Monday, June 14, 2010

Value Mining - Unearth stocks below Book Value

This is the 1st post of 3 posts that will feature attractive Singapore Stocks that are trading below book value. This post is inspired by an article that appear April edition of Pulses.

Father of Value Investing, Benjamin Graham, advocated investing in companies that trade at a fraction of their estimated liquidation value or net-net. Net-net value is defined by Graham as the following criteria:
Cash and Short Term investments + (75% accounts receivable) + (50% inventory) - total liabilities

The first company that is classified as a net-net is Lion Asiapac. Lion Asiapac is a holding with diverse business lines. Its core business are electronics contract manufacturing, quicklime supply and scrap metal trading. The company is a Malaysian congolomerate charied by William Cheng popularly known as the "Steel King".

What I like about Lion AsiaPac from other companies is that it has a strong balance sheet with virtually no long term debt. It has few liabilities and a huge net cash position. Its balance sheet as at Dec 31, 2009 show that the firm had cash of $190.2 million. The company has net cash of $0.46 per share. Currently the share is trading at $0.235. Based on Graham's criteria, the recommended buying price is at $0.29 per share. Lion Asiapac is currently trading at 0.506 times book and 0.51 times its net cash value. Beside getting a stock that has cash more than its current market valuation, the company also has a good dividend yield of 4.3% which the investor can benefit.

However, as much as this company is an attractive net-net stock, growth investor looking for revenue and profit growth should be wary as the company reported a steady decline in sales as well as a 72% decline in net profit for year 2009.

In summary, Lion Asiapac fulfills Graham's criteria of a net-net stock.With the surplus cash on hand, i believe management will invest its surplus cash into new business or distribute the cash in the form of higher dividends. Investor who favour net-net strategy for hunting out deep value in the stock market could benefit when market re-valued the company


  1. Hi JM
    Note that the firm gave out a one off dividend of $0.15 ps earlier but the balance sheet does not reflect this, if im not wrong, after deducting it, NAV of the firm is approx $0.27 ps.

  2. Hi Mervyn,

    Sorry for the late reply. Yes. The firm did gave a one off dividend of $0.15 hence the NAV is approximately $0.27. Currently it is trading around 0.255 hence it is still under book value

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