Cheap, Cheaper, Swing Media Technology Group (Asian Deep Value Stock)

Jan. 17, 2017 8:31 AM ET
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Contributor Since 2013

Value investor inspired by Ben Graham since 2001. Equity focus on investments. Value investments combined with tail-hedges inspired by Spitznagel and Taleb. 17+ years professional background in investment banking and Equities

Let's Swing (Swing Media Technology Group / Bloomberg: SWM SP)


PE = 2, P/B = 0.1 and consistently profitably.

Singapore listed small cap.

Question marks around management.

I own stock in Swing Media Products.

The company produces CDs and DVDs etc and is listed in Singapore and is a small (or micro) cap.

Before discussing the upside let's look at what could go wrong with Swing Media Products.

Historically sales have not showed up in cash flow but rather been tied up in accounts receivable. A/c receivable are approximately 2x current market cap. It is easy to worry about any accounting issues when net income deviates this much Cash Flow from Operations. Having said that, it seems like something you see in quite a few Asian stocks.

Rather than focus on maximizing the value of the company management has now come up with the idea of investing into a cattle ranch in Australia. The synergies between CD / DVD production and raising cattle is not entirely clear to me. This could be a way of diverting company cash into the hands of others than the shareholders. This is probably the biggest red flag to me.

Having said that, let's think about the potential upside:
Price to Book Ratio of 0.1

PE ratio of 2

If you deduct all liabilities ($49m) from current assets ($135m) you have net current assets of $ 86m. This expressed as a ratio to the current market cap ($18.4m) comes to 4.67. The company also has non-current assets of $ 98.5m that could potentially fetch more than zero in a sale. One value-creating idea would be to liquidate the company given how the stock chart looks.

The stock has flatlined for approximately a year at current levels so is not becoming any cheaper which could make these levels an interesting entry point (assuming a stock that wont go down will go up at some point).

Perhaps management can collect more accounts receivable going forward and consider buying back their own stock rather than pay out dividends. Or, let's hope an acquirer might show up and make a bid for the company. There should be some value left for a CD / DVD producer if you can buy the company at P/B 0.3 - 0.5.

So even if the current management is not Warren Buffett the low valuation of Swing Media Products probably makes up for it.

Over the last 12 months the average value traded was approximately $40k so you need to be patient when buying.

Disclosure: I am/we are long SWM SP.

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