Asia File - facing digital distruption

[i4value]

We all know how digital distruption had affected businesses. The media sector in Malaysia is a good example. 

Well, the stationary sector is also facing its digital distruption. I think that is why the company is not expanding into this sector like what it did years ago when it acquired several European stationary companies.

The company had diversified into the packaging business. While initially a challenge, Covid-19 gave it a boost. It remains to be see whether it can build on the boost to make this a substantial segment.

This is a company with a good track record but the challenge today is about venturing into new sectors. It is interesting to see how management handles this.

I have covered Asia File as one of the case studies in my e-book. I have compiled the key points in infographics format. To see these go Do you really want to master value investing?

[Wildreamz]

The idea that stationary sector is facing digital disruption is interesting. What's the angle and insights?

Personally a fan of cool, exotic, as well as practical stationaries. I have bought more stationaries (both online and offline) in recent years, even as we go increasingly paperless (I do own and use an iPad for notetaking and ideation as well).

That said, I recognize that disruption is not evenly distributed. Intuition suggest that the low-end (commoditized, non-differentiated) stationaries will get disrupted by cheaper options online; and high-quality, high-margin products will continue to command demand, perhaps more demand and margin today, due to more exposure (though YouTube, and online advertising etc) and accessibility to their product catalogue due to online channels (Shopee, Shein, Amazon etc.).

Edit: Asked ChatGPT4 and it gave some interesting insights:

ChatGPT4:

The stationary sector, like many others, is indeed facing disruption due to digital trends. You've pointed out some interesting angles and insights. Let's delve into a few aspects:
 
Digital Note-taking: The advent of tablets, smartphones, and applications for digital note-taking has changed the way people record information. As you mentioned, using devices like iPads for notes and ideation reduces the need for traditional paper-based stationery.
 
Environmental Concerns: There is a growing concern for environmental sustainability, and many consumers and businesses are looking to reduce paper consumption in favor of more eco-friendly practices, further pushing the decline of traditional stationery products.
 
Online Shopping: As you've mentioned, the rise of online shopping platforms like Amazon, Shopee, etc., has made it easy for consumers to buy stationery products online. This impacts the physical retail stores but could be an opportunity for stationery brands to expand their reach globally through online platforms.
 
Niche Market for Premium Products: There is a niche market of consumers who appreciate high-quality, exotic, or designer stationery. These are often seen as luxury items and can be used as gifts. Social media and online advertising have indeed made it easier for these high-end products to gain visibility among a global audience.
 
Customization and Personalization: One of the trends that have emerged is the demand for customized and personalized stationery items. Whether it’s for corporate branding or personal use, people are looking for products that can be tailored to their preferences.
 
Subscription Boxes: Subscription services offering a curated selection of stationery items delivered monthly have become popular. These often include unique or themed items that cater to stationery enthusiasts.
 
Artisan and Craft Market: There is a resurgence in interest in craft and artisan products, including stationery. This is partly driven by a desire for uniqueness and authenticity. Handmade paper, journals, or custom pens are examples.
 
Educational and Hobby-Based Demand: Despite the digitization, there is still a demand for stationery within educational settings. Furthermore, hobbies like scrapbooking, journaling, and drawing still require traditional stationery.
 
Hybrid Solutions: There are products that aim to bridge the gap between digital and paper, such as smart notebooks that can digitize handwritten notes, or styluses that feel like traditional pencils but are used on tablets.
 
Brick and Mortar Experience: Physical stationery stores could enhance the shopping experience by creating a more immersive and experiential environment. For instance, allowing customers to try out different pens on various paper types, hosting workshops, or offering expert advice on products.
 
In conclusion, while the traditional stationery sector is facing disruption, there are still opportunities for growth and innovation. The key for stationery businesses is to adapt to changing consumer preferences, leverage online platforms, and find ways to offer unique products or experiences that cannot be replicated digitally.

[i4value]

The most obvious impact is from email. When I was young I had pen-pal that I used to write and send letters to. I doubt many do nowadays. Asia File is in the filing business. You can imagine the impact on the demand for files when there is less physical documents in the business sector.

[Wildreamz]

The most obvious impact is from email. When I was young I had pen-pal that I used to write and send letters to. I doubt many do nowadays. Asia File is in the filing business. You can imagine the impact on the demand for files when there is less physical documents in the business sector.

Files are definitely in secular decline, for many decades now. Not only it's a commodity, it occupies office space unnecessarily, data is hard to retrieve, papers do not last. Hard to find any silver-lining in that specific product category.

[i4value]

As a stationery company, Asia File faces the threat of digital disruption. The Group has recognized this by not expanding into this sector. Instead, it diversified into food wares and consumer wares that in 2023 accounted for 16% of the Group revenue.

Both the stationery and food/consumer wares businesses are profitable and generating good returns.

The challenge is that about 2/3 of its capital is tied up in non-operating assets that generated low returns. This has resulted in overall low returns for the Group. It would have to depend on new ventures to rectify this. The Group is financially strong and this will give it time to deliver these.

My valuation showed that it is not a value trap. There is sufficient margins of safety to invest at the current market price. But you need to have a long-term view.



For details visit "Is Asia File still a value trap as of Nov 2023?” To be transparent I have some shares in this company.

[i4value]

We have read stories about how some of the Malaysian media groups “suddenly” have to close down their newspaper operations due digital disruption. Digital disruption does not happen overnight and you would have thought that companies would have years to prepare for this.

One good example of a company that took step to anticipate digital disruption is Asia File. This is a global filing company. We all know that digital technology is changing the way we store documents and the demand for files will continue to decline.

Asia File recognized this and for the past decade, it had stopped expanding its filing business. Instead it diversified into food and consumer wares about 7 years ago. This have given it a possible non-stationery growth path. But it is not clear whether this can be as big as the stationery business. So the company is still looking for other ventures.

This good story is that its stationery business is a cash cow and it is still not clear how long it will take for the demand for files to become negligible. In the meantime, the company is using the cash and time to build up replacement businesses.

I am sure you will not read any story about this company suddenly closing down the filing business due to digital disruption. If you want to know more about this, go to page 21 of INVEST