Do You Always Buy In A Good Fundamental Company?

Before I get to the main point, just want to ask a question. As an INVESTORS, what will you do before buy in a stock? 

Based on my understanding, most investors will carry out analysis and valuation based on the company financial statement. They will look into the ratio and figure, such as PE, ROE, D/Y, etc. I did the same things too.  But, this is not the only things that I will focus in. There are many others factors which I will look into details before decide. 

1) How to spot unfavourable factors of a company? à AYS Ventures

http://rhinvest.blogspot.my/2015/08/unfavourable-factors-of-company.html

2) How to spot unfavourable factors of a company? (2) à CAM Resources

http://rhinvest.blogspot.my/2015/08/how-to-spot-unfavourable-factors-of.html

3) Consistently Profit Making Company Not Necessarily Is Good à London Biscuit

http://rhinvest.blogspot.my/2015/08/consistently-profit-making-company-not.html

4) Export-Oriented Company Not Necessarily Benefit From Weakening Of MYR à Tong Herr

http://rhinvest.blogspot.my/2015/09/export-oriented-company-not-necessarily.html

So, in this articles I would like to talk about this company, UPA Corporation Berhad.

Principal activities:

• Manufacturing of paper-based products and plastic products
• Selling, reconditioning and servicing of printing and printing related machines

PRICE    = MYR1.57                           D/Y         = 5.10%

PE           = 7.77                                   NTA       = MYR2.51

    ROE        = 8.05%                               NCAV    = MYR1.23

UPA had a very low PE and attractive D/Y. Its net tangible asset per share is MYR2.51 and its net current asset value per share is MYR1.23, which are pretty high! By referring to its ratio, UPA seems like a very good company.

For its business performance, UPA was doing great for the past 3 years. Also, there is nothing much to comment on it. 

CASH FLOW

Year	2011	2012	2013	2014
Net borrowing, RM'000	22,076	22,380	17,712	18,568
Free cash flow, RM'000	41,350	43,425	39,382	43,409
Net cash, RM'000	19,274	21,045	21,670	24,841

In term of cash flow, UPA had a very healthy financial condition and cash flow. 

LIQUIDITY

Year	2010	2011	2012	2013	2014
Current ratio	4.09	3.80	3.68	4.10	4.20
Acid test ratio	2.64	2.48	2.41	2.65	2.71

In term of liquidity, UPA is also very liquid and healthy. It is definitely able to meet its short term obligation. Nothing much to comment on it.

Most of the time, the analyst reports and investors’ recommendation only mentioned about company fundamental and technical. For me, there are many factors to consider besides than fundamental and technical. In no doubt, I will say that UPA have a good fundamental. But, if a stock price of a very good fundamental company doesn’t move, will you still buy in? I believe this is the things that most investors do not aware.

This is the snapshot which taken from my trading platform at Thursday around 3pm. Look at its best buy and best sell column. The difference between the buy and ask price is 23 cent! There is still no trading transaction yet! If you want to buy UPA on the spot, you can only buy at MYR1.80! No matter how good is the company, when there is no player, there is no value. It is not worth to hold a good company when it’s very hard for you to sell it.

VOLUME	June	July	August
W1	155	200	163
W2	109	176	79
W3	90	104
W4	44	95

The above is the average daily trading volume in every week. The trading activity for UPA is very less! Someday, it might have no transaction at all. The highest in the table is 200 lots and the value is only approximately in the range of MYR30k to 40k! I believe there are many investors trade larger amount than this everyday.

Let’s look at its 30 largest shareholders. The 30 largest shareholders hold 75.22% of the company whereby the largest shareholder is UPA Holdings Sdn Bhd with 52.73% share interests. The second largest shareholder is Mastercraft Products with only 2.78%! With today closing price of MYR1.57, investor only needs MYR3.4m to become second largest shareholder in UPA! In addition, UPA doesn’t have any institutions or foreign investors inside the list. Besides than Mastercraft Products and KL Union Trading, the rests are individual investor. I believe it is the main reason why UPA is not able to raise investor’s awareness.

Besides that, have a look at UPA’s commentary about its future outlook. The below is the part which I extract from its quarter report.

                                                                                                                                                                   

FY15Q1 à The directors expect the business environment to be remain challenging. The Group will proactively undertake a strategic review of its operations, to mitigate any possible adverse effects arising from the volatility of the external environment.

FY15Q2 à The outlook for the next six months appears to be not promising given the global and domestic slowdown. The directors expect the business environment to be extremely challenging.

                                                                                                                                                                   

From Q1 to Q2, the director had changed the words using, from “remain challenging” to “extremely challenging” and add on with “not promising”! It reflects that the management had become pessimistic and they are not confidence with UPA upcoming quarter result and performance.

You might think that I am too sensitive with the used words. But for me, I take it as the true words and hints from management. Else, why do they add in the word “extremely”?   

As a conclusion, always remember, a good company doesn’t mean its price definitely will move. Everyone had their own method of stock selection. It is just part of mine. Feel free to comment if you disagree J

Just for sharing.