Many congratulations on starting valuebuddies.com.There was definitely a vaccum after wallstraits/ afralug shut down. I hope VB.com can take over. And I hope we can have dydx back on this site ( :
Anyways, just wanted to start off a thread on Adampak, which has been one of my favourite value stocks. Have listed down their Q2 results (2010 vs 2009). Would like to have multiple viewpoints about this stock:
Q2 2010 Revenue: USD15.351 million/ Q2 2009 Revenue: USD13.181 million
H1 2010 Revenue: USD30.766 million/ H1 2009 Revenue: USD22.832 million
Q2 2010 Net Profit: USD2.321 million/ Q2 2009 Net Profit: USD 1.449 million
H1 2010 Net Profit: USD4.579 million/ H1 2009 Net Profit: USD2.073 million
Cash in hand: USD12.665 million
Debt: USD1.578 million
Annualized EPS: US cents 1.74 * 2 = US cents 3.48 / S$0.0463
Current share price: S$0.295
Current PE: 6.37
Interim Dividend: S$0.01 per share/ It was S$0.0075 per share in 2009
If they are able to continue performing in the same manner, we can hope for a total dividend of S$0.03 this year. This would translate into a yield of greater than 10% at the current market price.
Would appreciate more thoughts from forum members for/ against this stock idea.
Regards,
"You are right not because the world agrees or disagrees with you, rather you are right because your facts & reasoning are right."
Extremely Long-term risks
1) HDD still a huge contributor to revenues. As debated in the old forum, HDD is a technology which only gets cheaper due to Moore's law but as I read somewhere also, for the small components that Adampak provides, HDD makers usually prefer to work with long term suppliers and since those parts don't account for a big bulk of the costs, usually the HDD makers wont look at squeezing these suppliers. Someone please correct me if I'm wrong on this.
Immediate cause for concern
1) FX risk. Adampak charges it's customers in USD but it's costs are all in regional currency. I think the fall in USD isn't just with regards to the SGD so we're looking at Adampak losing from flucuations in FX. Further more, I remember that it was mentioned in the old forum that Oil is a major cost to Adampak. The falling USD just means that revenues fall and costs rise.
Bright spots
- I think that management is pretty strong if you look at how they've handled their cashflow through so many business cycles. Also, they've taken the pre-emptive approach of servicing the pharma/telecom and RFID sectors. How that plays out is another matter but so far, given that they're stepping into new industries and yet managed to run a tight ship, I think is a positive sign.
- also, by my own calculations, still undervalued.
Moore's law describes a long-term trend in the history of computing hardware. The number of transistors that can be placed inexpensively on an integrated circuit has doubled approximately every two years. The trend has continued for more than half a century and is not expected to stop until 2015 or later. The capabilities of many digital electronic devices are strongly linked to Moore's law: processing speed, memory capacity, sensors and even the number and size of pixels in digital cameras. The law is named after Intel co-founder Gordon E. Moore, who described the trend in his 1965 paper. Wikipedia.
Moore's law describes a long-term trend in the history of computing hardware. The number of transistors that can be placed inexpensively on an integrated circuit has doubled approximately every two years. The trend has continued for more than half a century and is not expected to stop until 2015 or later. The capabilities of many digital electronic devices are strongly linked to Moore's law: processing speed, memory capacity, sensors and even the number and size of pixels in digital cameras. The law is named after Intel co-founder Gordon E. Moore, who described the trend in his 1965 paper. Wikipedia.
Hi Gunawan,
Is this applicable to the HDD's as well? I'm not into IT but I noticed that the trend is that HDDs have been getting cheaper and capacities have been getting larger. Also, SSDs, are being used more commonly in consumer electronics now, albeit for only a segment I prefer to call 'light-usage' e.g. netbooks etc. (Are the iPads and tablets all using SSDs?).
Anyhow, my thinking is that even though consumer electronics might be shifting into SSDs from HDDs, shouldn't there still be a need to store the ever growing amounts of data? Even if the machines start to access the data from remote servers (i.e cloud computing. once again correct me if my idea of cloud computing is wrong), there will be a need for more HDDs for the servers itself right?
And in the developing/emerging countries, I'm sure at some point, when HDDs become cheap enough due to ever decreasing cost per MB, they will be able to supply these countries with the computers. From my observation of some time spent in Vietnam and Sri Lanka, I don't think the computer penetration rate in these countries is very high. Furthermore, they have bigger populations.
As such, I think HDDs will still have a central role to play in the short-mid term.
25-09-2010, 03:43 PM (This post was last modified: 25-09-2010, 03:57 PM by dydx.)
Would world demand for HDDs disappear - without any warning signs - altogether? May be in the long, long term. But certainly not in the short-to-medium term.
Is Adampak overly exposed or relying on the HDD sector to grow? Not really, as other customer segments like non-HDD electronics (including telecommunication devices), other consumer goods (e.g. brown/white goods, like TVs, refrigerators, etc), pharmaceutical/medical products, logistics, retail, etc., have continued to provide a regular flow of business volume. HDD just happens to be the 'prettiest girl' for now!
The most marvellous thing about the world usage of pressure-sensitive, adhesive materials is that it is ever-increasing. To appreciate this point, we must take a close look at Adampak's comprehensive range of products, and apply some imagination to understand their wide applications in our modern world..... http://www.adampak.com.sg/Products/Index.htm
Adampak's business - with a well-established regional foot-print - as a highly flexible converter of materials to produce all types of high-end labels, nameplates and die-cut parts for the electronic, pharmaceutical, computers/peripherals, petroleum and consumer industries, under the present management has grown and survived for some 30 years now. This I believe is enough proof of Adampak's long-term sustainability and value.
26-09-2010, 09:21 AM (This post was last modified: 26-09-2010, 10:04 AM by dydx.)
I checked my bank account this morning and noted a very nice credit yesterday (24Sep10) from Adampak's $0.01/share Interim dividend. Feeling good! I have been collecting consistent, twice-a-year, and - more importantly - increasing dividends, from Adampak for quite a long time now!
I also took a look at Adampak's price chart. Since Adampak went ex-dividend on 3Sep10, except for 3Sep10 and 4Sep10 during which the price fell to $0.28/$0.285, the counter has held up steady at and above $0.29. So it appears that those shareholders who had chosen to sell just before and soon after the counter went ex-dividend may have gotten it wrong again! More importantly, it is interesting to note that Adampak continues to attract investors, and some are even willing to pay a 'higher' price (adjusted for the recent $0.01/share dividend payment) since the counter went ex-dividend.
I have also reviewed sgmystique's numbers in is Post: #1 above. I find his annualized EPS estimate for FY10 of USD0.0348 a little low, bearing in mind 2H is usually busier for Adampak and, despite overall HDD industry production volume may not push ahead like in 2H-FY09, there should still be volume growth from HDD and certainly from the other customer segments. So I am looking at a higher full-year EPS of USD0.0365 (or SGD0.048) for FY10. By using a conservative PER of 8x - fully justified for a very high-quality business! - we will get a fair value of $0.384 for Adampak's well-managed, highly profitable and growing buisnes, before factoring any additional value on Adampak's steadily growing nett cash reserve, which should hit at least USD13.5m (equivalent to SGD0.068/share, based on the 263.625m outstanding issued shares) by 31Dec10.
Adampak has been another great investment for me and many others....
Incidentally, for info, I saw Adampak being featured in Oct 2010's issue of Pulses. I didn't flip through the mag but just saw it being mentioned on the cover.
I've also been a happy investor in Adampak thanks to you pointing out the existence of such a company. It's really difficult to find a company with financials like Adampak's.
One question, it seems like the USD will go the way of the pound (i.e. depreciation relative to other currencies). How do you think this will impact Adampak? And what are the possible ways management could mitigate this?
(27-09-2010, 08:51 AM)kazukirai Wrote: One question, it seems like the USD will go the way of the pound (i.e. depreciation relative to other currencies). How do you think this will impact Adampak? And what are the possible ways management could mitigate this?
Based on past track records, depreciation of the USD had only a mild negative impact on Adampak's P&L. The reasons are as follows:
1. A substantial portion of Adampak's USD-denominated revenue is hedged naturally by its majority regular USD-donominated raw material purchases, and less regular capex on acquisition of new production machinery.
2. Adampak has rationally chosen its main functional currency USD as its reporting currency, and this has served to reduce unnecessary translational forex impacts on its B/S and P&L, especially in relation to USD-denominated monetary items on its B/S.
3. Adampak is naturally long in USD, as a major portion of the group's revenue is denominated in USD. Adampak's main forex exposures are in currencies (SGD, CNY, THB, and MYR) of countries where the group has manufacturing facilities, mainly related to recurrent local operating expenses. The biggest item is SGD, as it involves headquaters' expenses, directors' performance-linked incentive payments, and the twice-a-year dividend payments to shareholders. These local-currency payment related forex exposures are partially and naturally hedged by local sales in the respective countries denominated in the same local currencies - e.g. sale of labels to FairPrice in Singapore, etc. I suppose Adampak will meet any shortfall related to such local currency payments by selling in advance its surplus USD for such currencies, or by short-term borrowings in such currencies.
I was a little concerned before on Adampak's USD exposure. Having understood the above, nowadays I don't lose any sleep on it at all!
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