Fundamental Analysis versus Phillip Fisher’s Business Sense: A case of Inari Vs QL

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Dear all,
Note: User ID: 10154899906070843. Profile: First Name Phillip. Last name: Fisher
Let’s compare Inari against QL base on Fundamental analysis and Business sense. According to Phillip Fisher because he know QL business well hence to him his business sense give him the gut feeling  that QL PE of 50+ and dividend yield of less than 1% is not considered as overvalue. So let’s start our comparison.
  1. Fundamental:
Let's we compare some Fundamental figures as comparison: The Fundamental data below clearly show that INARI CAGR for Revenue and NP to SH growth are much better then QL and If Phillip Fisher will to sell his QL in 2013 and buy Inari his original cost of RM 0.715 per share on Inari will now grow into 3,175,857/341,022 = 9.3 share plus dividend payout Instead of holding QL at RM 3.36 per share grow to 1,622,627/832360 = 1.95 share plus dividend.
Inari Amertron Bhd

CAGR
Revenue
1,376,042
1,176,311
1,043,120
933,099
793,655
241,140
180,775
40.23%
YoY %
16.98%
12.77%
11.79%
17.57%
229.13%
33.39%


NP to SH
249,266
227,853
148,254
152,535
99,220
42,014
19,887
52.38%
 YoY %
13.73%
55.50%
-2.10%
49.65%
143.43%
113.85%
-
NP Margin
18.90%
19.44%
14.10%
16.10%
12.65%
17.10%
10.67%
9.99%
NOSH
3,175,857
1,950,796
938,910
640,361
472,801
341,022
328,168
45.96%
NAPS
0.3381
0.4391
0.7152
0.7382
0.5003
0.3501
0.2501
5.15%
ROE
23.21%
26.60%
22.08%
32.27%
41.95%
35.19%
24.23%
-0.71%
RPS
43.45
37.15
32.94
29.47
25.06
7.61
5.71
40.22%
EPS
7.87
7.2
4.68
4.82
3.13
1.33
0.63
52.30%
DPS
8.42
6.04
2.49
1.8
1.02
0.48
0.29
75.27%
Price
2.26
2.11
2.97
3.25
3.03
0.715
0.37

P/RPS
5.22
3.5
2.67
2.23
1.81
1.01
0.67
40.78%
P/EPS
28.79
18.07
18.81
13.64
14.44
5.8
6.11
29.46%
EY
3.47
5.54
5.32
7.33
6.93
17.23
16.38
-22.78%
DY
3.72
4.64
2.83
2.74
2.24
6.29
7.57
-11.16%

QL Resource Bhd

CAGR
Revenue
3,263,830
3,012,026
2,853,924
2,707,767
2,457,186
2,146,307
1,946,672
8.99%
  YoY %
8.36%
5.54%
5.40%
10.20%
14.48%
10.26%
-
NP to SH
206,236
195,921
192,079
191,400
159,929
131,706
131,407
7.80%
  YoY %
5.26%
2.00%
0.35%
19.68%
21.43%
0.23%
-
NP Margin
6.61%
6.87%
7.07%
7.24%
6.79%
6.41%
7.15%
-1.30%
NOSH
1,622,627
1,247,904
1,247,660
1,247,838
1,159,746
832,260
831,801
11.77%
NAPS
1.11
1.4
1.28
1.14
1.11
0.78
0.98
2.10%
ROE
11.45%
11.21%
12.03%
13.45%
12.42%
20.29%
16.12%
-5.54%
RPS
201.14
241.37
228.74
217
211.87
257.89
234.03
-2.49%
EPS
12.71
15.7
15.39
15.34
13.79
11.49
15.79
-3.55%
DPS
4.5
7.25
4.25
0
3.5
4.5
4.5
-
Price
5.32
4.96
4.43
4.05
3.2
3.36
3.16
-
P/RPS
2.64
2.05
1.94
1.87
1.51
1.3
1.35
11.82%
P/EPS
41.86
31.59
28.78
26.4
23.21
21.23
20
13.09%
EY
2.39
3.17
3.48
3.79
4.31
4.71
5
-11.57%
DY
0.85
1.46
0.96
0
1.09
1.34
1.42
-8.19%
Mr. Phillip Fisher’s quote, “ They are spewing almost 300 million of cash flows every year, in 2014 their plant activities was around 180m and revenue was around 2.6b. in 2017 their plant activities was around 338m and revenue was around 3.6b. their debt gearing ratio is outstanding for such a fast growing operation ( which is another value why we justify 10b valuation) because it is a snowball rolling with its own strength now. Show me another business with similar metrics growing with debt that low in bursa.” unquote
The actual revenue was RM 2,457,186,000 in 2014 and RM 3,263,830,000 in 2017. Their total liability is now RM 1,434,987,000 with Non-current loan and borrowing RM 548,204,000 and current loan and borrowing RM 465,920,000. Total equity RM 1,890,931,000. Cash and cash equivalents RM 304,028,000. Is this debt gearing ratio outstanding?
Property, plant and equipment: RM 1,705,224,000 that mean if they stop CAPEX today from the gross profit they still need to deduct  average depreciation cost of RM 170,522,000 for each year of the next ten year.
Now look at Inari Balance sheet:
Total liabilities: RM 260,958,000. Total current assets: RM 924,138,000 with Deposits with licensed banks RM 232,496,000 and Cash and bank balances RM 297,466,000. Property, plant and equipment: RM 400,353,000. An average depreciation cost of RM 40 million per year.
Inari assets light, negligible debt (debt-to-equity remains low at 0.02 times), cash rich and still able to grow revenue much faster than QL.
QL is heavily dependent on Big CAPEX to generate growth and high depreciation cost will eat into their future Net profit. Quote, “If we take out their future expansion of 338 million, and use that plus the 65 million declared profit we'd get roughly P/E 3+ if they stopped investing in growing their business.” unquote.
Mr. Phillip Fisher, you’re wrong CAPEX of RM 338 Million is not profit without it the Net profit still remains the same. PE remains 50+ and not PE 3+ because CAPEX is not deductable from gross profit only depreciation was deducted from gross profit. So Mr. Phillip Fisher please knows what CAPEX is and what depreciation is.
In conclusion the Fundamental Analysis data indicate Inari is miles ahead of QL.
  1. Business sense.
Mr. Phillip Fisher  said his understanding and confident in QL comes from reading every possible detail from every possible source, visiting sites, going to AGMs, talking to competitors, talking to suppliers, reading market journals, reading order-books, reading third party ctos reports, talking to bank managers, reading on capital allocation reports, loan interest rates, reading fund manager analysis, reading reading reading. All over a 9 year period.
Let's summaries QL business model:
QL Group has three principal activities; Integrated Livestock Farming, Marine Products Manufacturing and Palm Oil Activities, and operates in Malaysia, Indonesia, Vietnam and China.
Taking a drilled-down approach, we identified the growth accelerators and secured core businesses for QL which are then categorised into 3Cs:
Conserve: Under Conserve are three businesses where we will maintain our foothold in. We will retain our strong base in surimi and fishmeal processing, two units which are facing limitations of marine catch resources and rising material cost. Another business where we will maintain is palm oil activities as this is a business where multiple facets of pressures are at play, from ever rising cost of production, severe labour shortages, long gestation period to compliance and environmental consciousness.
Continue: The upstream activities of aqua culture, deep sea fishing and layer farms are critical suppliers to consumers and any downstream food activities. Prawn aquaculture is a new area of development and a more sustainable approach to supply the voracious appetite for this seafood. Likewise, purse seiner fishing is kinder on natural resources. On land, the layer business is capital hungry but the return on investment is not as fast and attractive.
Core focus: We have identified businesses within our core that have better growing potential and returns at lower capital requirement. This category fits perfectly into our Downstream Integration theme where QL is building our own brands, and reaching consumers directly. Driven by the ravenous demand for the widely accepted chicken meat, the broiler business holds good prospects and we have begun acquiring technologies to grow it. In view of our existing expertise, downstream synergies and good growth potential, we are channeling focus on to value-added food processing, broiler integration activities and convenience store. Our anticipation of the short term economic outlook, within FY2019, will be a neutral to bearish.
Let's examine one by one QL’s MOAT as implied by Mr. Phillip Fisher.
Monopoly: Really?
  1. Quote, “It's looking more and more likely that QL will own the entire egg industry in Malaysia. And as there is no control over monopoly in Malaysia, guess who wins?” unquote
If you talk about egg and poultry products there are essential goods Price Control and Anti-Profiteering Act as government is very concern and sensitive on increase price of cost of living.
https://www.bakermckenzie.com/en/insight/publications/2018/06/anti-profiteering-update-malaysia
https://www.bloomberg.com/news/articles/2018-12-17/egg-price-surge-triggers-crackdown-as-malaysia-probes-cartels
Mr. Phillip Fisher had you read the Price Control and Anti-Profiteering Act? Quote: “reading reading reading. All over a 9 year period” unquote
  1. Quote, “Their surimi business is biggest in asean. FYI this is pure monopoly, as they are providing interest free loans to fishermen to buy or lease boats and equipment with the only requirement being that all catches to be sold QL first. Guess how many fishermen in asean owns their own boats versus loans from QL?” unquote.
For the period under review, QL’s fishery units in Kota Kinabalu were deeply affected by low fish cycle caused by unusual post-El Nino events, where a trail of storms followed. Compounding that, recent super typhoons in tandem with prolonged Northeast monsoons also adversely affected fishery activities. In Endau, the lower fish catch was compounded by a stronger Ringgit. The overall effect was a lower contribution from the fishery operations at this unit.
Three years ago, we commenced our prawn aquaculture activities to diverge from solely depending on fishing activities. In Kudat, the upstream activity challenges reported in the last financial year have been overcome. This Kudat prawn aquaculture unit is now in the recovery phase after the prawn disease outbreak last year.
QL produced 140,000 tonnes of surimi,surimi-based products, frozen fish and fishmeal. This is comparable to the 135,000 tonnes produced in the prior year and is the optimal output quantity for the operating MPM assets as at FY2018. In our Hutan Melintang marine unit, works for new chilled surimi-based product plant and frozen products factories were completed in March 2018 at a RM100 million investment. With the new plants, capacity chilled surimi based products have doubled to 25,000 metric tonnes per year, while capacity for frozen products will see an increase of 15,000 metrictonnes per year to 35,000 metric tonnes per annum.
https://www.undercurrentnews.com/2017/05/19/global-2017-surimi-supply-expected-to-remain-stable/
Global supply of surimi has been relatively stable, hovering between 820,000t and 830,000t since 2014.
Mr. Phillip Fisher out of total 140,000 tonnes:  How many % is surimi, surimi-based products? What Is QL % share of world market? Is QL considered as biggest in Asean and have monopoly price advantage? And is QL going into money lending business of giving loans to fishermen and how much they charge for interest, the % NPL and how come the receivable did not mention such loans?
  1. Hand on and hardworking Founder. Quote, “For me I will sell when either the founder and family stop going to site, pass away and being so hands on in the business. Did you know the ql founder has a PHD in agriculture field?” unquote.
Dr. Chia was born and raised in Sungai Burong, an impoverished fishing village on the northern coast of Selangor. He graduated with a Bachelor of Science (Honours) degree majoring in Mathematics from the University of Malaya in 1973 and obtained a Master in Business Administration in 1988 from the same university. He started his career as a tutor and subsequently joined University Teknologi Mara as a lecturer where he served for 11 years until 1984. Dr. Chia is a founding member of INTI Universal Holdings Berhad, which operates one of the leading private university colleges in Malaysia. On 5 July 2008, he was conferred the honorary degree of Doctor of Laws (Hon LLD) by the Honorary Awards Board of the University of Hertfordshire in recognition of his outstanding contribution to the development of business and education in Malaysia.
Mr. Phillip Fisher is this an honest mistake or deliberate mistake?
  1. Plantation (POA). Quote, “1200 hectares of land in Sabah for palm oil matured. 20000 hectares of land in East kslimantan (5000 matured). Where is the earnings and land valuation on that? Do you know? I'm sure you don't. Do I know. QL not only does plantation, they also own boilermech which builds their refineries, does their biomass, maintains their plants. How many other palm oil plantations have that kind of vertical integration? Probably a little bit. I was there to help commission their palm oil mill in 2012. Then I went and bought even more stock with company bonus.” unquote.
QL owns a 1,200 hectare mature palm oil estate in Sabah, as well as 15,000 hectare plantation ( 9,000 hectare mature) in Eastern Kalimantan, Indonesia. The third revenue pillar, POA, remained the smallest contributor to Group revenue. This division is most susceptible to weather patterns. The excessive rainfall, sustained El Nino stress and acute labour shortage in East Malaysia during the year resulted in lower fresh fruit bunch (FFB) yield as well as oil extraction rates.
The severe negative effects were slightly offset by the increased harvest thanks to the maturing profile of our planted estates in Indonesia. We initially anticipated POA activities to produce135,000 metric tonnes of FFB in the financial year under review. However, the high rainfall dampened production to 127,000 metric tonnes. Nevertheless, this was still a 27% higher in FFB production compared to the 100,000 metric tonnes harvested in FY2017. While the increase in FFB production provided more activities for the mills, the oil extraction rate (OER) was affected by the wet weather in Indonesia and severe labour shortage in Sabah. At the same time, Boilermech Holdings Berhad experienced slower business activity resulting from a poor order book, a hangover since FY2016. The CPO prices traded at about RM 2,500 per metric tonne in FY2018 did not provide the silver lining. Despite these challenges and the weaker CPO price in FY2018, the turnover increased by RM35.5 million from RM351.8 million to RM387.3 million while PBT increased from RM24.9 million to RM27.9 million. The contribution of Boilermech Holdings Berhad, an approximately 44% equity stake associate company has been taken into account in this performance. Boilermech’s contribution was lower due to weaker demand in the palm industries.
Mr. Phillip Fisher is the FFB yield and OER rate below industry standard? (The company I work for in Indonesia CPO yield per hectare mature per year is close to 6 MT) If you like plantation please buy JTIASA at least you cannot be more wrong/right than Cold Eye.
  1. Quote,” They are now 3% of Vietnam poultry and egg market. They are now 10% of Indonesia poultry and egg market. They also are now one of the cheapest and fast growing feed mill manufacturer in both countries.” Unquote.
Key ILF Developments and Outlook: Operations in Indonesia rebounded healthily. With vigilance and effective vaccination programmes, productivity of the layers has normalised. The Vietnamese unit has also seen gradual increment in production and plans are being mulled to build a new layer farm facility in a new location to double production capacity. Approval for the commencement of this new business and farm has been granted by the Vietnamese authorities. The regional operations lay close to 1.5 million eggs per day. On the feed raw material front, the entry of new players saturated the market, causing intense competition and adversely affected sales and margins. The current intense competition due to market saturation from new entrants in feed raw material is likely to continue in the next financial year.
Mr. Phillip Fisher Vietnam population is 97.42 million and Indonesia population is 266.79 million. A mere 1.5 million eggs per day capture 3% Vietnam and 10% Indonesia market?
  1. Quote, “And if you do the math, right now fm is worth more than 2 billion to ql simply because 80 stores generate 150m in sales per year. Unquote
Convenience Store Chain (FamilyMart) As part of QL’s outlined strategy to grow downstream via long-term scaleable businesses, QL is also the master franchisee of the FamilyMart convenience store chain in Malaysia. FY2018 marks a full year of FamilyMart operationsin Malaysia and the rapid expansion for the brand from Japan. By adopting the concept of konbini and providing convenience in particular with ready-to-eat food, FamilyMart created waves wherever it opened. As at 6 July 2018, there are a total of 50 FamilyMart stores in Malaysia. We aim to hit 89 stores by 31 March 2019 with the opening of an additional 50 stores, gearing towards fulfilling our promise of 300 stores in five years (FY2022).
Overall, actual performance in terms of key store operating key performance indicators (KPIs) such as gross margin, average ticket count and ticket size are meeting expectations. https://familymart.com.my/index.html
Mr. Phillip Fisher FamilyMart is convenience stores in particular with ready-to-eat food. So how many staffs needed to operate and prepare the food store? The staffs cost, rental cost, franchise fees, foods throw away rate and etc? Is a mere mention of “meeting KPIs expectation” the QL and your gold standard in measuring performance? Is the ready-to-eat food that created waves wherever it opened a mere flash in the pan? So please attend the next AGM and ask for more detail before your BS told you FamilyMart worth more than RM2B to QL.
Now Look at Inari business sense:
Quote, “To be honest, comparing the competitive moat between a semicon factory without it's own foundry and r&d budget to compete with Intel, qualcomm who will compete with you if times are bad” Unquote. According to Mr. Phillip Fisher statement, all the semicon factories in Malaysia need to close down.
Inari have a competitive edge as below:
Inari’s Business Model.
Inari Amertron Berhad (“Our Group” or “The Group”) is principally involved as an outsourced semiconductor assembly and test (OSAT) service provider for Radio Frequency (“RF”), Fiber-optics transceivers, Opto-electronics, sensors and custom IC technologies. The Group operates 12 plants situated regionally across three countries namely Malaysia, Philippines and China with facilities totalling floor space of more than 1,000,000 square feet, and with a workforce of more than 6,000 spread across the region.
  1. Recognition and appreciation by major customer: 
Achievements’ year 2018:
P13 plant undergone extension with a new four storey building with floor space of 180,000 sqft. This was completed in May 2018 making a total floor space of 340,000 sqft for P13.
Construction of a new plant P34 began in Batu Kawan and consists of 3 buildings of 6 storeys each with total floor space of 640,000 sqft. The first block was completed at the end of October 2018. P34 will be the biggest plant to-date in Inari.
Inari Technology was awarded by Broadcom, the “2017 Best Supplier from Wireless Semiconductor Division” award.
Amertron Incorporated, Philippines was awarded “Appreciation for The Strong Partnership and Excellent Shipment Support” for 2018 by Broadcom.
  1. Best of its class in FA fundamental analysis key/critical parameters in revenue and profit growth, dividend yields, ROE, strong cash flow and etc.
  2. RF Business Unit Continued to Grow.
 The RF business unit which is the Group’s main revenue’s contributor continued to grow modestly. The construction of Plant 13 phase 2 was completed in May 2018 and we expect the RF tester capacity to exceed 1,000 units upon full utilisation of the newly added shopfloor space. We expect the demand of RF products to remain steady in the short term with the growth in RF content continuing in smartphones, the continuing adoption of 4G/LTE, expected introduction of 5G by 2020 and continued innovation in new smartphone models
  1. New segment of business and customers.
Commencement of IOT’s Business. We are in the midst of preparing for qualification of new health sensor, 2D facial recognition and MiniLED products for the IOT segment. We expect successful full scale production ramp-up by the middle of 2019. The new health sensor and 2D products leverage on the existing iris scan platform and are being built for use in new smartphone models while MiniLED products are for high quality digital billboards.
  1. Know-how and efficient in OSAT and EMS industries with R&D support.

We are confident that our Group can sustain our performance in view of our reputation amongst OSAT customers as well as our technical know-how and industry knowledge, particularly our strength in providing comprehensive semiconductor packaging services, including back-end wafer processing, advanced packaging assembly, RF final testing and other turnkey services. These capabilities leverage our competitive strengths to sustain and grow our market position with existing and new customers. Further, we have plans to expand our Research and Development department to enhance the development of new products to further strengthen our position in the OSAT and EMS industries. In December 2017, our 100% owned subsidiary; Inari Integrated Systems Sdn Bhd also obtained another grant of RM100 million to modernise and upgrade the manufacturing facilities, equipment and machineries for the manufacture of Advanced Communication Chips and Die Preparation.
Inari 8th AGM minutes:
http://www.inariberhad.com/img/ir/8th%20AGM%20minutes%20(Key%20Matters%20Discussed).pdf
Thank you
P/S: Dear Mr. Phillip Fisher welcome to i3 where we make dream come true/ruin. Please continue to write in i3 as your comments show that you are very well versed and knowledgeable in investment methodology. With great knowledge come great responsibility and it is my hope that you will be sharing your knowledge with care and responsibility so that its’ benefit one and all.

https://klse.i3investor.com/blogs/Sslee_blog/188836.jsp