The company launched its London choco roll and milk roll cake products, and purchased its 9th factory in 2008. London Biscuits launched its potato bites range of potato chips in 2009.

Even during the crisis, they managed to record a growth of 33% topline and 52% bottomline. Turnover in 1QFY10 (for the quarter ended Sep 09) vs 1QFY09 grew 18% to RM46.6m and net profit grew 45% to RM3.522m. NAV stood at RM2.12, which means the company trades at just 55% of NAV. Hmmm... coupled with the fact that the company expanded its plant in 2009, we should be looking at a significant bump up in revenue and net profit figures for the next few quarters.

Here is the funny thing. Their supplier for plastic packaging. Daiboichi trades at 9.9x FY09 and P/NTA of 1.7x. Its not too much to ask that London Biscuit should be closer to its NAV of RM2.12, is it? For a company that has expanded gradually and carefully, noting that their margins and net profit figures have climbed steadily. Certainly not a fly by night operator. Of course it should trade a lot closer to its NAV.

Before the financial crisis, they used to pay half of its earnings as dividends. We may expect that to continue again.Assuming we annualise its net profit to RM15m, that will mean a dividend of RM7.5m / 78m or 9.6 sen per share. Its retained earnings is around RM73m, almost enough for a 1-for-1 bonus.

Dato’ Sri Liew Kuek Hin was appointed to the Board of LBB on 27th December 1993 and was subsequently on 26 October 2007, re-designated as the Non-Independent Non-Executive Chairman of the whole Group. He studied in Nanyang University, Singapore and thereafter, he joined his family-owned businesses, which includes logging, transportation, sawmilling, plywood manufacturing, plantations, palm oil mill and hotel operations.

DATO’ SRI LIEW KUEK HIN, SSAP, DIMP, PJK, JP Chairman of the Board, in his statement in the latest annual report: Outlook and Prospects The smile is slowing returning to the face of many Malaysians Manufacturers and Exporters, which were directly or indirectly affected by the global economic crisis, which led several countries to a worst recession that they had experienced thus far. Fortunately, many feel the worst should be over and recovery is in sight. The Board, is once again optimistic and confident that LONDON would be in a good position to end the financial year 2010 with a “bang”.

It is unusual for the chairman to issue such an "emotional tinged" statement at the end... "with a bang". Hmmm... I agree too. I have been highlighting some of the often overlooked smaller companies, that does not get proper coverage from the research community. It is sad because we need to reward and encourage the smaller companies by getting more early investors into them, so that we all can share in their growth and expansion. That's what investing is all about. A credible business model and a strong management team that executes well.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

p/s photos: Carmen Soo

SC Should Bite On This And Not Let Go

When you falsify information in a listed company to the tune of over RM1bn, got caught, but not before the shares went on a spectacular run, and you get only a RM350,000 fine in default of a one year's prison sentence - some thing is not quite right. But then there are still powerful people everywhere. The SC rightly filed an appeal, its a ridiculous sentence after all the hard work on SC's side, and considering the material deception and the length of time the deception was washed over investors eyes. Many were deceived, there were share placements flying around on Megan media for the longest time. Gee... RM350,000 fine is like what share syndicates will make in a week. I don't think it will be a deterrent, if anything, it encourages all company owners to engage syndicates and to falsify accounts even more. RM1 bn = RM350,000 fine, gee lets ramp up earnings byRM3bn, a RM1m fine will get us all off!

Aug 21 — The Securities Commission (SC) today filed an appeal against the Kuala Lumpur Sessions Court’s sentence on Kok Hen Sen @ Kok Liew Sen for furnishing false information on the revenue of Megan Media Holdings Bhd (MMHB).

In a statement, the SC said it viewed seriously all offences involving breaches of securities laws, and would continue to seek heavier penalties to serve as a deterrent in order to maintain investor confidence in the integrity of the Malaysian capital market. Kok, aged 63, pleaded guilty in the Sessions Court for abetting the public-listed MMHB in submitting false revenue figures of over RM1 billion in its financial statement for the year ended April 30, 2006. He also admitted to three other outstanding charges of falsifying MMHB’s revenue figures for the first three quarterly financial statements of 2007.

Sessions Court judge Asmadi Hussin had on Aug 18, 2009 sentenced Kok to a fine of RM350,000 to be paid the next day in default of a year’s imprisonment.

At the material time, Kok was the personal assistant to MMHB executive chairman Datuk Mohd Adam Che Harun who was also charged under the same section as Kok, for furnishing false information on the revenue figure for MMHB’s third quarter 2007 financial figure, the SC said. According to the commission, the fraud made a significant impact on the market price of the company as the share price dropped by 85 per cent over a three-month period after the news of the false statements became known to the public.

The SC had earlier urged the Sessions Court to mete out a deterrent sentence, taking into account the fact that Kok had played a key role in the creation of fictitious invoices to support the false revenue figures. Furthermore, several financial institutions had been deceived into providing to the company trade facilities which were then used to resemble payments for the sales that did not take place, it said. — Bernama

p/s photo: Carmen Soo

Amanah Saham 1 Malaysia - A Boost To Equities?

More funds allocated to local equities, then it should boost equities right!?? Err, well, no actually. The Malaysian exchange is a relatively open exchange, funds can move in and out. If you want to "engineer" a higher market, then do like China, restrict the way foreign funds can move, restrict even more the way locals can invest, make it difficult to invest overseas.

You can establish more local funds, RM5bn here, RM10bn there, but all stocks will fall in line with a certain kind valuation parameters. Say, there is a 30% foreign funds participation now in the market, they are here because of certain growth assumptions relative to valuations offered. If you increase the amount via new local funds, yes it will create more buying, but institutional funds will also have the ability to take profit and seek out less expensive markets. So, say new funds add 5% demand for equities, that could be taking out foreign funds exiting the market by a similar quantum as the move up might look expensive.

The second assumption is that these RM10bn are new funds, these funds are from the public. Who is to say these funds would not have gone to buy equities as well on their own?

There is a danger which no one in mainstream media is saying. You are literally taking out these RM10bn from the economic system. Unless 100% of these funds are in fixed deposits, then the net effect is muted. If these funds come from disposable income, you can argue that the RM10bn is being sucked out of the system. If anyone studied the velocity of money, each RM1 circulating in the economy is actually worth about RM8 to the real economy. Too many of these funds is deflationary and slows domestic economic activity.

Why are ASM PNB funds seemingly being assumed to "guarantee" to return 6%-8% a year? That is not a true certainty. The track record is good though but its not a guarantee.

Think people, think. I do agree that the fund is ok, but we need to be aware of the wider implications and not be blinkered to think at a superficial level only. After all that, I still think this is a "good thing", but we do need to have an appreciation of how the whole thing works.

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KUALA LUMPUR, July 31 — Prime Minister Datuk Seri Najib Razak announced the establishment of the Amanah Saham 1 Malaysia (AS 1 Malaysia) fund consisting of 10 billion units on July 11 on the occasion of his 100th day in office. To be managed by Permodalan Nasional Bhd (PNB), the fund is accessible to all Malaysians and follows on the heels of an earlier fund of 3.3 billion units which were speedily snapped up by investors looking for safer investment options.

Long queues formed early last Wednesday for the remaining 1.6 billion units in the state-sponsored Amanah Saham Malaysia (ASM) when the units were offered to all after the Malay and Indian portions were not fully subscribed.

The ASM fund had originally allocated half of the 3.3 billion units to Malays, 30 per cent to Chinese, 5 per cent to Indians, and the balance to “other” races. It is unclear if the 1 Malaysia fund would have a similar allocation. That the remaining 1.6 billion units went in a few hours suggests overwhelming demand for the funds which offer superior returns to fixed deposit rates of 6-8 per cent versus 2-3 per cent.

Although the 1 Malaysia fund is three times bigger than the last ASM, the liquidity in the system is huge and with the pent-up demand still robust, sales could be brisk. Malaysia's biggest fund manager is expected to invest the proceeds back into the local stock market.

“I noticed an immediate spike in volume last week after the remaining units were sold,” said a stockbroker who is confident of a new market surge since PNB would have to invest the proceeds.

Indeed, market players attribute the recent stockmarket rally to government funds and institutions, since most retailers are only starting to nibble. However, some chartists have warned the market has run ahead of valuations.

Over the past weeks, the benchmark index has risen steadily to around 1,160. It comes after a new 30-constituent index — the FTSE Bursa Malaysia KLCI — replaced the 100-company Kuala Lumpur Composite Index in the first week of July. So many contend the improvement is due to the concentration of trade in the heavyweights, especially the top four — Maybank, Sime Darby, Tenaga and Commerce Asset Holdings.

Despite Malaysia being a regional laggard, foreigners remain underweight on its economy. Many still are unaware of recent measures to liberalise the economy, analysts say. In June, foreign funds acquired US$26 million (RM91 million) worth of local shares, less than a fifth a month previously, according to a CIMB Investment Bank report. — Business Times Singapore

p/s photo: Carmen Soo