In this briefing:
- SVI (SVI TB): Production Capacity Expansion Should Continue to Pay Off
- How the Mighty Fall…Or Should That Be A “Who Will”?
1. SVI (SVI TB): Production Capacity Expansion Should Continue to Pay Off
- More attractive to analysts, solid short-term earnings momentum, and strong stock price momentum relative to its sector
- Production capacity expansion at Cambodia and Slovakia plants should continue to stimulate sales which was up by 32% in 3Q18 YoY
- SVI’s focus on industrial customers means less volatile sales, and the long selling cycle works against new competitors
- Trades slightly lower at 19CE* PEG ratio of 0.7 compared to Thai Info Tech at 0.8 PEG and SVI is net cash
- Risks: Swift changes in technology
* Consensus Estimates
2. How the Mighty Fall…Or Should That Be A “Who Will”?
Jim Collins‘ book ‘How the Mighty Fall’ highlights some interesting pitfalls that great companies decline or even collapse and follows them in stages. For our purpose as investors or market watchers, the important thing is figuring out how (or rather which company) these principles apply to. In this review, we ignore the stages (since they are more likely to happen in the future) and instead look out some Thai companies where we are starting to see these vulnerabilities or symptoms.
- Overreach is arguably the biggest symptom. Diversifying into areas they don’t take seriously or have no expertise in. Sometimes, it just means having way too many products, which could be the case for BJC or Jaymart.
- Blame game culture. When companies dig out reasons to allocate blame rather than find solutions, it’s a big red flag. Speaking to folks that have left the firm, this sounds a lot like TMB.
- Denial of the obvious. Collins’ best example for this was how Motorola ignored all the warnings about Iridium’s failures. When we visited Finansia Syrus, we couldn’t help feeling that they were doubling down rather than finding a more realistic solution.
- Overconfidence is the flaw most likely to come to great companies. Watch out for companies that highlight all the positives and skim over the risks. Our meeting with Asia Plus sounded a bit too good to be true.
Companies that undergo decline may recover at some point, but it’s good for investors to be aware of them so you know what kind of risk you are buying into.
