These 3 Companies have been Buying Back Their Shares
- Original Post from Smallcapasia

Warren Buffett is a huge advocate of share buybacks as he believes that itcan often be the best use of corporate capital.

In fact, that is the main reason why Berkshire Hathaway Inc.’s share price can reach a staggering US$315,800 per share (at time of writing)!

He also thinks that share buybacks can reveal a thing or two about the management team.

A particular excerpt from Warren Buffett in this article stood out:

“Many management are just deciding they’re gonna buy X billions over X months. That’s no way to buy things. You buy when selling for less than they are worth. … It’s not a complicated equation to figure out whether it is beneficial or not to repurchase shares.”

In other words, he thinks that good management are those who embarked on a buyback spree when the companies are undervalued.

With that, let’s check out 3 companies which have repurchased their shares recently.


AEM provides handling and test solutions to the most advanced manufacturers in the world namely Intel. AEM help our customers deliver many of the most successful products in the 5G economy including microprocessors, high speed communications, IOT devices, and solar cells.

The past 5 months have not been kind to AEM as its share price drops from a high of $1.94 (post-split) to around $0.64, before recovering to $0.825 at the time of writing.

The plunge in share price is probably due to the sharp U-turn from CIMB analyst report where it slashed the target price to $0.69, citing low visibility into year 2019.

A share buyback spree is initiated after the report was released on 31st July 2018. AEM has been repurchasing 100,000 to 200,000 shares steadily each time, at a price range between S$0.655 and S$0.755 a piece.

Shares of AEM holdings is going at S$0.825 now, giving a P/E ratio of 7 and a dividend yield of 3.5%.

2. $HRnetGroup(CHZ.SI) 

HRnetGroup is a Singapore-based recruitment agency and operates 2 main segments from the following brands:

  • Professional recruitment services – HRnet One, PeopleSearch, PeopleFirst and SearchAsia brands

  • Flexible staffing solutions – Recruit Express and RecruitFirst brands.

I can still remember vividly my younger days where i was working part-time under Recruit Express last time. My boss that time told me that he is paying Recruit Express $9/hr when I only got a $6/hr salary!

Imagine getting 50% of my pay just for the job referring — such fat profit margins!

Anyway, HRnetGroup is pretty confident about its own company’s prospects. Share buybacks are done with around 200,000 shares repurchased each time at a price range of S$0.85 to S$0.90.

HrnetGroup’s shares of the company are now priced at S$0.885, giving a trailing PE ratio of close to 17.1 and a dividend yield of 2.6%.

3. $CSE Global(544.SI)

CSE Global Limited (CSE) offers total integrated solutions to industries in the automation, telecommunications and O&G industries.

You can also check out more about its services here.

CSE Global has embarked on a share buyback spree after its 2Q 2018 results on 13 Aug 2018. It spent around S$1.87 million on 4.177 mil shares, averaging S$0.45 per share.

CSE Global does not have a P/E ratio as it is making losses for the past year due to the oil price slump. However, it has turned around sharply and its latest 1H FY2018 core profits surged 43.9% from the previous year.

It has also committed to total dividends of $0.0275 for FY18, giving it a 6.25% dividend yield based on its current share price of S$0.445.

CSE Global is also one of our top picks in our Valuation Momentum membership. To get a deeper analysis report on CSE global OR find out more hidden gems, feel free to check out our subscription here.

That aside, do you know that Master Investors like Warren Buffett has his own Unique Investing System which you can emulate yourself? We have distilled it into a simple 10-Step Checklist for you to decide how or when to buy/sell your stocks.

Simply click here to receive your copy today!

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*We (@CS_Jacky and @Smallcapasia) are back (again) after a long break and going to take this slow and steady in future. We implemented the following improvements to serve you better:

  • Stock Rating based on our own opinion (on a scale of 1 to 5 stars)
  • Write-up URL Links (want to read analyst report or blogger write-ups on a particular company? Now you can!)
  • Up-and-coming Addition of HK stocks (HKEX is gunning for all the big names like Xiaomi, HaidiLao and we don't want to be left out.)

At the same time, here are the stocks (and adding):

$SingTel(Z74.SI) $Old Chang Kee(5ML.SI) $800 Super(5TG.SI) $StarHub(CC3.SI) $CapitaMall Trust(C38U.SI) $ComfortDelGro(C52.SI) $CSE Global(544.SI) $Sasseur Reit(CRPU.SI) $Tuan Sing(T24.SI) $CapitaLand(C31.SI)$Ascendas-hTrust(Q1P.SI)$VS(6963.MY)$COSMO LADY(2298.HK)$KAWAN(7216.MY)$AJI(2658.MY)$Jumbo(42R.SI)$Genting Sing(G13.SI)$MENGNIU DAIRY(2319.HK)$Sunpower(5GD.SI)$Nordic(MR7.SI)$Valuetronics(BN2.SI)$Trendlines(42T.SI)$Haw Par(H02.SI)$Jackspeed^(J17.SI)$ISDN(I07.SI)$Duty Free Intl(5SO.SI)$Far East Orchard(O10.SI)$ChinaSunsine(QES.SI)$Japfa(UD2.SI)$ST Engineering(S63.SI)$Food Empire(F03.SI)$Cityneon(5HJ.SI)$HMI(588.SI)$CHINA EDU GROUP(839.HK)$CONSUN PHARMA(1681.HK)$Chip Eng Seng(C29.SI)$Banyan Tree(B58.SI)$TUNEPRO(5230.MY)$Khong Guan Flour(K03.SI)$TGUAN(7034.MY)$YZJ Shipbldg SGD(BS6.SI)$Cosco(F83.SI) $SCIENTX(4731.MY)$PING AN(2318.HK)$BOL(BOL.BK)$Lippo Malls Tr(D5IU.SI) $UMS(558.SI) $Golden Agri-Res(E5H.SI) $Silverlake Axis(5CP.SI)$Kimly(1D0.SI)$OCBC Bank(O39.SI)$Wilmar Intl(F34.SI)$Olam Intl(O32.SI) $Fu Yu(F13.SI) $SATS(S58.SI) $Japan Foods(5OI.SI) $SingPost(S08.SI) $Shopper360(1F0.SI) $Cosco(F83.SI) $QAF(Q01.SI) $SBS Transit(S61.SI) $PENTA(7160.MY) $HEC PHARM(1558.HK) 

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4 Stock Plays for the Iran-USA conflict
- Original Post from Smallcapasia

Unless you have been hiding under a rock, you would have heard about the quick escalation of the Iran-USA conflict.

Anyway, here’s a quick summary and follow-up on what happened:

On 2 January 2020, USA launched an airstrike in Baghdad. It caused the deaths of 2 generals, 1 from Iran and 1 from Iraq. The Iran general named Qasem Soleimani was well-loved by the nation and hordes of people turned up for his funeral.

This action sparked a major uproar as Iran reacted furiously against this attack – calling the US “Terrorists” and also strike back with missiles to the US airbase in Iraq.

This tensed conflict caused crude oil prices to surge close to $3 and closed at $68.60 on 3 January after the attack. In addition, investors are also putting their money in a safe haven – gold.

Below, we will highlight 4 stock plays of which are good proxies or hedging counters to the ongoing conflict.

1. $CSE Global(544.SI)

CSE Global is a global technologies company listed on SGX. It has international presence spanning Americas, Asia Pacific, Europe, Middle East and Africa. CSE is a systems integrator, focusing on the provision and installation of a variety of control systems, turnkey telecommunications, and security solutions for the oil and gas sector.

As of the 2019 third-quarter report, revenue increased by an impressive 21.9% to $111 million. Net profit increased by 17.8% to $5.72 million. It also registered a free cash flow of $5.55 million.

With the increase in oil prices, oil and gas sector will recover and flourish much faster than expected. This will allow CSE to lock more order books, which will boost its finances.

CSE Global last closed at $0.555, which values it at a P/E of 13.88x and a dividend yield of 4.46%.

2. $Rex Intl(5WH.SI)

Rex International Holding Limitedis an oil exploration and production company listed on Singapore Exchange Securities Trading Limited’s Catalist Board. Since the Company’s listing in July 2013, the Group has achieved two offshore discoveries, one each in Oman and Norway.

As of the 2019 third-quarter report, revenue decreased by 57% to $135,000. However, a noteworthy point is that net profit increased to $25.9 million from a negative position in 2018. This was due to the sales of interest in licenses and gain in the fair value of quoted investment.

The increase in oil prices is a direct boon for Rex International as it is now proceeding to drill the Oman wells for oil. Either that or it can sell its licenses at a much higher price to lock in fat capital gains.

Rex International last closed at $0.205, which values it at a P/B ratio of 1.3x. It does not pay out any dividends.

Next up, lets zoom into 2 gold plays below…

3. $CNMC Goldmine(5TP.SI)

CNMC together with its subsidiaries are principally engaged in the business of exploration, mining of gold and the processing of mined ore into gold dores. The Group is currently focusing on the development of its flagship project – the Sokor Gold Field Project which is located in the State of Kelantan, Malaysia.

As of the 2019 third-quarter report, the company’s revenue increased by 16.9% to $31.5 million. Net profit improved by an astounding 384% to $5.2 million. The increase in net profit is due to costs staying relatively unchanged, while revenue increased greatly.

With gold prices rallying to new heights, the company can price its gold at higher prices while keeping the costs the same as mining operations stay the same. This will increase the profits further as gold prices are elevated.

CNMC Goldmine last closed at $0.2850 and is valued at P/E ratio of 21.92 with a dividend yield of 1.51%.

4. $GLD

Investors could also look into investing in SPDR Gold ETF (SGX: O87). SPDR Gold Shares offer investors an innovative, relatively cost efficient and secure way to access the gold market.

SPDR Gold Shares are intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that interest through the trading of a security on a regulated stock exchange

The Gold ETF has went up 24% in a year and 7.1% since the attack on 2 January. It was only listed in year 2017 and is now at its all time high.

Looking for more interesting stock ideas? Check out our Top Stocks 2020 bundle here for more explosive stock picks.

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Target Price

- Clear organic growth path with new operations setting up in Shanghai and Shenzhen
- Highly scalable business that do not need large capital, but rely on expertise, scale and deep know-how of the local market

Find out more about the other pros and cons here:

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$PENTA(7160.MY) Similar business model to $AEM(AWX.SI) .
FY2018 Profits up >10x from 5 years ago.
Share price skyrocketed 1000% since 2016 even without accounting for share splits and bonus issues!!

Find out if there is more room for growth for Pentamaster in our Stocks Database:

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Is ISDN Holdings the next AEM in the making?
- Original Post from Smallcapasia

NAME: $isdn


MARKET CAP: SGD 84.8M @ 24-08-2018

MARKET PRICE/SHARE: SGD 0.215 @ 24-08-2018

INDUSTRY: Electrical Equipment

Company Profile

ISDN is a 31-year old company that started as a supplier of Servo Motors and is now a multi-national company. It provides integrated engineering solutions focused mainly on motion control and industrial computing among other specialized engineering solutions. Motion control consists of designing and assembling robotic solutions for factories.

ISDN is listed on the mainboard of SGX since 2005 and on the SEHK since 2017. This last listing was considered by the board as a move to further attract investors from Hong Kong.

The company is based in Singapore and operates through 65 subsidiaries with 65 sales offices spread across People’s Republic of China, Hong Kong, Malaysia, Vietnam, Thailand, Taiwan, Indonesia and others.

Source: Annual Report

Over 70% of the company’s revenue originates from PRC, where the company owns an industrial base to manufacture hinges, locks, precision gearboxes and other hardware for its other specialized engineering solutions.

1. Business Model & Economic Moats

ISDN provides technical support in several industries and its offerings are mostly segmented in four categories:

(i) Motion Control

Pexels free stock photos

As a solution provider, ISDN not only distributes products, but also designs, customizes and assembles motion control systems to enable its customers cost reduction and improved production efficiency.

Motion control systems are typically used for factory automation in a broad range of industries.

(ii) Other Specialized Engineering Solutions

Under this segment ISDN provides customized engineering solutions that include standard modular construction components for use in industrial automation systems, and hardware components such as industrial locks, fasteners, hinges as well as aluminum profiles and related accessories.

This segment currently contributes to about 20% of total net sales.

(iii) Industrial Computing Solutions

The company also formulates cost-efficient and effective industrial computing solutions. It assembles industrial computing hardware and software to satisfy its customers’ industrial computing needs.

(iv) Renewable Energy & Infrastructure

Recently ISDN has diversified into new businesses. Renewable energy projects primarily include the developing of hydropower plants in Indonesia and operation of solar power stations.

Pexels free stock photos

It is also the company’s mission to help high-potential customers to grow from being small and medium enterprises to multinational companies. ISDN expects that it will be able to offer comprehensive financing solutions that their customers couldn’t access otherwise.

Economic Moats

The group operates in a competitive environment where innovation is the name of the game. Nevertheless it counts with some competitive advantages.

  • Market Position

ISDN is one of the largest motion control solutions provider in Singapore and PRC. As such the company can leverage on its size to conquer sales in new growing industries as well as strengthen market penetration.

  • Entry Barriers

Being such a technical work and operating with such advanced technology, it’s hard to enter the business. ISDN counts with more than 30 years of track record and a good reputation among customers.

  • Relationship with suppliers

Pexels free stock photos

ISDN has built up strong customer relationships that include worldclass MNCs including IBM, Seagate, Wincor Nixdorf, GE Healthcare, Exxon Mobil, China National Petroleum Corporation (CNPC) and more.

Our success is primarily attributable to the relationship we have built with our suppliers all these years so that we are able to recommend and offer to our customers a variety of products as a solution to serve a wide range of engineering needs of our customers under one roof.

– Mr. Teo Koon, Annual Report.

  • Ability to customize the solutions

Combining its extensive supplier base with the acquired knowledge of the industry, ISDN is able to customize solutions to meet customers’ specific demands and requirements. We believe that the customization allows the group to set itself apart from its competitors.

2. Growth Strategy

ISDN growth strategy lies in several axes and initiatives:

(i) Strengthen Relationships in China

In 2018 and going forward, ISDN is aiming for a greater share of the Motion Control and Integrated Engineering solutions markets by strengthening its relationships with key customers in China thus benefitting from the increasing use of automation and robotics in manufacturing.

China continues to transition from a labor-intensive to a technologically advanced and automated industrial environment. In addition, it’s encouraging to see that China’s factory activity is expanding.

Sourced from Markit Economics

(ii) Focus on Specific Industries

ISDN plans on increasing its sales and market efforts on certain fast growing industries related to the “Industrial 4.0” concept. Such industries are supported by government industrial development policies around the world. Medical devices, environmental protection, electric vehicles and artificial intelligence are among these industries with a lot of potential for ISDN.

Pexels free stock photos

“Such policies will boost the development and use of robotics and the technological upgrades of manufacturing processes, which benefits the motion control solutions and other specialized engineering solutions industries as a whole” – Annual Report.

Still related to the additional sales effort, the company expects to yield good results from providing better incentives to its sales staff to engage new and existing customers.

(iii) Other Asian Markets

Although focused in Singapore and China, which are ISDN’s major markets, the group also intends to expand its presence in the fast-growing economies of Vietnam and Thailand. ISDN believes exploring new frontiers in the South-East Asia will uncover more growth opportunities that will complement its core business.

(iv) Renewable Energy

This is an emerging business for the company, but ISDN is placing a lot of effort in its growth. It stated to actively seek and explore new opportunities in the in the renewable energy sectors through strategic partnerships and other forms of collaboration.

In such spirit, the company already announced a partnership with Comtec Solar System Group Limited, a listed company on the Main Board of the Stock Exchange of Hong Kong Limited, to introduce integrated engineering solutions to renewable energy sectors.

More importantly, ISDN is making progress with its hydropower plants. Ahead of the first revenue from its hydropower projects, ISDN has raised its stake in hydropower producer Aenergy Holdings to 50.0% from 39.9% through a capital injection of US$6.9 million.

3. Financial Analysis

(i) Operational and Financial Performance

Source: Annual Report

The company’s revenue seems to be trending higher at a very steady pace. In the last five years cumulative growth was 11%/year and judging by the first half of this year, we can expect about the same growth in 2018.

Sourced from Annual and Quarterly Reports

The main growth drivers in 2018 have been the increased demand for high-tech precision control systems from medical device manufacturers combined with the growing customer base in PRC and Hong Kong.

The continuous transition to a more tech-based industry sector in Southeast Asia is also leading to the adoption of advanced and automated processes for industrial robots and thus leading growth for ISDN in those markets.

Sourced from Annual and Quarterly Reports

In terms of gross profit the trend is positive as the company is able to improve its sales, but we see there’s some margin sacrifice that took place in 2016 and only now seems to be recovering. This drop in profitability was partly due to increased competition in the area as well as not being able to fully pass on the effects of the weaker Chinese Yuan on to its customers.

This raises the question if the recent move in the currencies trade value won’t compromise the improvement of ISDN’s profitability and further hinder its margins recovery.

Sourced from Annual and Quarterly Reports

The operating costs are mostly included in the distribution (~45%) and administrative expenses (~55%). These include staff costs, marketing and other general expenses. The thing to notice here is that despite de rising costs, ISDN has been able to keep the rate of increases below revenue growth, which helps improve operating margins.

Sourced from Annual and Quarterly Reports

It’s also worth mentioning that ISDN’s expenses are higher in 2016 and 2017 due to HKEX listing expenses so we should expect further savings in the following years.

(ii) Financial Position

Source: Annual Report

The company’s financial position is in top shape. Total bank borrowings + Finances leases amount to S$14.7 mil while cash and bank balances are $38.3 mil – a net cash of $14.6 mil. This also means that the net cash translates to roughly 17% of the company’s market cap.

(iii) Cash Flow/Inventory Analysis

Given that ISDN is a manufacturing firm, we zoom into its inventory turnover ratio** to measure how many times a company has sold and replacedinventoryduring a period.

**The inventory turnover ratio is calculated by dividing the cost of goods sold for a period by the average inventory for that period.

From ISDN’s AR2017,

218,354/ [(50,003 + 38,902)/2] = 4.9x

A ratio of 4.9x means that ISDN has successfully turned over/sold its inventory 4.9x during the year, demonstrating a good sales operating model.

Sourced from Annual and Quarterly Reports

On the other hand, ISDN has relatively stable capex over the years (2.5 mil for FY2016, 2.1 mil for FY2017 and 1.7 mil for 1H18 ended 30 June 2018). With that, ISDN is able to produce free cash flow and utilized that to provide loans to its associates.

Sourced from Annual and Quarterly Reports

The table above also indicates a good consistent performance of ISDN’s financials. Gross Margins are ROE at around 8%. The revenue has been on a steady uptrend as well, and 1H2018 seems to be a good year with the highest EPS recorded.

4. Key Management Personnel

Mr. Teo Cher Koonis MD and President of ISDN, and also the controlling shareholder with over 30% of voting rights. He joined Servo Dynamics as a sales administration manager in July 1987 and in November 1989, appointed as a director of Servo Dynamics.

He has a bachelor in mechanical engineering and almost 30 years of experience in motion control and industrial computing industries.

Mr. Kong Deyang, executive Director, is the man behind all business operations in the PRC, from developing growth policies to managing the day-to-day operations of the company’s subsidiaries in the country.

Sourced from AR2017

Both executives have esteemed interest in the company although i would prefer Mr. Kong to own a bigger portion given his important role in China’s ops.

That said, Mr. Teo Cher Koon is the MD and have a total interest of 30%. I done a quick fact-check and the warrants have all expired because they are past the 5 years from its issue date of 17 June 2013. While it is unfortunate for the management team, it means that investors will not be subject to any dilution going forward.

In fact,Mr. Teo also acquired a total of 1.1 million shares recently (13 and 15th August 2018). With that, his stake increased from 33.21% t0 33.48%, which is a good sign of confidence in the business.

5. Risks & Concerns

1.Suppliers concentration

As of the end of 2017, the company reported to have 30% of its purchases made to a single supplier and over 55% to its five largest suppliers. This type of concentration can decrease bargaining power and if something were to happen to these suppliers there’s no guarantee ISDN would be able to perform as it intends.

2. Inventory management

In a business that relies so much on innovation and in which technological breakthroughs are just around the corner, inventory can quickly become obsolete. Failing to properly manage inventory levels can lead to significant losses.

3. Foreign Exchange (FX) Fluctuations

Pexels free stock photos

China accounts for a majority stake of the company’s business and there is precedent of Chinese currency devaluation to significantly affect ISDN’s profitability.

ISDN also reports its financial numbers in SGD and has benefitted from SGD appreciation against USD. It will lead to forex losses if USD gains strength from the increase in interest rates.

4. Increased competition

The company has reported increased competition in its main markets, with new products emerging every year. There’s no telling when innovation can be disruptive enough to turn ISDN into a background player.

5. Execution Risks from Diversification

While it’s good that the company is searching for other business and growth opportunities, it is a challenge to adventure beyond their main core of knowledge.

As mentioned, ISDN is moving towards the solar panels and even providing loans to 3rd parties. The right choice of partnerships and right execution will play a big role in the risks’ assessment.

6. China’s potential slowdown / Trade Wars

Pexels free stock photos

Most of the company’s revenue come from business in the PRC, which greatly exposes the company to a potential slowdown in China’s manufacturing activity. The current trade war with the United States can delay China’s plans for an automated industrial sector.

Conclusion – Our Take on ISDN

**(Revised after Novo Tellus PE Fund injection of capital)**

To conclude, ISDN is set for amazing opportunities to grow its business, leveraging their core motion control expertise for new industries and industrial changes in China.

According to its latest FY2018 results, the group hit a record high of S$302.0 million, up 3.4% from S$292.0 million in the previous year. Net profits attributable to shareholders also increased in line, up 15.4% to S$10.9 million. It could have been around 40% higher yoy if not for the S$2.4 mil impairment of trade receivables in the 4th quarter 2018.

In the immediate near term, ISDN is also expected to generate significant profits from the Hydropower segment. Taking its 50% stake plus a conservative base-case estimate, ISDN will reap S$3.5 mil revenue in FY2019 once the 3 hydropower plants are up and running.

However, we are unsure of how much will tickle down to net profits from the recurring revenue and will most likely reach out to ISDN’s IR for more info.

At current price of S$0.215, ISDN is trading at an estimated 8.8x 2018’s earnings. In addition, the company has also increased its dividend to 0.07 cents per share – translating into a decent 3.2% yield.

We also like it when there is a growth story in tact and the management team have aligned interests with the shareholders. To end off, ISDN’s share price is reflecting a consolidation phase for almost 4 years now and we feel its a good chance to get in early to take advantage of any explosive spike up.

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