AP Oil

[bchang]

On 5th March, a new subsidiary was incorporated in Shanghai with a paid-up capital of 1 mio rmb.

http://infopub.sgx.com/FileOpen/APOIL_AN...eID=337636

On 6th March, AP Oil International Limited became an investment holding company by transferring its primary lubricating business to its subsidiary AP Oil Pte Ltd. 10 mio sgd was also transferred to the subsidiary, with about 20 mio sgd remaining in the holding company.

http://infopub.sgx.com/FileOpen/APO%20An...eID=337789

By streamlining its corporate structure, it appears that the group may have intentions to pursue other acquisitions or growth plans.

Maybe management is doing this to make it easier to sell the core business (to themselves?) and leave the remaining shell company for other things?

[testwrite]

I agree with Karlmarx and Chew, based on AP's balance sheet and price, there seems to be a huge margin of safety.
i would also like to add that AP has a pretty high return on equity, 11.4% for 2014 and has been similarly high in the preceding years.
this return is inclusive of the idle cash that is sitting there.
if we assume that only 20% of the cash is used for net working capital purposes, and deduct the other 80% of the cash from the equity, a more convincing picture of AP's earning power is revealed.
based on 2014 PBT/ adjusted equity=> 5270/ 30800= 17%
in my view, AP has a margin of safety in terms of assets and earnings, management might not be the most shareholder friendly, which may warrant the huge undervaluation.

(vested)

will only get 2.5% return from the dividend, 0.005/0.2=2.5%, it have been very profitable, consider the asset use to generate the profit, no debt, and $0.19 cash per share, of course margin of safety, but for investor buying, you are buying a big portion of the cash, which from the last 10 plus year will just lay in the bank, earning 34k/31 million=0.1% of interest on the lastest 2014 annual report. consider the high inflation rate in singapore, this cash horde is a losing asset. i really dont see anyway to get good return from this company, given the liquidity, the unfriendly shareholder management, not much upside, but possible to have lots of downside. this is asymmetry risk, too little return for risk took

[chew]

From the annual report:

Outlook & Prospects

We will continue our two-pronged strategy via organic growth to increase our market share and via M&A to foray into untapped territories.

China remains a key focus of growth for our lubricant business. Plans are in place to scale up operations to take advantage of the vast market in the world’s second largest economy.

A wholly owned company has been established in February 2015 in Shanghai, namely AP Oil Singapore (Shanghai) Limited, 星环润滑油(上海)有限公司. This subsidiary will serve as a base camp and eventually our China HQ for all the company’s lubricant business in mainland China.

An agreement has been signed to form a joint venture (JV) in Chongqing. This JV will cover the lubricant market of Western China.

With strong financial position, we have been constantly exploring more opportunities in M&A, business alliances and partnerships to grow our businesses, particularly in Singapore, Vietnam, Myanmar and China.

In January 2015, the Group acquired 60% equity of a local chemical trading company, Heptalink Chemicals Pte. Ltd. Established in 2011, Heptalink has historically been profitable.

Meanwhile, our subsidiary GB Chemicals has disposed of its 38% stake in an associate, SLUS, for a cash consideration of about S$2 million. This profitable deal will be reflected financially in FY2015.

Given the uncertainties of the global economy and the volatility of oil prices, the business environment in 2015 is expected to be challenging. However, we believe the overall businesses of our major subsidiaries and joint ventures should remain resilient.

[davisng]

AP Oil has always aimed to acquire other companies, like AIM;GB, and now the Heptalink. Its strategy seems performed very well with AIM & GB produced good profits. These subsidiaries doubled their equity within 5 years faster than the company. Now, with Heptalink acquisition cost only 0.625m USD but having a 2.18m USD Equity and profitable, seems helping company's profitability and balance sheet.

With more than 30m cash balance in the bank, nor return to its shareholders, it may have larger targets or maybe one day become a target by other acquirers.

Let see!

[testwrite]

this is an amazing profitable company, but problem it is not too shareholder friendly, unfortunately the management control almost 50% of the share, so basically they can do anything, I will have invest alot in this company, if not for their shareholding, i bought their share 1.5 years ago at 0.196, have been stagnant until now, recently sold everything at 0.22, felt very lucky to make slight profit, i think some investor hold for 5 years without much appreciation

I think due to the management large shareholding, it is impossible to acquire the company, unless you want to pay a very high premium, which probably becomes pointless. In fact this company financial is so glaring, it will always stand out in any value investor stock screener, but for the last 5 years, the fact nothing happen to this company, shows it is very very hard to extract any value from it, except the management

[davisng]

It's a funny thing that value investing works. Let say AP Oil worth 45 cents a share, and it has 22 cents cash in the bank and its stock is also selling at 22 cents. So it is like buy one and get one free. More, the free one is growing its value quite fast.(Let say, this company advertise in local newspaper: Buy one & get one free. Don't know what will happen!)

Some MNCs may know a lot of this company already, they want to sell their products through its network or use its manufacturing base in Singapore/Vietnam to make their products, this make sense to acquire AP Oil. Few years back, one China petroleum company was said aiming this company and its price went up to 40 cents. This is only one of the possibilities. There are possible more of these kinds. Say privatization also make sense. Or what will happen when it announce that its profit up 100% and paying special dividend of 10 cents?

Still don't know why value investing works.

[beau]

It's a funny thing that value investing works. Let say AP Oil worth 45 cents a share, and it has 22 cents cash in the bank and its stock is also selling at 22 cents. So it is like buy one and get one free. More, the free one is growing its value quite fast.(Let say, this company advertise in local newspaper: Buy one & get one free. Don't know what will happen!)

Some MNCs may know a lot of this company already, they want to sell their products through its network or use its manufacturing base in Singapore/Vietnam to make their products, this make sense to acquire AP Oil. Few years back, one China petroleum company was said aiming this company and its price went up to 40 cents. This is only one of the possibilities. There are possible more of these kinds. Say privatization also make sense. Or what will happen when it announce that its profit up 100% and paying special dividend of 10 cents?

Still don't know why value investing works.

There is this quote by I think either WB or BG, it's about how they don't know what force causes price to converge to value eventually, but that it definitely does eventually (or something like that).

I can't remember where it is from.

If someone here can find me that quote I would be eternally grateful!

[secretinvestors]

Anyone attended AP Oil's AGM today? Wanted to attend but unfortunately couldn't make it. Any insights that is worth sharing with buddies?

[keat1979]

I wrote this a year back, just to provide some view

http://hippofund.blogspot.sg/2014_05_01_archive.html

[secretinvestors]

I wrote this a year back, just to provide some view

http://hippofund.blogspot.sg/2014_05_01_archive.html

Thanks for referring us to your blog. Good read there