MTAG Group Berhad: a cheap, shareholder friendly and well managed printing company
MTAG Group Berhad operates several factories in Malaysia: for tapes, stickers and other adhesive products and also printing factories for labels, stickers, die-cutting devices and a factory for converting and distributing metal products. The company recognizes three business segments: Converting (label and sticker printing and customized converting services), Distribution (of industrial tapes, adhesives and other products) and Investment holding (holding liquid excess capital for low returns).
The shares trade with symbol 0213 at the exchange in Kuala Lumpur. Filings here (at the website of the exchange in Kuala Lumpur). Disclosure is in English. Currently the share price is 0.315 MYR. At that price the market cap is about 49 million USD, EV/EBIT is about 3 and the dividend yield is over 6%.
Documents: I had a look into the quarterly report over the quarter ending on 30 September 2024 and into the annual report over the year ending on 30 June 2024. Furthermore I had a look into the governance report over financial year 2024.
To me it is not 100% clear from the annual report how profitable each business segment is. I think most profit is made in Converting. Furthermore both Converting and Distribution segments are good businesses in terms of profit margin and Profit/Assets. I think Investment holding is not generating much money.
The balance sheet is strong with almost no leverage, enough cash, a big pile of 118 million MYR short term investments in a trust fund and no significant debts. There is about 35 million MYR of cash and short-term deposits. The company plans to spend 15 million MYR on land and equipment.
The company has been listed since 25 September 2019, so just longer than five years. I consider stocks of companies listed less than five years ago riskier than stocks with a longer public history. Though this company is listed for longer than five years I think this business might still be risky.
The extra risks are related to past acquisitions. I think on average acquisitions do not result in the expected economic benefits. This company is a combination of five other companies. Three of them were acquired before the IPO in 2019 and two other companies were acquired in 2023 and 2024. From the annual report I understand the business acquired in 2023 has contributed to earnings in financial year 2024. The company is planning to consolidate the operations of the businesses acquired in 2023 and 2024 into the newly acquired factory in financial year 2024.
I suppose these acquisitions have made life of management indeed more difficult because revenue has almost halved during the last three years.
By the way, the shares are probably be slightly more volatile than average but the difference is probably small.
I am impressed by the high governance standards at this company. The chairman is an independent non-executive director. In total the board has five members including three independent non-executive directors. There is a separate CEO and also a separate CFO. In principle the maximum term for independent directors is nine years. They can be retained for more than 9 years but only after shareholder approval. There are only independent directors in the three committees (audit, remuneration and nominating committees). There is also a risk management committee with the CEO and the three independent directors as members. In November 2023 the AGM was held as a “fully virtual meeting” through live streaming and with remote voting facilities.
Substantial shareholders: the CEO, Mr. Chaw Kam Shiang, owns 49.3%. Apart from this large stake I think he has also pledged 1.5% in another account. Furthermore his wife owns 2.1% and former executive director (resigned in October 2024) Mr. Lau Cher Liang owns 13.0%. Lau Cher Liang decreased his stake with 8.9 million shares in financial year 2024. There are several small shareholders owning between 0.29 and 0.52% each.
Related party transactions: In 2023 the CEO earned 2 million MYR and the other executive director (who is not the CFO) earned 1.5 million MYR. Bonuses were a large part of their package. The CEO is the spouse of Ms. Ang Yam Fung, “a substantial shareholder and the Chief Human Resource Officer (“CHRO”) of MTAG Group.”
Other related party transactions: the company reports a couple of items but these are not significant.
The company has a repurchase mandate. I do not think the company has repurchased shares since the IPO. During the last five reported years the company paid out about 2/3 of net income each year.
My take
This seems to be a cheap and well managed printing company. Cheap based on EV/EBIT. Several multi-year metrics suggest good earnings quality. Strong balance sheet. I think much can be improved by paying out excess capital to shareholders. An issue is slowly declining revenue.
The highly underleveraged balance sheet probably has too much in unproductive assets. But the company is shareholder friendly with its dividends. Apart from the excess capital I have not found other governance issues. I think this is a good stock for a small position.
Disclosure: long shares of MTAG Group Bhd.