Sunday, December 20, 2009

Furama Ltd and Jurong Cement Ltd - Value Investing Examples

The recent two voluntary unconditional cash offers for two low profile companies in my portfolio - namely Furama Ltd and Jurong Cement Ltd sets me thinking for a while. Both offers quite a huge premium over their last traded price - i.e. 36.99% for Furama Ltd and 64.1% for Jurong Cement Ltd respectively.

What does this mean? It means that there are still undervalued stocks in the market to be picked. The key is to spot them before controlling shareholders decided to take them private. Which industry to look at then? Well, Furama Ltd is in the hotel industry while Jurong Cement Ltd deals with cement and ready mixed concrete. What stocks to look at? Both Furama Ltd and Jurong Cement Ltd are neither big or mid cap stocks. They are thinly traded and both have low liquidity. Both are loss making year to date. Both did not paid any dividends this year. Both are not covered by any stock analyst out there.

Well, the above are certainly not reasons to pick a stock in any books out there that you read. I mean, buying a stock that is loss making and pay no dividends this year? Buying a stock with low liquidity? But both exihibits characteristics that you might wish to consider - trading below NAV before the offer was made.

The above shows that buying these stocks paid off, provided one is willing to hold them for long term. Value will eventually be found when time is ripe. In both cases, value had been rewarded when controlling shareholders said that enough is enough and decided to call it a day.

If you ask me, both companies are good case studies for value investing at our very our own SGX. One can pick up their annual reports and have a read. Better learning experience than any other investment books out there.



Blogger donmihaihai said...

Hi ghchua,

Not sure about Jurong Cement but for Furama, it is more on diff accounting treatment that deal with hotel and other kind properties plus management tricks perhaps. It certainty worth much more than what NAV suggested.

I don't think this is something special that is happening here. Security Analysis and the likes show the ways ---buying below net-net stock, below net current assets, below NAV, etc.

Lastly these 2 companies look very clean in the sense of lack of liabilities... many are not like them and taking those private will not making any sense unlike these 2 cases.

2:50 AM  
Blogger ghchua said...

Hi donmihaihai,

I do agree with you that Security Analysis makes sense but not everyone is willing to buy undervalued stocks, even if they manage to find one.

One of the often cited reason is opportunity cost. They are not willing to park their money there for long term and wait for value to be unlocked, since they are excited by the good share price appreciation of those "hot" and high growth stocks out there. I mean what is 36.99% for Furama Ltd when one can get 50% increase in share price in one day by punting penny stocks?

Of course, we know that slow and steady wins the race. But try explaining to some of my friends out there and I really have a lot of difficulty doing.

6:34 PM  
Blogger cif5000 said...

I don't think Jurong Cement qualify on the asset. Rather, I think it is due more to human factor. There is no reason to pay a premium if no one on the other side capable of pulling the deal off. In this case, the Swiss group wants the Malaysian group out and therefore has to dangle the carrot. If not, the other party could well bid up the price, ending up fighting over the company for pride and ego.

7:32 PM  
Blogger ghchua said...

Hi cif5000,

Maybe you are correct on Jurong Cement. However, I would like to see the Independent Financial Adviser's report on the takeover offers from both companies and see how much those assets had been re-adjusted based on the current market value.

10:06 PM  
Blogger donmihaihai said...

Hi guchua,

The 1st edition was published in 1934. Its make lot of peoples rich and famous for the last 75 years. But it still doesn't catch fire like a fad. It is more on the people than the method.

Well, maybe in recent years, it is changing.

Happy new year

7:28 AM  
Blogger ghchua said...

Hi donmihaihai,

Happy New Year to you too! May all your New Year resolutions come true in twenty ten. :)

8:17 PM  

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A self-directed investor, looking to invest for retirement needs and bypass all those expensive financial planners/insurance agents. Investing is fun, profitable or most important of all, knowledge gained is useful for the rest of your life!

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