Tat Seng Packaging Group Ltd – Valuations And Financials

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%).

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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.

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.

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I developed my passion for investment management especially equity research at a relatively young age. My investment journey began when I was 20, at a point in time where markets were still recovering from the Global Financial Crisis. My portfolio started from money I saved over the past years and through working during the holidays. I was fortunate to have a good friend with common investing mentality to began my journey towards value investing. To date, we still research and invest in companies together, discussing valuations and potential risks of a company. To date, I manage a fund with a value investing style. Positions are decided upon via a bottom-up approach or smart speculation (a term I came up with when buying a stock for quick profit due to a mismatch in prices in the market due to takeovers/selling of a subsidiary or associate). Apart from managing my own portfolio, I enjoy sharing my research with family and friends, seeking their opinions and views towards the stock. Reading Economics in London, I constantly keep up with the financial news in Singapore & Hong Kong. Despite my busy schedule, it has not stopped me from enjoying other aspects of life. I enjoy a variety of activities in whatever free time I may have – endurance running, marathons, traveling, fine dining, whiskey appreciation, fashion. Lastly, I enjoy meeting new people, discussing ideas and gaining new perspectives towards issues in the world.