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Ever since coming across an article suggesting that the packaging sector would benefit from the growth of online retailing, I have been hunting for packing companies. My search went beyond Bursa and included US.
Why the US? In 2023, the total return (dividend + capital gain) for the Bursa KLCI was about 3%. The S&P 500 achieved 26%. Even accounting for forex losses, you can see why the US is better. But this does not mean buying blindly. You still need to do fundamental analysis. Take the example of Avery. https://i.postimg.cc/C1cQgNs2/Avery-Dennison.png
This is NYSE a global materials science and digital identification solutions company. Despite its acquisitions, its revenue only grew at 4.4% CAGR over the past 10 years. While ROE and net margins have been trending up, there were no improvements in other operating parameters, I think that the stock is fully priced.
On the other hand, Bursa Asia File has diversified into food packaging. Not exactly sexy, but it has a margin of safety. The only concern is how long it will take for the market to re-rate. If I can find an equivalent US packaging company, that would be priority. In the absence, Asia File is there. https://www.i4value.asia/2021/03/are-these-outstanding-stocks-what-to.html#more
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. https://i.postimg.cc/J05QW2qr/Chart-9-min.png
I bought this company years ago when it was expanding into Europe. The stationary business today is being disrupted by digital tech and I think the company had diversified into the packaging industry because of this. It is interesting to see how the company is going to be transformed. I have covered Asia File as a case study in my value investing book. If you want to see the book in infographics format go to https://www.i4value.asia/2022/08/do-you-really-want-to-master-value.html#more
