Disclaimer: This article is in no way financial advice, nor solicitation to buy or sell shares in this company. It is purely for educational purposes only. You are highly recommended to conduct all necessary due diligence and make your own informed decisions before making any financial decisions. The writer owns shares in some of these companies and may at any point in time increase or reduce their position without prior notice. Do not try to copy trade!

Everyone likes discounts. But in the stock market, not all discounts are necessarily “good deals”. There are plenty of value traps in Bursa, where companies trade significantly below net asset values but shareholders see no value generation or returns for years.

Therefore, when looking for deep value companies, how could one make a screener and combine both quantitative and qualitative analyses to reduce the risk of value traps?

Net Asset Value (NAV), sometimes called Net Book Value (NBV), is the total assets of a company minus total liabilities. This number is also represented by “Equity”, as the balance sheet equation is Assets = Liabilities + Equity.

Companies trading below their net asset values are quite common in Bursa. Most property, plantations, and conglomerates fall under this, because the actual value of their non-current assets can sometimes be difficult to determine.

GENTING, which I wrote an article for before (https://www.doitduit.com/p/audio-genting-berhad-the-widest-discount-in-its-history-with-potential-catalysts-ahead-for-value-rec), also trades at a substantial discount to their NAV, although the discount has reduced since then.

However, it is very rare to find companies that are trading below net cash. In these cases, the enterprise value is actually negative. In simple words, it means the company still has a lot of cash even after paying off all debts, and you still get all the other assets for free. Usually, such situations arise due to extreme pessimism about future prospects of the company, and concerns about the potential cash burn rate going forwards.

In this post, I will try to set a screener for companies trading below their net cash values with a few other conditions to reduce the chances of it being a value trap.

Setting the Screening Universe

I have used a stock screener from TIKR to filter for:

1. Profitable companies adjusted against non-cash impairments;

2. Paid dividends in the last Financial Year (FY);

3. Positive Operating Cash Flow in the past 12 months;

4. Larger than RM150 mil market cap; and

5. Non Financial Institutions.

I computed their net cash vs market cap values and shortlisted the following companies that could be worth exploring further:

I think there could be opportunities in any of these names and they all deserved to be studied deeper. Today, I will go through Asia File Corporation Bhd and explore the potential catalysts and risks related to the company.

Asia File Corporation Bhd : ASIAFLE

ASIAFLE is a stationery products manufacturer, listed since 1996. Historically, they mainly focused on filing and storage products such as paperboard, binders, clipboards, manila folders, and so on under the “ABBA” brand.

ASIAFLE has 7 manufacturing sites in Malaysia, 3 in UK, and 2 in Germany and sell their products to many countries around the world. Growing up, I think most of us have used their products before either knowingly or not. Notably, with the advent and unstoppable progress of digitalization, the total market size of their filing products is diminishing rapidly as people stop using physical documents and do it digitally instead.

In 2018/19, recognizing the changing trends, the company diversified into industrial, consumer, and food ware products under the brand “ABBAware”, selling recyclable foodware such as disposable boxes, containers, and plates as well as plastic furniture.

Currently, their revenue split between the two segments is roughly 80-20, with the filing segment being the major revenue and profit contributor and the industrial, consumer, and food ware segment being the up and coming. For now, the growth in the latter still cannot offset the decline in the former and the company’s revenue have been declining over the past 10 years.

They also have a 23.7% stake in Muda Holdings, one of the largest local integrated paper manufacturers in Malaysia, as their associate company which unfortunately has been making losses since 2021 that have also been weighing down on the net profit of Asia File. At MUDA’s current market cap, this 23.7% stake in MUDA is worth approximately RM58.5mil.

Financials Overview

The above 2 charts show ASIAFLE’s cash holdings, revenue and profit trends over the past 10 years. The latest Financial Year (FY) recorded a loss mainly due to FOREX loss and the impairment on their investment in MUDA. Excluding the FOREX and impairment, the core business is actually still profitable albeit declining.

As mentioned earlier, ASIAFLE is trading below their net cash values, with a negative enterprise value. Meaning, in a theoretical acquisition scenario, the acquirer would receive more money than the price they paid to acquire this business.

The next section is only available for paid subscribers, I will dive deep into:

1. 4 potential catalysts of ASIAFLE;

2. 4 risks I am looking out for ASIAFLE; and

3. My thoughts on ASIAFLE.

Be a paid subscriber to read the rest of the article!