Tat Seng Packaging Group Ltd – Valuations And Financials by Goh Tee Leng

It will just be a short write up today, but nevertheless still rich in content (cough).

Business Description

Tat Seng Packaging Group Ltd, together with its subsidiaries, manufactures and sells corrugated boards, corrugated cartons, and other packaging products in Singapore (16% of  FY15 revenue) and the People’s Republic of China (84%). Key client industries are printing (40% of FY15 revenue), medical (24%) and electronics (20%).

Valuations and Financials

Tat Seng has a market capitalisation of SGD61.3mn with a net cash of SGD17.6mn! Based on FY15 numbers, the company is currently trading at:

P/E: 4.8x

P/B: 0.6x

D/E: 0.2x

Dividend yield: 2.5%

Factor in the net cash position and these metric would be about 20% cheaper. Operations have remained stable in the past 5 years.

Tat Seng Packaging

What I like most is that the company has managed to compound book value (a measure of shareholder’s value) at 12.5% CAGR.

What I don’t like about the company

The business is not very free cash flow generative. FY15 FCF yield is around 40% but it was an anomaly. FCF between 2011-2014 have averaged around SGD1mn.

Trade receivables and trade payables are the biggest balance sheet items. I’m not sure if this is an industry trait, but what is worrying is that receivables have grown ahead of revenue. Between 2010 to 2015, receivables have almost doubled while revenue has only increased by 38%. This is definitely not a good sign.

Final words

China will clearly be the main driver of profits going forward. Unfortunately, I don’t have much insight regarding the outlook of China packaging. Nevertheless, given its cheap valuations, Tat Seng is definitely a worthy consideration for any value portfolio. The bottom line would be – is the margin of safety sufficient for the discomfort of its receivables growth?


Goh Tee Leng

Tee Leng started his investment journey in 2011 based on the teachings of Benjamin Graham and David Dodd. He holds an honours degree in Economics from the University College of London, London (UCL). As a student, he won numerous trading awards and represented UCL in the UK Investment Banking Series M&A Challenge, ranking 4th in UK. Currently, he is the Co-Editor of ValueEdge LLP and an Investment Director of TwinPeak Capital, overseeing the investment decisions of the private family office with 7 figures under advisement that has achieved above market returns since inception.