PNE Industries

PNE Industries (website) is a net-net listed in Singapore. The company has two segments:

• Contract manufacturing: the manufacturing of electronic controllers, transformers, and other electrical and electronic products
• Trading: the manufacturing and trading of emergency lighting equipment and lithographic plates, used for off set lithographic printing

The latest financial data are from March 31, 2013 and show cash and bank balances of S$15.7 million (S$ = Singapore dollar), receivables of S$24.9m and inventories of S$19.9m. Total liabilities were S$8.4 million, giving PNE Industries a NCAV of S$52.0 million.

With shares trading at S$0.086 and total outstanding shares of 335.67 million, PNE Industries’ market cap is S$28.9 million. Currently, PNE is trading at 0.56x NCAV and 0.42x book value.

The company has shown decent profits over the last six years. In the financial year ended September 30, 2012 the company showed comprehensive income of S$4.3 million. Also, the company has been able to generate cash consistently. The cash has been used to pay off the debt (PNE is currently debt-free) and to pay dividends. PNE has paid a dividend in every year since 2007, I can’t find financial reports for the years before 2007.

Of course no investment is perfect and one of the risks with PNE is that two groups of customers accounted for S$46.6 million of the total revenue of S$94.3 million. Also, 48% of the revenues come from customers located in Poland and the rest of Europe. Losing one or both of these customers could have a huge impact.

Perhaps this is one of the reasons why the stock is cheap. Also, the Singapore stock market as a whole looks relatively cheap. But I think the illiquidity of the stock is the most important reason for the low price. There are many days where no PNE shares change hands. The majority of investors simply want to be able to get out of a stock instantly and this keeps out many buyers.

It looks like PNE Industries is family controlled. The CEO, Tan Koon Chwee, owns 11.1% of the shares. His brother and the chairman of PNE, Tan Kong Heng, owns 10.5%. The list of major shareholders contains many other people named “Tan Kong” and between them they own more than 50% of the shares. Perhaps this is just a very common name in Singapore though, I’m not sure. Only 18% of the shares are held by the public.

Investing in Singapore and Hong-Kong

I have looked at a number of companies on the Singapore and Hong-Kong stock exchanges, but have never felt confident enough to invest. With US markets rising rapidly, I have looked harder. I find it difficult to trust the numbers of Hong-Kong listed companies, but there are some very cheap stocks there. I have more faith in Singapore in this regard. I think if a company official in Singapore defrauds investors he will be punished, I’m not so sure this would be the case in Hong-Kong or China.

What also helped is that PNE Industries owns 50% of an associate, PNE Benelux BV, which is located in my country, The Netherlands. I was able to find some old job openings for this company. On Facebook and Linkedin you can also find profiles of people working for some of the PNE subsidiaries. Perhaps this is all a little flimsy, but it does make me feel the company is real and it helps to get some sense of the people working for the company and their operations.

Finally, I have found a few funds that focus on Asian stocks and they have done very well over the years. For example: Yeoman Capital Management claims a CAGR of +13.12% for a period over 15 years. They seem to have a basic value approach and invest mainly in Hong-Kong, Singapore, Malaysia and South-Korea. (BTW: don’t spend too much time reading their newsletters, it’s all macro talk unfortunately).

I think that if I keep my positions small and take a basket approach, investing in a number of these cheap Asian stocks should work out well.

Links:

• PNE Industries company website
• Singapore Stock Exchange: Annual reports select “PNE Industries” in the drop-down menu next to the text “Company Name:” and press the “Go”-button
• Singapore Stock Exchange: Company announcements other announcements (including half-year reports)

Disclosure: long PNE Industries (P07)