Friday, May 29, 2009

Why I Like Pelikan


One major investing point which many investors miss out on when considering local stocks is their market audience. That is also one of the sore points among international investors when it comes to looking at emerging market stocks. Pick any local stock, you have first look at their market size, most are just a proxy on the Malaysian market industry. That being the case, their growth would be limited to the size and organic growth of the local industry. At least if you are in exports, your growth can be said to be better than organic. You then pick out stocks with products and services that is not limited by that factor, the brand must travel, not many Malaysian brands travel well, like a good wine on a long haul flight. Pelikan is one of the good strategic story, and brought back by a visionary and gung-ho Malaysian, Loo Hooi Keat.
The principal activities of the Company and its subsidiaries include manufacturing and distribution of writing instruments, art, painting and hobby products, school and office stationery, printer consumables and investment holding. As at 8th April 2005 the Company is involved in the manufacturing & distribution of an international brand of quality writing instruments, stationery & office supplies after disposed the entire logistics business.
Pelikan’s recent 4Q08 results was a big disappointment. While the RM43.4m net loss for the quarter was a worry, the bigger concern is the 29% yoy topline compression, which is a sign of just how bad the recession in Europe is, particularly in Germany. Germany is Pelikan’s largest market, contributing 45% of group sales in 2008. The next two markets are Switzerland and Italy. These three countries alone contribute more than 60% of the group’s revenue.More than 80% of Pelikan’s revenue comes from Europe. From the 2007 peak, share price is down 90% and it looks like market is pricing Pelikan to go bankrupt! That is close to being preposterous. Net gearing as at end-08 is 0.5x and with no major capex plans this year, net gearing should fall to 0.3x. Valuation is at distressed levels, at only 0.4x PBV.

Switzerland saw a 29% drop in revenue in 2008 but Latin America did very well with a 22% rise in revenue. Its operating profit growth was even more impressive at 47%. Pelikan is already feeling it in its hardcopy division, which contributes around 40% of group revenue. The company produces printer consumables such as laser toners and inkjet cartridges, which are compatible with the products original brand manufacturers (OBM) such as HP and Canon. Pelikan’s hardcopy products are usually 30-40% cheaper than the OBMs. However, the OBMs are now slashing prices to capture market share. This could put further pressure on Pelikan’s profit margin.


At current levels, Pelikan is a very very attractive target to be taken over by private equity firms. Just 0.4x-0.5x book value is pretty ridiculous. At its current market capitalisation of only US$55m and still pays dividend (FY07 12.4 sen, FY08 2 sen), Pelikan is an attractive takeover target for regional stationery companies looking for an established stationery global brand. If taken over, a genuine bid should be at least 0.7x-0.8x book value, considering that the company's prospects and valuations are taken during a depressed recessionary period.


I would look closely at stocks that can give me 30%-50% return over the next 6 months, or else its not worth the risk. Pelikan to me is lucrative enough at current levels (below RM1.00) to have that kind of upside, with or without being bought over.



p/s photo: Katrina Kaif

13 comments:

~The Metamorphosis~ said...

Hi Dali,
would like to get ur insights on pelikan stock price dropping from RM5 (Jun 2007) to all time low RM0.50 recently.
there isn't any split etc.
quarter to quarter revenue has is growing gradually (aside 2008), but stock price is going south.

RAD said...

Dear Dali
I cannot thank you enough for putting things in perspective

I hope you can produce another artcile highlighting other hidden gems, that hopefully, middle-aged folks with some investible cash can capitalize on for good returns in the mid to long term (what else are we hoping for if it is not to fulfill children's future education expenses or something like that)

Sincerely
S. Radhakrishnan

jake said...

Hi meta, in fact the price of pelikan went to the highest of 5.75 on 9th of july 2007 and 5.85 on 10th of july2007. Since then the price has come down to a low of 0.59sen on 16th of march 2009. foreign share holding at 2007 was at 60% versus now at 12.5%. One of the local funds which have aquired pelikan stocks since 12th june 2008 to 16th oct 2008 is at 29.50%at the price ranging from Rm 2.82-- 1.76. the fund is tabong haji. i do beleive the stock will rebound very fast once the recession in europe is over just like jan2005 to jan 2007 . If u have bought the stock at jan 2005 and sold in jan2007 you should have made 500%. Its 2 years now in the downtrend and the time is now ripe to make a u turn. hope those invested in this stock should get a decent return on your investment .so good luck folks, hope for the best.

solomon said...

In term of biz model, it is unsexy. However, if you are talking abt the M&A and global presence, maybe it is worth to take a look.

I guess the trend now is to look for those foreign owned shares which had been beat down last year.

yuma said...

Dali dear,

What do you make of the strange activities in sime, gamuda, commerz, tenaga at the close today, in particular, the volumes traded at 4:50pm onwards that looked like a countdown sequence?

~yuma

JunK said...

Hi Jake,

We cannot compare bottom to bottom. 2007 is 2007, 2009 is 2009. Raw material prices skyrocketed in this two years. In Pelikan's latest quarterly report it says that the company could barely reduce cost price anymore and their last resort is only SALES SALES SALES. What happen if Pelikan fails to get back to previous sales? We should also look at other potential emerging competitors.

RAD said...

Dear Dali
Hawaii born Katrina is a real hottie isn't she
Read that she has six sisters or something like that
I bet they are all good looking
I admire your capability in selecting sensuous photos..

~The Metamorphosis~ said...

Hi Jake, if i were to compare Pelikan with AsiaFile (the closest company that i aware of), which rose from RM3.50 in august 2007 to RM6 in early 2008, and dropped to RM4.5 recently, in line with overall market trend. It would be interesting to find out why Pelikan respond differently to broad market, solely due to foreign holding?

AsiaFile PE: 2007-11.82, 2008-13.69
EPS: 2007-0.4653 2008-0.3637

Pelikan PE: 2007-14.08, 2008-9.837
EPS: 2007-0.3381 2008-0.123

~The Metamorphosis~ said...

Hi Jake, if i were to compare Pelikan with AsiaFile (the closest company that i aware of), which rose from RM3.50 in august 2007 to RM6 in early 2008, and dropped to RM4.5 recently, in line with overall market trend. It would be interesting to find out why Pelikan respond differently to broad market, solely due to foreign holding?

AsiaFile PE: 2007-11.82, 2008-13.69
EPS: 2007-0.4653 2008-0.3637

Pelikan PE: 2007-14.08, 2008-9.837
EPS: 2007-0.3381 2008-0.123

see said...

The problem I have with Pelikan is its major market is Europe. And to the informed, Europe has always been the sick continent, even before crisis. As a commentator mentioned, if from an M&A angle, then its worth it. But I think the probability of that happening is slim

CKKF777 said...

Hi,

Thanks for your great insights. The stock price just went up today. Any ideas on when to sell?

jake said...

I told you folks,so lets sit tight and watch it go . Its been 3 days now and we are watching at 30% since i told you folks. There is a buy call on this counter in europe, (possibly taken private).So hope for the best. and good luck folks.

Alex cox said...

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