Koyo International Ltd (5OC:SES)

Recent Share Price: S$0.066

Accounting: Singapore Accounting Standards

Fiscal Year: Dec. 31st

Market Cap: S$12.9 million ($9.5 million)

Koyo International Limitedkoyo-international-limited.original, an investment holding company, provides integrated mechanical and electrical engineering services in Singapore.

It operates in three divisions:

2016 2017 Delta
SGD (in Million) % SGD (in Million) %
Mechanical Engineering 8.77 58% 8.12 51.3% -7.44%
Facilities Management 6.11 40.4% 7.30 46.1% +19.45%
Electrical Engineering 0.243 1.6% 0.406 2.6% +67.08%

Operations can be broadly categorized into four core business segments. These include the

  1. provision of mechanical and electrical (M&E) engineering services;
  2. the supply of renewable energy and green products for building services;
  3. property development and construction; and
  4. the supply of construction materials and ancillary services related to it.

The company was founded in 1983 and is headquartered in Singapore. Koyo International has been listed on the SGX Catalist since 2009

Recent History

2018

Announced it has won a S$5.2 million contract from the Housing & Development Board for mechanical and engineering maintenance work which will go on for 36 months, with the contract starting in July. The latest order brings its total order book to S$31.9 million.

Mr. Foo Suay Lun appointed as the Executive Director of the Company. (Foo Suay Lun is deemed interested in 49,449,500 shares held by Salix Capital Pte. Ltd. which is 100% owned by his grandmother, Madam Heng Jee Moi with Foo Suay Lun being joint tenant with right of survivorship.)

2017

Announced a contract with a contract value of approximately S$2.6 million for mechanical and electrical cyclical improvement works for multi-storey car parks under the Housing & Development Board.

Announced a contract with a contract value of approximately S$1.2 million for supply and installation of bus duct system at Tuas South Incineration Plant under the National Environment Agency.

2016

Serena Lee Chooi Li (Director) purchased 1.5 million shares.

The company bought back 6.3 million shares at an average price of S$0.09976 (S$630,438), reducing share count to 185,258,497 shares issued and outstanding.

Mr. Foo Chek Heng was interviewed by MAS and CAD for possible offenses under the Securities and Futures Act. A small group of individuals was responsible for 60% of its share trading between Oct 26th and Jan 14th.

Insider Ownership

Main Shareholders Number of shares held Percent of shares held
Chek Heng Foo 73,125,500 38.52%
Salix Capital Pte Ltd* 49,449,500 26.05%
Serena Lee Chooi Li 1,500,000 0.79%
Yeo Guat Kwang 790,000 0.42%
*100% owned by Heng Jee Moi with a joint tenant with her grandson Foo Suay Lun.
Heng Jee Moi is the mother to Check Heng Foo

Insider Pay

Compensation is a bit egregious, but the ratio of ownership value to compensation offers some protection for shareholders.

Family Compensation Low High
Chek  Heng Foo  500,000  $  750,000  $
Dalat Kositanon*  150,000  $  199,999  $
Foo Suay Lun  100,000  $  149,999  $
Heng Jee Moi  50,000  $  99,999  $
 800,000  $  1,199,997  $
Ownership Incentive (Value/Salary) 10.1 6.7
*Wife to Chek Heng Foo

Other

  • No options outstanding
  • S$359,000 in off-balance sheet lease obligations
  • Has unrecognized tax losses of $988,000 at the end of the reporting period which can be carried forward
  • No related party transactions
  • No pension plan
In Millions 12/31/15 12/31/16 12/31/17
Cash and Short-term Investments  14.39  $  15.64  $  17.57  $
(0.85 * Accounts Receivable)  6.59  $  4.94  $  5.70  $
(0.60 * Inventory)  –    $  –    $  –    $
(0.25 * Other Current)  –    $  –    $  –    $
Total Liabilities  4.25  $  3.55  $  6.08  $
Preferred Stock  –    $  –    $  –    $
NNWC  16.74  $  17.03  $  17.19  $
NCAV  17.90  $  17.90  $  18.19  $
NCAV + LT Investments  17.93  $  17.93  $  18.22  $
TBV  18.03  $  18.02  $  18.58  $
Enterprise Value  58.23  $  (4.24) $  (5.18) $
Retained Earnings  13.98  $  14.45  $  14.95  $
Dividends Paid  (0.38) $  (0.28) $  (0.19) $
Sale or Purchase of Stock  0.02  $  (0.46) $  –    $
Shares Outstanding  196,279,000  189,979,000  189,423,497
P / NNWC 434% 67% 72%
P / NCAV 406% 64% 68%
P / NCAV + LT Investments 405% 64% 68%
P / TBV 403% 63% 66%
NCAV Burn Rate 4.4% 0.0% 1.6%
Debt / Equity 0.0% 0.0% 0.4%
Sloan Accrual Ratio 9.1% -5.8% -5.9%
F-Score 5 7 5
FS-Score 5 8 6
Z-Score  13.0  4.7  3.7
Beneish M-Score  (2.8)
EV / EBITDA  45.46  (4.96)  (5.79)
EV / Operating Income (5yr)  9.20  (0.81)  (0.89)
EV / Operating Income (10yr)  (0.52)
EV / FCF (3yr)  26.96  (0.77)  (1.80)
EV / FCF (5yr)  14.73  (1.09)  (0.85)
EV / FCF (10yr)  (0.48)
EBITDA (FY)  1.28  $  0.85  $  0.90  $
Operating Income (5yr)  6.33  $  5.22  $  5.85  $
Operating Income (10yr)  9.88  $
FCF (3yr)  2.16  $  5.54  $  2.88  $
FCF (5yr)  3.95  $  3.88  $  6.07  $
FCF (10yr)  10.79  $

 

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Write-Ups

The Secret Investors here

TwinPeak Capital comment

Disclosure: We own shares in Koyo International Ltd (5OC:SES).

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2 thoughts on “Koyo International Ltd (5OC:SES)

  1. Don’t forget about the other son (Foo Suay Wei) who charges a salary of SGD 250,000 – 500,000 in his dual mandate as Manager and also Director. Koyo looks like another typical publicly listed family business with an abusive family that craps on minority shareholders. The Heng Family (Foo Chek Heng + his mother + his wife + 2 sons) charge salaries that add up to SGD 1,375,000 on a company whose average EBITDA for the last 5 years was SGD 1,100,000. And the disparity between director compensation screams arbitrariness. This is indeed a net net stock that looks quantitatively cheap, but buying a share in the Koyo looks less like a fractional business ownership and more like a call option on the integrity of the Heng Family. If Koyo was really run for (all of its) shareholders, and they were not able to redeploy capital in the operating business, the fair thing to do would be to distribute that growing cash pile to investors and let them choose how to invest that. Koyo does not do that because it is not trying to maximize shareholder value, but trying to act as the investment holding vehicle of the Heng family. And sadly, this is the norm in SGX listings.

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    • Thanks for your comment and thanks for reading my blog! Aside from Japanese net-nets, (the knock being their “dead money”), it is hard to find a cheap asset conversion stock that doesn’t have some kind of hair on it. For right or wrong, I don’t want the portfolio to be 100% Japanese net-nets, so I have to hold my nose as I wade through other discarded stocks.

      For inclusion in the portfolio, the stock has to: (1) be a quantifiable net-net, and (2) have a very low probability of going to zero. I care less about what the upside is and more about what the downside is.

      Does Koyo meet this initial screen? I think so.

      As I mentioned in the post, it is a negative that the Heng family pays themselves too much. I agree with you 100%.

      But what should be the quantified discount for such a negative? Should the stock trade below net-cash because compensation is too high?

      To me, it meets the “safe and cheap” criterion. They’ve bought back shares, pay a dividend, and are not diluting shareholders. They’ve been profitable for the past 10 years; book value has increased in time I’ve owned it. They recently announced a large contract which puts their backlog over S$100 million. If, after holding this stock for 2-3 years, management has frittered away incremental profits on higher and higher salaries, I’ll sell and move on.

      I did, however, break a rule on this stock by ignoring the stock trading scandal. (I typically avoid stocks that have any hint of fraud.) From what I could tell, it appeared that management was deemed to be absolved​​​ from any involvement with it. Any information you have on this would be most helpful.

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