Editor’s Note: Asiatic is a micro-cap, but we like its story and emerging evidence of hidden value.
Background
Asiatic Group (Holdings) Limited (Asiatic or the “Company”) can chase its roots to 1966 (more than 50 years ago!) when its founder Mr. Tan Ah Kan started the company to distribute, supply and service fire fighting equipment. In 1983, it started manufacturing its own brand of fire extinguishers known as “KILL FIRE”. In 1990, it expanded its fire protection system into the marine and shipping industries and was listed in April 2003. The Company then expanded into the power plant business, setting up its inaugural power plant in 2006, followed by other power plants in 2008 and 2014, mainly in Cambodia and Malaysia.
Exiting loss making business
The Company was previously bogged down by losses at its power plant business. However, it has since ceased operations at two power plants, entered into an agreement to sell a third plant and has agreed to enter into talks with the local shareholder over the fourth and last power plant. In a nutshell, Asiatic is exiting this business. It was these actions taken by the Company to exit a loss making business that caught our attention.
Core fire protection equipment business valued at only 2.68x PE
The fire protection equipment business generally accounts for 50% of consolidated revenue and has generated S$7.35 million of segment profit for the group in the last three financial years ended March 2023. After deducting unallocated corporate expenses of S$0.8m per year, the group would have made S$4.9m of pretax profit over the last 3 years or S$1.65m per year on average. Hence, the group appears to be trading at a bargain price of only 2.68x price-to-earnings (based on the ask price of S$0.003).
Rights issue – an opportunity to buy in early and cheap.
The Company’s share price could have been weighed by its on-going rights issue to raise approximately S$6.1m (of which S$4m – S$5m will be used to settle debts at its power plant business; Ex-Rights on 13 July 2023). However, we estimate that the adjusted book value per share (assuming full subscription of the rights and after repaying banks) is about 0.42 to 0.45 cents per share. Hence, Asiatic is currently trading (or rather selling as we reference to ask price only) at approximately 30% discount from its book value.
Suppose we value FY23 firefighting 12x FY23 tax adjusted profit of S$1.95m (justified by its long history and profitable track record), the Company would be worth S$23.38m or 0.58 cents per share on a fully diluted basis (after rights issue)!
Looking nearer ashore for growth
The Company has recently started providing commentary about smart control of mechanical and electrical systems in building to achieve overall energy savings for users and is working towards potential contracts. Given that it has been selling fire protection systems to building owners for the last 50 odd years, this new business or venture could prove promising.
Not for punters
Unfortunately, this is a micro-cap, where its share price is quoted between 0.2 to 0.3 cents. In other words, it is highly illiquid and a single uptick to 0.4 cents will raise its market cap by over 30%. In situations like this, the Company would typically do a share consolidation only when liquidity is higher. As such, investors would have to be patient for the Company to execute and deliver on expectations, as a catalyst to raise share price.
Figure 1: Financial Summary – Company has positive EBITDA (evidence of high earnings quality) in last four of five years. Prospective value of fire-fighting solution business of S$23.4m.
| S$ millions Y/E March | 2019A | 2020A | 2021A | 2022A | 2023E |
| Revenue | 37.67 | 48.02 | 42.21 | 36.71 | 41.32 |
| Gross profit | 11.74 | 14.05 | 14.16 | 10.90 | 13.56 |
| EBITDA | -3.61 | 3.60 | 5.67 | 2.45 | 1.51 |
| PATMI | -20.00 | -13.77 | -3.69 | -8.20 | -2.21 |
| Gross margin | 31.2% | 29.3% | 33.5% | 29.7% | 32.8% |
| EBITDA margin | -9.6% | 7.5% | 13.4% | 6.7% | 3.6% |
| Fire fighting segment | |||||
| Revenue | 14.57 | 18.34 | 15.65 | 20.13 | 21.14 |
| Segment Profit | 0.82 | 1.38 | 2.02 | 2.14 | 3.20 |
| Unallocated expenses | -3.074 | -0.789 | -0.671 | -0.891 | -0.852 |
| Adjusted PBT | -2.25 | 0.59 | 1.35 | 1.25 | 2.35 |
| Est. Tax @17%* | 0.38 | -0.10 | -0.23 | -0.21 | -0.40 |
| Adjusted PAT | -1.87 | 0.49 | 1.12 | 1.04 | 1.95 |
| Prospective P/E | 12x | ||||
| Prospective value | S$23.38m | ||||
| Market cap today | S$5.22m |
*Actual for 2023E. Source: Company announcements
Disclaimer: The contents above do not constitute any trading opinions or investment strategy. Readers are advised to do your own due diligence before establishing an interest in the subject.