Saturday, October 24, 2009

Why White Horse Berhad ?

White Horse Berhad is in a boring business, making ceramic tiles but also one of the largest in Malaysia. What stands out though they are making quite a bit of high end tiles. 70% of theirs customers are homeowners and renovation contractors while remaining 30% goes to property developers. They have set-up a few of distribution centers in a number of countries to boost their export market in the last 2 years, namely Australia, Thailand, Vietnam, India, Indonesia, Singapore and Cambodia. The contribution from their export markets is not significant yet, about 10% plus.

Despite of weakening of worldwide economy for the last few years, revenue has been defensive, surprisingly 2008 was a new all time high. 1H of 2009 revenue was RM 218 mln vs. 234 mln 1H 2008, a slight drop of 7%. Net profit maintained at around RM 21 mln despite of top line had declined. Annualize their 1H '09 earning, EPS will come in about RM 0.19/share. At RM 1.32, this company is selling for PE of 7 times. They have been paying dividend consistently without fail since 2001. 2008 DY is around 5%. The gross margin has been under pressure in 2009 due to poor economic environment. Comparing to last 5 years gross margin of 31 - 34%, 1H 2009 of 28% certainly does not look very pretty. Raw material is about 40% of their operating expenses but half of them are in Euro $ or US $ denominated, strengthening of Ringgit will certainly helps to boost margin. There are more upsides to it when they are riding out from bottom of the cycle and oversea marketing efforts should bear fruits in the near future.

Reading through their management profile, one thing stands out, the key owners have more than 30 years industry experience though they have secondary eduction only. Nothing very flashy about their shareholders - only two smart money investors - Lembaga Tabung Haji (10%) and Great Eastern Life Assurance (2%). The rest are very tightly held by the owners.

Stable profit, consistent dividend, owners risking their own money, proxy to consumer spending and property market recovery(the worst is behind us) and some growth story is a good investment thesis. Ben Graham will certainly happy to approve my purchase, paying only half of the book value RM 2.41.

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