Sunday, 13 December 2015

Stock Review – ORIENT(4006) (ORIENTAL HOLDINGS BERHAD)


image source from Big Chart Marketplace

image source from Big Chart Marketplace
Bursa Malaysia - 4006
Bloomberg - ORH:MK
Yahoo - 4006 .kl
Webpage - http://ohb.com.my/

Key Value Investor Criteria: -

Description
Value
Criteria
Point
Price to Tangible Book Ratio
0.78*
< 1
5/5
Stock Valuation
CAPM => 3.04%
Return (2008-2014) =>9.13 %
Undervalue by 6.09%
CAPM < Return
3/5
Return on Asset
3.83*
> 0
4/5
Return on Common Equity
6.72*
> 0
5/5
Quick Ratio
3.36*
>1
4/5
Long term Debt / Total Capital
0.03*
<50%
5/5
Continue Dividend over Past 10 Years / Since Inception
Yes
Yes
2/2
Cash From Operation
Positive > 5 years
Positive
5/5
Total Point


33/37
Note:
 *            Data obtain from Bursa Marketplace on 13/12/2015

By scoring 33/37 (89.19%), we will look into the annual report and the latest quarterly report of ORIENT before making the decision to buy the stock.

Company Profile

ORIENT had four major business segments as follows:
1)   Plantation (50.38% of 2014 segment profit)
2)   Investment Service and Financial Service (22.89% of 2014 segment profit)
3)   Automotive and Related Product (16.54% of 2014 segment profit)
4)   Hotel and Resort (9.16% of 2014 segment profit)

1) Plantation

This division is planting and manufacturing oil palm. This division is generating 50% of ORIENT income for year 2014. Base on annual report 2014 ORIENT consists of 28,051 hectare of plantation in Malaysia and Indonesia. ORIENT able to produce 513,407 MT out of 654,478 MT (78.45%) of oil palm from its own estate in the year of 2014. However the lower price for oil palm in the year 2015 might affect the profit of this division.

2) Investment Service and Financial Service

This division invest in shares and bonds, letting of property and leasing company. In 2014 this division contributed 22.89% of the profit. These division had investment in Singapore and Mauritius.

3) Automotive and Related Product

This division distribute Honda car and motorcycle in Malaysia and Singapore. Although it does not contributed the largest profit for ORIENT in 2014, this division consists of the largest asset for ORIENT 38% of 2014 asset. From January 2015 to September 2015 these division contributed the largest profit based on ORIENT Q3 2015 report. However 2016 might see a slowdown in automotive industry.

4)   Hotel and Resort

Finally the fourth largest division in ORIENT is the hotel and resort division. ORIENT operate hotel and resort in a few country such as Australia, New Zealand, Singapore and etc. The depreciation of Ringgit Malaysia might help ORIENT to gain some profit in term of foreign currency conversion gain.

PROS:

  • ORIENT operate hotel and resort in foreign country which might help ORIENT to hedge the depreciation of ringgit Malaysia.

CONS:

  • The lower price of oil palm might affect the revenue of plantation division which contributed the largest profit to ORIENT.
  • 2016 might be a tough year for Automotive industry.

Financial Statement

By looking at the annual report 2014, the property, plant and equipment of ORIENT is still using the valuation in 1976 & 1978 and depreciated over the last 30 years. I can safely assume that the PP&E of ORIENT report in the annual report is way undervalued.

Besides that, the cash and cash equivalent at September 2015 increase by 15.6% compared to 2014 audited report. Although there a large increase in loan and borrowing in September 2015 compared to 2014 audited report an increase of 67.7%, with the loan and borrowing total of RM 1,109,430,000 it is still manageable for OREINT because it had free cash reserve of RM 2,494,585,000 which is able to pay of all the debt at once. The increase of loan and borrowing mainly because ORIENT loans are mainly in Japanese Yen and Ringgit Malaysia is depreciating.

PROS:

  • PP&E of ORIENT are valuated in year 1976 & 1978.
  • Had enough free cash reserve to cover all debt

CONS:

  • Loans mainly in Japanese Yen.

Management

The key person running ORIENT will be Datuk Loh Kian Chong who was redesigned as Chairman in 1 January 2015. Datuk Loh Kian Chong is just 39 years old he required some time to prove to himself to the shareholders that he can run ORIENT as smooth as his aunt who had run the company from 1987 till 2014.

Besides Datuk Loh KC, the other key personal is Dato’ Robert Wong Lum Kong who had been with ORIENT since 1972. Dato’ Robert Wong currently is the Group Managing Director. Held the same position with Dato’ Robert Wong is Dato’ Seri Lim Su Teng who currently in charge in the plantation and property division. These plantation and property division might be the division ORIENT is going to focus the most in the future.

Besides these three personal, ORIENT had directors in the field of lawyers, accountants and from HONDA who are there to manage the company.

PROS:

  • Having director in many fields that are there to give advice.
  • Having Honda representative as a director.

CONS:

  • Datuk Loh Kian Chong had to prove himself since he just took over the helm of ORIENT from his aunt.

Major Shareholder

OREINT mainly owned by Boon Siew Sdn Bhd who owned 43.00% of direct shares. Boon Siew Sdn Bhd is the company owned by Datuk Loh Kian Chong and family. Besides that, there are many others major shareholder from institutional investors such as EPF, TOKIO MARINE LIFE INSURANCE, value funds, emerging fund and etc.

However recently, Mitsubishi UFJ Financial Group, Inc and Aberdeen Management PLC had disposed their shares. On the other hand, EPF is acquired more shares.

PROS:

  • ORIENT mainly owned by Datuk Loh Kian Chong and family
  • Many other institutional investor.
  • EPF is acquiring more shares.

CONS:

  • Mitsubishi and Aberdeen is disposing shares.