Willowglen MSC Berhad

Willowglen MSC (RM 0.51)

PE 14

ROE – 10%

ROA – 9%

DY – 2.75%

Net Profit Margin – 12%

A company that provides SCADA (Supervisory control and data acquisition) system to industrial applications. As shown in the picture below, their clients are mainly utilities, public transportation, buildings, etc. Visit their website @ www.willowglen.com.my.  In short, they provide IT solutions for surveillance and management control systems.

This is a rather traditional, asset light model. To explain, Willowglen secures contracts from management of these buildings, public transportation & utility companies and provide system design, commissioning & maintenance services. They do not require many machineries or equipment to provide such services, as they only provide technical know-how to clients. Therefore, technical staff is important to Willowglen and this can be seen in the staff composition as shown below.

Having said the above, let me share with you on how I look at this business model in a few points.

Scenario 1

Stable income on SCADA – as this revenue is recurring in nature once contract is secured, this contract will continuously generate revenue for the company during the contract term.

 

 

Scenario 2 

Steady growth – as more contracts are secured, company’s revenue will then grow in tandem with number of contract secured.

 

 

 

Scenario 3 

Not much capital to be invested for growth – for newly secured contract, all company needs to do is to hire more staffs, and this will only cause increase in working capital. The problem is, these staffs are on contract based or permanent employee. This will need management to manage their human resources effectively.

Scenario 4

Growing market – as the mentioned in Management Discussion & Analysis in Annual Report 2019, company is actively running and explore their operation in Indonesia, Philippines & Vietnam. Another venture to take note is their implementation of drone for monitoring for the palm oil industry.

Some will ask, is the company really that good? Then why the share price only commands a PE of only 14? Well, below are the reasons that I personally think.

Reason 1

Business model isn’t scalable easily, as this is rather on project base, as compared to consumer business, company can only scale when they manage to secure more and more businesses. As compared to businesses that are with end user consumer brand, semiconductor industry.

Reason 2

Human capital dependent business – many technical staffs needed to run and operate the contracts on hand, and for sure, they are skilled workers, which cost company higher salaries payout.

Nevertheless, as I said in the previous post, there’s no company that is perfect to buy, it all depends on which angle are you looking from, what kind of bet you willing to take. Of course, the element of good management is always the key to a successful company that brings about high growth and good return for shareholders. You judge it yourself looking at the previous performance, and you decide whether to take a bet.

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