Saturday, May 21, 2016

Marco Holdings Berhad (MARCO, 3514) | Bursa Malaysia Market

Marco Holdings Berhad is a stock appeared in The Edge's list of Top 20 dividend stocks in Malaysia with 10 years of continuous dividends, profit, positive operating cash flows and positive free cash flow. It attracted my attention due to its stock price of RM0.16 and rolling 4 quarters dividend yield of 5.63%.

I take a look at its financial results.

Marco Holdings Berhad (MARCO, 3514) | Bursa Malaysia Market

Stock price of MARCO has been stagnant for sometime since. It looks like a "boring" company in a "boring" industry selling "boring" products, but it is financially well-managed and seemingly undervalued. 


Retail distributor of Casio's timepiece, calculator and other electronic gadgets.

Financial Performance

  • Profit margin: Good. Profit margin from 2012 to 2015 ranged between 11.8% to 12.6%. 
  • Growth: Estimate 11% per annum. Not spectacular but acceptable. Annual earnings growths for the 2014 and 2015 were 22.1% and 10.4% respectively. Growth for 2012 and 2013 hovered around 2%-3%. Growth from 2007 to 2012 ranged between 10.1% - 67.5%. So we can expect growth in the future. 
  • Net cash: Cash rich. No debt. Net cash as at FYE2015 is RM75.3 million which is 46% of shareholders' funds of RM163.4 million.
  • Cash flow: Well-managed inventory, debtors and creditors with each turnover less than 3 months. Net Cash Inflow From Operating Activities (CFOA) is lower than profit after tax due to growth. In general, positive and good CFOA. 
  • Free Cash Flow: Acceptable. No major cash outflow other than dividend and placement of funds to short term investments (which I consider as cash equivalent). 
  • Dividend per share is RM0.007 or 37% dividend payout. At current share price of RM0.16, dividend yield is 4.38%. It is higher than your fixed deposit rate.

Share Price & Valuation

Current price at RM0.16 with P/E of 8.57 and dividend yield of 4.38%.

P/E Ratio
Historically their P/E ratio (adjusted for change of shares structure) was high and gradually declined over the years. It hovered around 11x in the years 2011 - 2013. Today, it is only 8.57x. 

Save for the latest quarter, the company's Earnings Per Share (EPS) has been quietly improved over the years yet it stock price has been stagnant. 

EPS for year 2015 is RM0.0188. Based on Mar 2016 Quarterly Report announcement, despite 6% revenue growth the EPS of the first quarter dropped by 27%. Should the company manage to maintain the result of the next 3 quarters, the forecast EPS should be at around RM0.0175.

For a PE of 11x (when market sentiment turns better), the forecast stock price could possibly reaching RM0.195, an upside of 20% in 1 - 2 year.

What We Don't Know and What We Do know

I don't know much about the company and its business other than historical financial information from their announcements and annual reports. I am not sure of how Casio, the brand that they represent, is doing and will continue to do in this era of digital revolution packed with smart phones and innovative gadgets. I don't know their distribution relationship with Casio, etc.

I only know, if things as they are reflected in the financial reports and continue to be so, the stock maybe undervalued.

Strategies and Cash Management

Will I buy this stock at it current price of RM0.16?

The return can be good since it is a penny stock at RM0.16 per share only. Any fluctuation of share price can give good return on investment, ROI. Being a financially sound company, the downside is very little. RM0.16 is low enough. However, it has limited upside too. I don't see super good growth in the future. It is not an exciting stocks in terms of its growth in markets of calculators or watch or of Casio brand.

If I buy, I will buy for mid term capital gain hoping for recovery of stock market and improvement of valuation to 11x due to overall market sentiment. I should probably target for RM0.19 (20% return) within 1 or 2 years.

On dividend yield, there are other stocks with better yield and clearer growth direction. So dividend yield is not the main play.

As investor, money is our bullets. We have limited bullets and with opportunity cost. I may have to give up this undervalued opportunity and be more selective to look for another undervalued financially strong good stock with clear business direction of long term good growth.

But I will continue to keep an eye on its financial results.

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