Kim Hin Industry Bhd

Two days ago, another company is selected into my "value stock portfolio".

Kim Hin is a company located at East Malaysia, mainly involve in manufacturing and sale of ceramic tiles. I bought it at the price of RM1.15 per share, which equals 88% of its net working capital.

other supporting reasons:

• zero debt.
• continuous profit for many years (one exception occur at 1998).
• uninterrupted dividend payment for more than 10 years.
• cash per share of about 53 sen. (base on its Mar-2008 quarterly report).

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Special Item:

Under the list of its non-current assets, there is an "other investment" item worth about RM 67 million. (base on Kimhin's Mar-2008 quarterly-report)

According to the footnotes in the report, this "other investment" item is mainly made up of bonds, fixed income funds, structured products, etc. All of them are very low risk investment. And in my opinion, they can easily be converted into cash!

If we treat them as cash, then the total cash in Kimhin will become RM 1.0 per share. And if we include the value of these investment into its current asset, then the net working capital of Kimhin will be more than RM1.70 per share. That means my buy price of RM1.15 would be just about two third (67%) of its net working capital, (exactly the Graham's ratio).

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Perak Corporation Bhd

PRKCORP, a new company that I've just added into my "value-stock" portfolio this week.

I bought it at the price of RM0.75 per share. According to its Mar-2008 quarterly report, its net working capital per share is about RM2.25, which means that my buy price is only about 35% of its net working capital, thus provide a good margin of safety.

Other supporting reasons:

• Cash per share about 80 sen. (as Mar-2008)
• Price-earning ratio is only about 6, calculated from latest 3 years' average EPS.
• Continuous profitable since 1995, including years after the 1997 economic-crisis.
• consistence dividend payment since 2000. (though the dividend yield is quite low).
• It main profit come from the business in Lumut Port, which I think is a locally monopoly business.

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However, there is one thing in PRKCORP that is quite different from my other "value stocks" -- It is not a debt-free (or very low debt) company. In other words, it doesn't meet all the requirement that I have listed out for this portfolio.

Though I think that the very low price/net working capital ratio has given me a good margin of safety, there are few more things that have to be take note:

1. the figures for net working capital and cash per share stated above, they are just the group consolidated figure. I didn't take into account the minority interest.
2. The huge cash that PRKCORP held is actually still less than its total borrowings, which means it's not in a net cash position. So, I see the Cash as an indicator of financial health (i.e. its profit is generating net cash inflow), rather than a strong safety factor.
3. The very big portion of PRKCORP's current asset is actually receivables and property development cost. The amount from each of them is higher than the revenue of the company (or, in other words, a few multiples of the company's annual profit).

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