October 16, 2021

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Insights 5 : Perusahaan Sadur Timah Malaysia (PERSTIMA) Berhad - The Largest Tin Commodities Play

With volatility in the market, I would suggest a more defensive pick and Perstima fits the bill. At current price, it is only trading at 10-11x trailing P/E while offering yields in excess of 6%. Given the above average dividend return, I think share price will be well supported. Further, Perstima has a strong balance sheet with a net cash position (RM0.96/share vs. current price of RM5.54). Considering this, the stock is priced at a mere 8-9x trailing P/E (ex-net cash).

What really excites me it is business prospects. Perstima has a monopolistic position in Malaysia with around 50-60% market share, granting it pricing power and the ability to maintain profit margins. For growth, it has exposure in Vietnam where the economy is still growing robustly. Further, Vietnamese Dong has strengthened against Ringgit over the past one year and this bodes well for Perstima. Another plus point is that its tinplates are used for the packaging of food, beverage and sanity cans, which are generally resilient in nature (non-discretionary consumer products).

Delving deeper into the financials, for the past 3 consecutive quarters, I observed that revenue and profit accelerated despite low tin prices. This was thanks to volume increase and forex tailwind. In turn, margins were lifted as well. I believe Perstima will continue to perform well in the upcoming quarters. To further back up my investment thesis, Perstima has raised its interim dividend to 18sen from 15sen recently, implying optimistic business prospects. 

At RM9.00 (60% upside), Perstima would reflect 16-17x trailing P/E and 14-15x on an ex-net cash P/E basis. On the other hand, dividend yield is still attractive at 4% at RM9.00 (assuming 38sen DPS - already paid out 18sen and typically the 2nd interim dividend is 20sen). I don’t think this back-of-the-envelope valuation is steep since this is a growth stock. Further, as EPS grow, the P/E would narrow while dividend payout would increase and hence, provide higher yields. FYI, Perstima’s payout ratio is between 60-70% (so much more room to dish out dividends) and yet the yield is superior compared to many listed companies on Bursa. However, as Perstima traditionally have been undervalued despite its monopolistic position, conservative individulas can provide a 15% discount for a conservative TP of RM 7.65.
Food for thought: 
Sacrifice is risking everything without guarantee. 
May good fortune come your way!
Disclaimer: This is not a recommendation to trade. It is merely the expression of the author's personal opinion and shall not be held responsbile for potential gains or losses executed by readers.
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This  information should not and cannot be construed as or relied on and (for  all intents and purposes) does not constitute financial, investment or  any other form of advice. Any investment involves the taking of  substantial risks, including (but not limited to) complete loss of  capital. Every investor has different strategies, risk tolerances and  time frames. You are advised to perform your own independent checks,  research or study; and you should contact a licensed professional before  making any investment decisions.

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