TS Wonders (1767 HK) - Tai Sun

[bchang]

TS Wonders (1767 HK), or Tai Sun Wonders, seems an intriguing company. https://www.taisun.com.sg/

Based in Singapore with factories in JB, they are producer of packaged snack food, mainly various nuts and potato chips. In local supermarkets can find their own brand products under the “Tai Sun” brand or “Nature’s Wonders”.

They also do contract manufacturing for house brands of local supermarkets. For example, seems like they do the Meadows potato chips for Dairy Farm under Treatz Food Sdn Bhd, which is a subsidiary of the company.

They IPO’ed in HK in January 2019 at HKD0.50/share. Currently trading at HKD0.27/share.

Current market cap is S$47mil, and they had net cash of S$24mil as of June 2021.

EBITDA of S$10mil for FY 2020 and S$6 mil for 1H2021.
Net income of S$6.8 mil for FY2020 and S$4.1 mil for 1H2021.
Essentially trading at <3x EV/EBITDA.

Not sure why they chose to list in HK rather than on the SGX, where they should have more following given their products are easily available locally. Perhaps they prefer to keep a low profile, or HK market is able to achieve higher valuation at IPO.

Company is still 75% owned for the founders. No dividends paid since 2019 (when they declared a small dividend), maybe because of covid. Lack of dividends is a concern given their strong profits.

A 2021 article:
https://www.thepeakmagazine.com.sg/video...eneration/

[dzwm87]

The Tai Sun brand is well-known but incremental growth will be challenging since it's almost sold everywhere in its markets now. Growth has to come from its OEM business and like you pointed out, Meadows brand for Dairy Farm as well as NTUC's in-house brands.

The problem is I doubt someone like Dairy Farm will want a single-source supplier and the lockdown in Malaysia has proven as such. Newer SKU for their potato chips seem to be manufactured in Indonesia where TS Wonder doesn't have a factory in.

I also noticed that management remuneration is on the high side. ~50% of profits goes to management which is majority held by the family. While most of their wealth is tied in the business, it looks like family will come first before other shareholders.

[outgoing]

My kids love Tai Sun nuts and buy them quite often. The quality is better than other brands. It's strange though a Singapore household brand chose to ipo in HK.

In any case the valuation at below 3x EV/EBITDA is very compelling, comparing to other consumer products companies listed locally: Delfi trades at 6x EV/EBITDA, and Food Empire at 8x. Granted TS Wonder’s market cap is much smaller, but still doesn’t warrant such a hefty discount.

Revenue (and profits) has actually been growing over the last few years, through Covid time. Maybe it’s time for the company to resume dividend?

[dzwm87]

They are not going to pay out the cash. It rarely happens. And if it's on a hefty discounted valuation, you should ask "why now"? The catalyst can't be because you/me happened to chance upon the name. 6 months ago, it was 4x EV/EBITDA and it's also within "very compelling". Dividend yield is zero so you are paid nothing to wait.

[weijian]

hi dzwm87,

Thanks for providing some relief here. You remember me of the old adage "The stock doesn't know you own it".

For a value stock to behave normally, you either need to have a high probability of a catalyst that you know may happen, or have the immense patience to wait. Since we are OPMIs and can't make things happen ourselves, then we need to have plenty of the latter then.

This is why my investment framework is mostly using "asset business structure" (and I start from the right). Kudos and a call out to specuvestor for giving me a direction to start all fundamental analysis.

[specuvestor]

Good to know it helps. Maybe I should patent it to get some passive income 😂

Similarly if the towkay has $1m to distribute for the company, will he pay $1m in taxable bonus to himself, distribute it as dividends which he holds 50% stake for $500k in tax free passive dividend income, or reinvest it in company at 10XPE where market cap goes up $10m etc will will give an indication what kind of towkay and what structure he will be thinking of

[OlivM]

Great idea. I dont really care about past stock performance. Things move up and down, that is not a reason to avoid.
What is interesting is what will they do with their earnings. Grow, do nothing, or apply their dividend policy of paying at least 30% of earnings? next earnings release will be crucial to understand the priority of the management.

[CY09]

Curious about Tai Sun and have not read much about them. For its current dividend policy of 30%, when is it on force until did the company mention it in their prospectus?

[jaco]

Interesting idea and I started reading up on it. I found something odd related to the 'use of proceeds' narrative. In the prospectus, we can find a clear time schedule for the investments that will be done with the proceeds from the HKEX IPO. We learn that about half of the funds will be invested in 2019.

In the Annual Report 2019, we read that virtually none of the investments have actually been made. The money is still in bank deposits. As reason they state...

As at the date of this annual report, the Group has yet to utilise the net proceeds earmarked for the expansion of existing products and launch of new products and expansion of workforce, after taking into consideration the uncertain economic outlook faced during the year ended 31 December 2019, namely the United States of America-People’s Republic of China trade tensions and Brexit.

I do not run an international business myself, but I can try to set my mind back to 2019. Were these two issues really so serious that you would cancel your investment plans for which you just did an IPO? TS Wonders does not ship from the PRC to the USA and the United Kingdom is not a major market for TS Wonders.

Perhaps some investors had noted the same, because on 5 august 2020 TS Wonders issues a letter on this issue with 'additional information' to the AR2019...

Having considered the recent business environment and development of the Group, in particular, the adverse impact of (i) the US-China trade tension; (ii) Brexit; and (iii) the outbreak of the coronavirus pandemic on the economy and business environment resulting in uncertainty to consumers’ demand in areas where the major customers of the Group are located, the Board resolved to revise the schedule of the use of the Unutilised Net Proceeds.

Saying the same, but now with the Corona pandemic added as a reason. I feel the pandemic is a valid reason to postpone the investment plans. However, in 2019 the occurrence of the pandemic was obviously not known yet, so we have to judge their decision based on reasons (i) and (ii).

Mentioning these reasons to cancel the investments seems overly conservative to me to a point where we may doubt if this management really stands behind the plans. Have they been lured by aggressive bankers into this IPO or is there perhaps disagreement within the family?

Again, I am not in the export business myself and in hindsight it was probably wise that they didn't invest in 2019. However, my point is the mindset of management.

[OlivM]

Great message. This incoherence is a warning flag to me