Added a little at RM3.90.
On Economic Moat:
Think Singapore Pools, but in Malaysia (but note that there are other operators as well).
I like this type of business which is based on well established habitual patterns of everyday life.
This means that it is stable and predictable over the long term.
While it is not a monopoly (there are other operators in Malaysia), this sector is heavily regulated by the government.
Hence the regulation does translate into some kind of economic moat for the existing operators (as long as they do not get into trouble with the regulators I guess).
And when I look at its financial statements, the stable earnings over the years is consistent with the storyline above.
Earnings wise, it seems to be range-bounded, so while it is predictable, I am not expecting growth.
The financial statements also reveal that this company has a generous dividend pay-out guideline.
In other words, I see this as a dividend play.
Note that there was an earlier plan for a Business trust listing on SGX but was scrapped due to poor biz trust performance on SGX (I think).
On Margin of Safety:
I think it is probably at fair value around RM4, PE about 15x, the margin of safety, by definition, is very small. But my decision to go ahead comes from my expectation of the predictability of its future earnings.
Dividend: It has an excellent track record (not less than 75% dividend pay-out ratio).
I am expecting dividend pay-out to hover anything between 25-30 cents for the foreseeable future (assuming approx. 90% dividend pay-out ratio, which in some ways reminds me of a REIT), so that is about 6.5% - 7% yield at current prices.
Debt: Gearing is low at around 20% , so I am not overly concerned, especially in light of the predictability of its cash-flow.
Additional Risks: But I have to be aware that this being a Malaysian stock, means that there is additional elements of country and FX risk.
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