Why small cap stock Elite KSB is a multi bagger

November 1, 2012 at 4:28 pm 4 comments

Elite KSB, a small cap stock which i have never heard of until last year through an interview article of a value investor who owns that stock. I checked out its annual report, although the results were impressive with good ROE and free cash flow, i had some worries about its sustainability as poultry/pork processing,distribution and slaughtering and its China associate feed mill businesses does not have a wide moat apart from a chicken slaughtering license. The business sounds boring and considered to be low growth.

This year, i took a second look at the defensive business and remembered what Peter Lynch said about boring business, especially those with a odd name and thus decided to buy. But, i hesitated to pay the price which was at about 32 cents due to concern about macro economy/ possible iran-israel war. I paid the price when i bought the share at a higher price later when the deal to sell its poultry/pork business was announced. Worries of war or macro-economy was put aside because a deal in cash worth more than market capitalisation of the stock at that time brings certainty.

Now, the price has shot up to 58 cents as a special dividend of 35.5 cents was announced after the deal was completed yesterday. I was puzzled why the share price was bid up despite the deal being quite certain and announced quite a while ago although the special dividend amount was not announced then. It must be due to the fact that this is a small cap stock, unloved by analysts and the public, thus most have never heard of it or notice its announcements or those who did were wary and sceptical like i once was.

This share traded about 5 cents during 2008-2009 crisis so it is a 10 bagger if you manage to buy it during the period. Who says you can’t find gems in small caps, the only thing you need is diligence,courage, patience and some luck.

The share at 58 cents is almost fully valued but if the CEO manages to pull off a good deal by finding someone to takeover the shell company, shareholders may be rewarded further.

Entry filed under: Investing. Tags: .

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4 Comments Add your own

  • 1. sgxstockpicker  |  November 3, 2012 at 9:27 am

    Hi Marathoner,

    I bought some Elite KSB many years ago. I was attracted to its earnings growth which came from their acquisition (see below). I too am quite surprised that it has decided to sell its meat business because I was expecting them to sell their properties.

    http://sgxstockpicker.blogspot.sg/2010/08/elite-ksb-profit-up-41-declares-15.html

    I guess the reason for them selling is obvious. This business requires some decent scale and to achieve that, they will have to remain in the business for a longer period of time. i understand that it is more or less a family run business and so the two brothers are looking at cashing out and retiring.

    Reply
    • 2. leechongmeng  |  November 9, 2012 at 12:49 pm

      thanks for sharing your opinion. it has been a good year for the elite ksb ceo, he got to cash out and got a National day award. I guess when buying small caps like this, it is important to have a trustworthy CEO who will also take care of shareholders else even if the business is doing well, the CEO will rather waste money on poor acquisitions than return money back to shareholders.

      Reply
  • 3. sgxstockpicker  |  November 10, 2012 at 10:58 am

    can I just ask which are the companies in your portfolio? A link to the post if you already have it somewhere. You look defensive minded.

    Reply
    • 4. leechongmeng  |  November 11, 2012 at 3:31 pm

      Presently, i own Boardroom,Eu Yan Sang,Elite KSB,HTL International,Micro-Mechanic,OCBC,Nera Tel,Trek 2000, Vicom,SIA Engineering, Singpost,SPH.

      Reply

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