ASIAFLE - ASIA FILE CORPORATION BHD
ASIAFLE – ASIA FILE CORPORATION BHD (RM 2.53)
PE – 8
ROE – 8.99%
ROA – 6.68%
Net Profit Margin – 21.35% (trailing 12 months)
THE BORING COMPANY – Not Elon Musk’s one but Peter Lynch
As the title tells, ASIAFLE is definitely a boring company to many investors, if is not, valuation wouldn’t be at just PE 8. For many that don’t know, ASIAFLE is the company that produces stationeries under their brand name “ABBA” and I am sure many of you, at some point in time used their products. Refer to the company webpage for more info: https://www.asia-file.com/products.html
But to some investors, ASIAFLE is definitely a “no no” investment case because its share price and its earnings have been on a downtrend since 2016.
So, what make ASIAFLE almost a forgotten company? Well, these are some of my wild guess: –
- Reducing revenue and profit over the years since 2016 as you can see in the picture above
2. Not an exciting business to invest in. What? Stationery maker and distributor? How much money can they make? How fast can they grow? If is not an exciting business, its perceived valuation will not be as high as some of the tech stocks.
3. Organizations are going virtual, paperless these days, and so stationery demand will definitely reduce and so is investors’ appetite on this stock.
However, things might be a little different now and there is silver lining ahead. It seems ASIAFLE business in their major market (EUROPE & UK) is getting back on track. We can’t deny that even though organisations are going virtual or paperless, some statutory/mandatory filings are still required and therefore filing stationery will still be in demand. Is like the world is going green, but no doubt oil and gas is still needed for power generation.
Do not forget also “ABBA” brand is a well established brand in UK & some European countries. It’s market share in the UK & Malaysia is more than 50% and this is an absolute market leader in its sector. This is a cash-cow business for ASIAFLE. Over the years, ASIAFLE had invested a little to none to its core business whilst still managed to generate decent cashflow. This can be seen from the summary below.
And lastly, is the thing that most investors would love to see, that is the next growth engine. ASIAFLE had ventured into paper & plastic food packaging business back in 2017. Since then, nothing much was produced from this sector. Until recently, it was known that the sales has gained traction and generated RM11mil in the Jun2021 quarter as compared to RM4 mil in the corresponding Jun2020 quarter. Shout out from the management is rather confident this time around and is quoted as saying “With its business diversification and product expansion plans well on track, the Group is confident that it will be well buffered to deliver a positive operating result barring any unforeseen circumstances.”
Too long a case to read that makes readers falling asleep. My personal conclusion, Peter Lynch would love to invest in dull business that nobody would give an eye on it and this was written in his book many years ago. Today, we can still see the related funds (Magellan Fund, Fidelity Investments) that he once managed are holding position in ASIAFLE.
This is like a Pocket Kings in your hand. Question is, will you fold a Pocket Kings in a sizable pot?