ConscienceFood Holdings – Buy

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I don’t want to appear like as an evangelical sell-side preacher but I’m not going to spend my time looking at companies if they don’t appear to have merit in the first place. This will result in a majority of my posts representing a positive view. Nevertheless, I’ll still post information on the research I do which results in me not pursuing an idea further.

Fair Value – S$1.10, currently trading at S$0.18

Thesis

Consciencefood Holdings  (CSF) was able to obtain >50% ROE prior to the IPO. I believe the business will be able to get back to similar ROE levels either through acquisitions or returning capital through dividends.

The ROE for CSF has is significantly better than peers in the food manufacturing industry. The fact that there hasn’t been a lot of corporate activity since the IPO suggests that management isn’t likely to make any rash decisions.
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Setting up shop in Singapore

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I’ve recently been looking into the regulations surrounding setting up a formal fund management company in Singapore. There have been a number of proposed changes to the regulatory framework recently, which will limit new fund managers who want to set up shop in Singapore. While these regulations won’t stop a majority of fund managers setting up, I’m unsure whether they’ll have their intended consequence – increasing investor confidence and reducing the impact of a macro shock – in the current form. A more finessed version would be a more appropriate remedy for an industry that has been chewing on a bitter pill for the past couple of years.
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EDL – Buy

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Fair value -> 10,875LAK, currently trading at 4,650LAK

Thesis

As Laos continues to develop, utility companies will benefit from the growing populations and increasing infrastructure that’s able to carry products and services to more of the populous country. EDL is currently trading at 5x 2012F earnings with a 11% dividend yield (based on a 50% payout ratio). While highly geared at 92%, this will rapidly dissipate as the consistent earnings streams come through. Peers in the region are trading at 25x 2012F earnings and don’t have the growth profile that EDL does. EDL presents another opportunity to profit from a rerating and investors will be paid to hold it an wait.
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BCEL – Buy

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Fair value -> 15,000LAK, currently trading at 6,950LAK

Thesis

BCEL is in the right position to benefit from the increasing penetration of banking and subsequent loan growth in Laos.  Loan penetration in Laos in 2010 was only just above 12% (Loans as a % of GDP), compared to the Philippines at 34%, Thailand at 86%, and Malaysia at 149%. As Laos develops, BCEL is ideally positioned to leverage the growth from increased foreign capital flows and debt penetration.

Currently, BCEL is trading on 6x FY2012E earnings, with 50% of pre-tax profits paid out as dividends, giving it a 12% dividend yield. Even if BCEL doesn’t rerate closer to ASEAN peers, which are trading on 13x FY2012E earnings and 3% dividend yields, investors will still be paid handsomely to hold it.

I believe that BCEL is worth 2x the current price on valuation metrics and considering the level of growth that it is going to experience in the next decade.
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Investing in Laos

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I’m beginning the journey investigating investments in Laos for a number of reasons. Firstly, when I recently visited the country, I noticed a massive amount of development compared to when I was last there in 2008. While the infrastructure still leaves a lot to be desired, it appears that Laos is beginning to get momentum. Secondly, there are only 2 companies listed on the exchange (BCEL, a bank and EDL, an electricity generation company) making the screening process easier. Thirdly, on my most recent visit to Vientiane I opened up a brokerage account giving me the ability to access this exotic market.
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