I am invested in a timber company call LINGUI DEVELOPMENT BHD.

Can you kindly review potential of LINGUI?

Tks/Rgds
JackT

Hi there,

Can you review Jadi Imaging (7223) and Carotech (0076)? One is involved in ink catridge business and the other in pharmaceutical and biodiesel. Thank you so much.

JackT - Here are my thoughts in Lingui:

This company has been very much in the news lately due to 2 things: the listing of its parent company (Samling Global Ltd) on the Hong Kong Stock Exchange and the rapid growth in earnings it has been experiencing this year. If you used last year’s PE, today’s share price would give you a PE ratio of around 90. If you used this years unaudited earnings statement, you would get a PE ratio of 9 - 10, which compared to Samling’s PE ratio of around 19 on the Hong Stock Exchange, would suggest some way to go yet for this counter.
Taking that into account, the best case scenario I see for this company is that its stock rises to around $5.00. However, what is it’s downside? Taking its book value based on historical balance sheet figures, I would say that that would be nearer to around $2.20. Therefore at $3.10, I think that it might be considered to be still a little undervalued.
However that’s not the end of the story. The reason why this company is still trading at a discount is that it doesn’t have a particularly good balance sheet. It is highly geared and does not have a particularly good debt/liability ratio. It also doesn’t score very highly for its operating efficiency (i.e. ability to convert turnover into pure profit), although that seems to be changing this year.
The question I have is, do you believe that this company can maintain its growth? To do that I would advise looking further into the cause behind the huge gains which this company is enjoying and investigate whether these earnings came from increased operating activities and not from financial or other activities.

Tks for your reply/comments.

Rgds
JackT

Hi there,

What about notion vtec (NOTION)? Do you think there is potential in this company? TheDailyEdge has reviewed this company and regarded it as hidden gem. I’ve briefly researched it’s management and i think they are serious in growing the company. On top of that, notion’s earning has been growing steadily year after year. Would you say it’s a good long-term investment?

Zack - Unfortunately Jadi doesn’t really have a long financial history. The only thing I have to go on is its single annual report, which is quite scant on account of it being on the second board.

Here’s what we know: It IPO’d at the end of 2005 and has climbed slowly but surely up from around 22 to 34 cents. This is a company with a decent cashflow and balance sheet (good accounting ratios).

And it has used practically all of the money raised in 2006 to invest in new facilities and offices.

Would I buy it? Unfortunately I just don’t know enough about this company to risk my money. The Annual Report does not give me any information about the calibre of its managers and with its short financial history I don’t see any proof that this company can maintain its year on year growth.

I see on its website that it wants to become the 3rd largest independant toner company in the world. That is an ambiguous statement because if you look at it another way, out twin towers is one of the tallest buildings in the world but would I necessarily want to own it? Expansion for the sake of it is not enough. Earnings and profit growth is more important. Although it has shown profit growth, I can’t say I’m too blown away by the quarterly earnings, which has hardly grown.

Also it is now trading at a PE of around 18 and its net asset value equates to a value of around 0.17, which for a company that is not showing explosive quarterly earnings is already fairly valued in my view. So unless you know something about this company’s earnings are going to explode I would look for a better story.

Thoughts on Carotech soon!

Carotech - Here’s another company which has just IPO’d. Same considerations as before, except that its PE is around 23 (if you use the latest unaudited figures that is around 19). Its net asset values equates to around 0.32 which is the bottom line. Question is, what is its upside?

If you look at the latest quarterly earnings you can see why this used to trade at a great premium. Revenues are increasing and so is the cashflow. Therefore, its ability generate cash in my view, tips the balance in favour of Carotech vs Jadi.

So why is this stock being punished, causing it to lose between 20 and 30 cents in the last 7 or so months? If you look at its latest quarterly announcement you will see why. This company has NO cash reserves left. The market is therefore expecting the company to either restructure or obtain additional financing to refill its coffers. This is might to one to keep on your watchlist to see if it can sort out this problem, but I generally do not advise taking risks on companies with cashflow problems.

Dear dirty dog,
Could u review ijmplnt and coastal please?

Hi,

Can you review KFC?

Thank you.
GHL

Right, I have been super super busy lately so no time to review any companies, my apologis, but Notion, KFC, Ijmplnt and Coastal coming up next…

Coastal showed up on my trading screen this week because of its spike up in last week. Since Jan it has gone from 0.7 to 2.5. Why??

Because it has been booking huge orders since mid 2006, almost doubling its turnover last year. The first quarter of 2007 is its best ever. Triple from last year. This is the kind of growth company I would love to have owned. Shipping is a business which tends to do well when exports are up and sellers need new ships to carry their goods and commodities around.

But if you’re looking at it now, its PE is around 33 and its about 4 times its book value, so your downside can be as low as 0.7. And for how much more upside? Even if you know about more orders which will increase its turnover by another 2 or 3 times, you’re still looking at buying into this company at a much more expensive PE than its competitor Maybulk which is only trading at a PE of 8

Speaking of which if you compare the efficiency of these companies, in 2005 its turnover/profit ratio was roughly 1:10 compared to Maybulk’s 1:2 or 1:3). It did bring that down to about 1:5 in 2006 but that has shot up again in 2007.

So - this company is selling about half as much as Maybulk, generating about a quarter of its profits but trading about 4 times more than it. Not a good investment in my view unless you want to trade the technical breakout these past few weeks in which case, make sure you have your stops in place!