APM Automotive Holdings Berhad
Whenever the newspaper talks about the car sector, it almost always revolves around Proton, Perodua, car sales and so on. You hardly ever hear of a company called APM Automotive.
It doesn’t grab the headlines, but APM is one of those companies that just goes about its business, makes money and pays dividends, year-in year-out.
I bought a couple of APM shares back in 2006 at RM2.20. Last Friday it was trading at RM1.57 and I picked up a few more shares at that price. Now I’m not really in favour of investing in smaller cap stocks currently and there are many reasons NOT to buy APM but I decided to take a chance to average down anyway.
As you can see the share price hasn’t gone anywhere over the years, but I’m quite OK with this investment. It’s been paying decent dividends so the low price just gives me an opportunity to buy a few more shares.
Now this isn’t one of those high growth companies that will give you a five bagger return. It isn’t one of those companies that Warren Buffett would buy. NO. I bought the shares because I’m a sucker for bargains. That’s my weakness. And ya… I know this is a terrible strategy more often that not.
But let’s see what APM offers:
1. APM trades at 55% of its NTA of RM2.81
2. It has EPS that usually comes in between RM0.25 to 0.35 every year
3. It sits on a Net Cash pile of RM160 million
4. At RM1.57 APM has a market capitalization of RM 317 million. Strip out its net cash pile and you are paying less than RM160 million for its entire business.
5. The average EBIT for the last 4 years is around RM79 million which means APM trades at only 2 times its earnings.
6. APM’s business requires little capex. In fact for the last 3 years, they sold more equipment than they bought.
7. Free Cash Flow was around RM70 million in the last 2 years. Even after paying dividends, it was left with RM40-50 million surplus each year.
(Financials refered to are based on 2007 figures going back as 2008 figures still pending at the time of writing.)
Some of the products manufactured by APM Automotive:
And you might have seen their billboards while driving on the highways:
Now what really triggered me to buy more shares in APM?
Strangely it was an article in TheStar Business on Friday about Maybulk. Huh??? I wrote about Maybulk in January and said that I wasn’t too hot on this company anymore. And it seems that Maybulk directors also feel the same way, seeing how some of them are dumping their shares on the market. Strangely enough, the share price has been going north and I’m just holding out a bit longer before offloading the rest of my Maybulk. After all the traditional 30 sen tax free dividend is coming in soon.
So what’s this gotta do with APM?
I’ve been following the insider moves in Maybulk and even APM. Unlike Maybulk, the APM insiders are buying. The company is actively buying back its own shares around RM1.50 – 1.60. Directors are buying in a meaningful way.
The above is a screenshot of APM’s Bursa Malaysia announcements during March. Go back a bit further and it tells the same story. It looks like APM directors really believe in their company.
Here’s a trustworthy saying by the investment guru:
There’s no better tip-off to the probable success of a stock than that people in the company are putting their own money into it…. When insiders are buying like crazy, you can be certain that, at a minimum, the company will not go bankrupt in the next six months… Long term, there’s another important benefit. When management owns stock, then rewarding the shareholders becomes a first priority, whereas when management simply collects a paycheck, then increasing salaries become a first priority.
Peter Lynch, One Up on Wall Street P142-143
April 14th, 2009 at 8:49 pm
hi,
great sharing on this counter. i also read the article and maybulk, would like to hear your opinion why is it that companies whereby the internal stakeholders are selling always go up while those whereby the internal stakeholder are accumulating normally dont move at all. look at bursa, i notice that newton has been selling this share but it’s price keep on moving up which really perplex me. any thoughts?
thanks
April 15th, 2009 at 3:38 pm
Hi mbge7clt, thanks glad u like it! I know what you mean exactly. I’m also baffled by it! In the case of Maybulk there is a 30 sen tax free dividend coming up and this is attractive for many people, especially those who just look at dividend yield when buying stocks. APM price hasn’t really moved but considering the recent low of RM1.35 it hasn’t done too badly. I’m not sure about Bursa though, it has always been expensive. Another counter worth mentioning is Mega First Corporation Berhad MFCB. Like APM it sits on a huge cash pile, has solid business and is actively buying back its own shares. But the share price has hardly moved in a big way.
April 20th, 2009 at 1:51 am
Larry,
Thanks, this is another good sharing of thoughts.
I have experience with this kind of stock.. Stock price below NTA, steady div, profit with little growth but steady, good cashflow, etc…. All sounds decent. The only problem is that there is just no momentum to push up the stock price and it might remain undervalued for years. But after all they are in good bargains… Good for investor with long-term reaping target.
BTW, what is your view on several other giants like Bursa, and Resorts/Genting?
April 20th, 2009 at 11:48 am
Hi Jeff
You are most welcome! Your observation is spot on I believe, depending on your return target, should be able to achieve 12-15% per annum if patient enough. But stock picking is crucial I guess, as you do not want to be in companies whose management is not aligned with shareholder value. I feel Bursa is expensive although they are doing a good job under the circumstances in improving market depth and liquidity. Hopefully they will reap the benefits of higher market volume in the longer term. Resorts and Genting are OK in terms of value I guess, but I’m more concerned about the related party transactions issue.
April 21st, 2009 at 10:10 am
hmm, true… Though I’m not sure what is the benchmark for regional bourses, Bursa’s PE of nearly 30x seems to me to be quite high.. But it is a relatively simple stock as its profit is mainly hinged on market performance and thus it will be one of the first counters to surge when bear is nearly over.
May 27th, 2009 at 4:05 pm
No fear bro. This counter wont bring you to Holland! ^^
May 29th, 2009 at 2:30 pm
APM 2009Q1 results just released yesterday. Revenue from Malaysia operations declined 15% from RM 204 million to RM 174 million, while revenue from overseas operation outside declined of 35% from RM30 million to RM19 million. The seat business in Indonesia was the most affected, declining of 48%. All operting units in Malaysia remain profitable. Q1 Net Profit came in at RM10.2 million compared to RM15.2 million in pcp. Net Cash was more or less flat at RM180 million. Commenting on its prospects, the directors said:
“Despite the current economic climate, domestic vehicle sales in the 1st Quarter had done reasonably well, declining 9.2% to 118,681 units from 130,774 units last year. With vehicle sales expected to improve with the introduction of new car models and new car incentives packages, the Group’s operations in Malaysia will benefit from the higher vehicle sales in the country. On the whole, the directors are of the view that market conditions will continue to be challenging. However, by remaining strongly focused to improve quality, efficiency and cost, the Group’s results for 2009 should be satisfactory.”
It looks like APM is weathering the downturn reasonably well.
May 30th, 2009 at 2:05 am
That’s why i say brother APM is a good call but need loads of patience. Long Term outlook is good and most importantly this company wont bring you to holland! lolx! ^^