Teck Guan Perdana: cheap palm oil processor stock from Malaysia with good earnings quality
Teck Guan Perdana operates a palm oil crushing plant, operates oil palm and cacao plantations, and processes cacao, all in Malaysia. I think this is mostly a palm oil processor and distributor of palm oil instead of an agricultural company.
About 2/3 of the revenue is from the sale of palm oil and about 85% of the revenue is from palm oil and related products. Revenue decreased much from financial year 2023 to 2024 mainly because of lower sales of palm oil. Last financial year about 80% of the revenue was from China.
The stock trades as 7439 in Kuala Lumpur, Malaysia. Currently the stock price is 1.59 MYR. At that price the market cap is about 14 million USD, so this is a nanocap. Even for a nanocap, trading volume is low.
English filings are here. I had a look into last quarterly report (31 October 2024) and into the annual report over the 12 months ending on 31 January 2024.
The stock is cheap based on several metrics: EV/EBIT, EV/Revenue, P/B and cash flow multiples. Multi-year metrics suggest good earnings quality. I think the combination of low EV/EBIT and low P/B predicts better statistical returns than just low EV/EBIT does. Well, this is a stock with both low P/B and low EV/EBIT. Also P/8 years of retained earnings is low compared to other stocks.
The company has just replaced (on January 24, 2024) two independent directors (65 and 68 years old, including the chairman) with two younger independent directors (33 and 39 years old).
Substantial shareholders (pages 57-59 in annual report, as of 28 April 2024): HTG Holdings Sdn. Bhd. Owns 64.79%. The CEO, Mr. Datuk Hong Ngit Ming owns 17.30% of HTG Holdings Sdn. Bhd. Several individuals own stakes of about 1%.
Related party transactions: the daughter of the CEO is a senior manager. In financial year 2024 the two executive directors earned together 1.0 million MYR including 102k MYR in bonuses.
I think there are very large transactions with companies controlled by the controlling shareholder. It seems almost all revenue is from related party transactions. This is a red flag especially because the company produces and trades in (agricultural) commodity products.
My take
This microcap seems to be a well managed palm oil producer. The company is very cheap based on various metrics and multi-year metrics suggest good earnings quality. Moreover the company pays a (modest) dividend. The sale and purchase transactions with related parties of the controlling shareholder are a concern.
I think this is a good stock for a small position. I own this stock.