Stock Review – FIMACOR (3107) -2 (FIMA CORPORATION BERHAD)

Bursa Malaysia - 3107

Bloomberg - FMB:MK

Yahoo - 3107 .kl

Income Statement

Despite higher revenue, the higher expenses has bring the net profit after tax decrease from RM 71,994,000 to RM60,305,000. Besides that, there is a revaluation of property, plant and equipment of RM 18,884,000 state for other comprehensive income which does not stated in the income statement for previous years. If these money is remove from the income statement, FIMACOR earning per shares for the year ending will be must lower compared to previous year.

CONS:

• Decrease of net profit despite higher revenue.
• RM 18,884,000 stated in other comprehensive income.

Financial Statement

The revaluation surplus on FIMACOR leasehold land is RM 25,144,000 which is 83.21% of the 2014 leasehold land value. The valuation method use comparison of the recent asking price which is less accurate, reference to bidding price or transaction price are better estimation of the land current value. Besides that, the valuation of land uses annual inflation of 7% - 14% while data from the world bank show that Malaysia inflation rate is 3%.

There is  increase of Goodwill on consolidation from RM 510,000 to RM 6,200,000 and the cash equivalent decrease to RM 172,640 to RM 195,204,000.

Although there is an increase in the trade receivable from RM 105,071,000 to RM 182,856,000, but the trade receivable from the biggest customer (Malaysia Government) is also increase from RM 75,980,000 to RM 146,673,000 and the trade receivable past due from RM 52,831,000 to RM 128,527,000. Other than that, the trade payable for FIMACOR also increase from RM 72,887,000 to RM 127,887,000. Finally the Operating cash flow of the company is also decrease from RM 62,998,000 to RM 32,666,000.

CONS:

• The leasehold land revaluation use the asking price as a reference which is less accurate, bidding price or the transaction price are the more conservative method.
• The discount cash flow method for leasehold land valuation assume inflation rate of 7% - 14% while the world bank data show inflation rate in Malaysia only around 3%
• Increase of Goodwill to RM 6,200,000 which the management able to impair anytime.
• Decrease on the FIMACOR cash equivalent.
• Trade receivable which had past due had increase from RM 52,831,000 to RM 128,572,000 (143%)
• Trade payable increase from RM 72,887,000 to RM 127,887,000 (75.46%)
• Operating cash flow decrease from RM 62,998,000 to RM 32,666,000

Summary of Stock Reviews

Stock Review – FIMACOR (3107)(FIMA CORPORATION BERHAD)

Bursa Malaysia - 3107

Bloomberg - FMB:MK

Yahoo - 3107 .kl

Key Value Investor Criteria: -

Description	Value	Criteria	Point
Price to Tangible Book Ratio	0.64*	< 1	5/5
Stock Valuation	CAPM => 3.22% Return (2008-2014) => 22.04% Undervalue by 18.84%	CAPM < Return	5/5
Return on Asset	7.0*	> 0	4/5
Return on Common Equity	10.89*	> 0	5/5
Quick Ratio	2.65*	>1	5/5
Long term Debt / Total Capital	0.37*	<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			36/37

Note:

 *            Data obtain from Bursa Marketplace on 26/7/2015

By scoring 36/37 (97.9%), we will look into the annual report and the latest quarterly report of FIMACOR before making the decision to buy the stock.

By comparing the CAPM method and the average return of FIMACOR from the year 2008 to 2014. FIMACOR undervalue by 18.84%. From 2008 to 2014 FIMACOR is able to provide an average return of 22.04%.

However with such a good valuation and ratio, as a value investor we always look into the annual report, quarterly report and any announcement before making any investment decision.

Company Profile

FIMACOR consists of three main business divisions as follows:

1. Printing and Trading of Security Document – about 60% of the profit before tax (31 March 2015 Quarterly Report)
2. Oil Palm Division – about 40% of profit before tax (31 March 2015 Quarterly Report)
3. Property Division - <1% of profit before tax (31 March 2015 Quarterly Report)

1) Printing and Trading of Security Document

This is the main division of the business as it contributes 60% of the profit before tax. This division manufacturing and trading security document to the government and private company such as Malaysia paper money, stamps, travel documents and etc. FIMACORP owned 100% of Percetakan Keselamatan Nasional Sdn Bhd (“PKN”) which is one of the largest domestic security printers in Malaysia.

In 2002, FIMACOR had sign a joint venture with Giesecke & Devrient GmbH, to form Giesecke & Devrient Malaysia Sdn Bhd which FIMACOR owned 20% of the shares. Giesecke & Devrient Malaysia Sdn Bhd is Malaysia’s only banknote printing plant in Shah Alam.

2) Oil Palm Division

This division contributed 40% of the company’s revenue. FIMACOR own of oil palm estates in Malaysia and Indonesia. From FIMACOR officialwebpage, we get to know that 6,507.33 hectare (about 90%) of oil palm plantation is in Indonesia while the remaining 785.39 hectare is in Malaysia.

On 17^th October 2014, FIMACOR had complete acquired Gabungan Warisan Sdn Bhd hence has increase the oil palm plantation holding by 249.82 hectares.

On 17^th March 2015, FIMACOR enter an SPA with LNP which if success its will owned 89% of Next Oasis and the remaining is owned by LNP with a called option to LNP to buy 9% of Next Oasis shares from FCBPH (100% subsidiary of FIMACOR).

Next Oasis currently is on SPA to purchased two company for MWE (3921) which owed two pieces of oil plantation land total of 404.68 hectares. Next Oasis had completed the SPA with MWE on 18 March 2015 with the cost of RM 5,100,000. MWE does not issue any audited financial report for 2015 hence from annual report 2013 of MWE the biological asset worth RM 8,568,238 and amortise at RM 3,531,038. If we assume the asset amortise at the same rate for 2014 hence the book value of the biological asset is estimated to be RM 5,037,200. Hence Next Oasis pay RM 5,100,000 almost the same price with the book value of the biological asset. These still does not include of the land which FIMACOR stated in the reply to Bursa Query on 20^th March 2015 it is worth RM 10,000,000.00

FIMACOR had already paid RM 4,560,025.75 advance payment to MWE to close the SPA between Next Oasis and MWE.

3) Property Division

This division manage the maintenances and cleaning of the buildings. Most of the buildings that this division manage are FIMACOR’s building. Not much attention will be on this division since it only contributed less than 1% of the revenue.

PROS:

Owned 100% of Percetakan Keselamatan Nasional Sdn Bhd (“PKN”) which is one of the largest domestic security printers in Malaysia FIMACOR owned 20% of Giesecke &Devrient Malaysia Sdn Bhd which is Malaysia’s only currency printing plant in Shah Alam. Expended the palm oil plantation in Malaysia

CONS:

Almost 60% of their revenue depending on one large customer which is Malaysia Government. Strengthen of US dollar had lower the price of CPO which might affect the revenue of FIMACOR which 40% of revenue depend of oil plantation. Since 90% of plantation is from Indonesia, the Indonesia Rupiah to Malaysia Ringgit conversion rate is important. The Indonesia Rupiah to Ringgit Malaysia conversion rate is still almost at the 10 year lowest point. SPA on 17th May 2015 with LNP to acquired 89% of Next Oasis which owed two oil palm plantation previously from MWE might consists of uncertain matters. As a value investor, we shall keep away from the uncertainty and only invest with company that we are certain of. FIMACOR had pay advance payment RM 4,560,025.75 to MWE to settle the SPA between Next Oasis and MWE.

Share Split and Bonus Issues

On 10^th October 2014 FIMACOR had perform a 2:1 share split and issue a bonus of 1:2 after the share split. These had increase the volatility of the stock price and reduce the net asset per share value to 1/3 time.

PROS:

Increase volatility of the share. The share price drop into half after the split which attract smaller investor to buy the share.

CONS:

Bonus issue of stock RM 0.50 issued for 2 numbers of shares RM 0.50 which equivalent of each shareholder will receive 50% dividends before the split. This may reduce the price of the share as some shareholder are willing to sell their share below the par value to cash in.

Management & Ownership

The management team are mostly from accounting background which has no idea on oil palm plantation. They might not have experience in dealing with oil palm plantation which FIMACOR is expending in recent year. There even has a doctor sitting on the board which is not relevant to FIMACOR business.

However, some of the directors were ex civil servant, these gives an advantage to the company because their largest client is Government of Malaysia.

Base of 2014 annual report, Fima Metal Box Holdings Sdn Bhd is the largest shareholder having 59.55% of the shares. The other minor shareholder will not have the voice in these company.

PROS: Some of the directors were ex civil servant, these gives an advantage to the company business where the largest clients is Government of Malaysia.

CONS:

The management does not have experience in the business of FIMACOR. Almost 60% of FIMACOR is owned by Fima Metal Holdings Sdn Bhd.

Financial Statement

From the unaudited quarterly report for year end 31 March 2015, there is an increase in borrowing of RM 2,092,000 compared to year end 2014. These is due to financial lease to Gabungan Warison Sdn Bhd which expired 2 July 2112.

The trade receivable had increase from RM 105,071,000 to RM 182,856,000. These is not a good sign for FIMACOR since most of its account receivable are from Government of Malaysia (72.31% according to Annual report 2014)

CONS:

Increase of borrowing for the financial ending 31 March 2015. Having court case with MAHB which has no news since 27 September 2011. If lose FIMACOR required to pay MAHB RM 2.12 million. Goodwill on consolidation had increase from RM510,000 to RM 8,668 Trade receivable has increase by 74% and most of it are due by Government of Malaysia (72.31% 2014 annual report figures)

Summary of Stock Reviews