White Horse Bhd (16 Feb 2025)
Business description:
This company manufactures and distributes ceramic and homogeneous tiles in Malaysia, Vietnam, Indonesia, the Philippines, Singapore, Thailand, and China. The company offers ceramic floor and wall, ceramic wall, décor, glazed polished, polished porcelain, and porcelain tiles. The company was incorporated in 1997 and is based in Pasir Gudang, Malaysia.
I give a rating of BUY for this stock, here are my reasons:
1) Improving net current asset and book value
From Dec 2009 to June 2024, its net current asset per share (total current asset – total liabilities) has been improved from RM0.77 to RM1.41. Coupled with current price of RM0.72, there is significant margin of safety presented to grant a buy.
2) Minimum on external financing and not heavily leveraged business
From Dec 2009 to June 2024, its ratio of total payables and debts to total current asset remained around 27%. In the cash flow, this company did not engage in constant refinancing (yearly total debt issued and repaid at amount equal or higher than its cash from operation). Its improvement in cash balance is the result of its core operation efficiency and one-time sale of PPE in year 2021.
3) Construction sector in Malaysia start recovering after COVID
Company’s sales and operating profit have shown some improvement. Sales grew from 414m (Dec 2022) to 445m (LTM Sept 2024). Quarterly operating profit has improved recently. If the momentum of Malaysian construction sector recovering is continued, the is high possibility that the company can report improved earnings.
But there are some RISK factors for this stock:
a) Small company and low volume share transaction
This company only has market cap of around RM160 million, considered as micro-cap stock. Its share price might fluctuate wildly due to low volume.
b) Rising Production Costs
Surging raw material, energy, and labour costs have squeezed White Horse Berhad’s margins. Higher natural gas and electricity prices, coupled with a weaker Ringgit, have made imported materials more expensive. With intense market competition limiting price hikes, profitability remains under pressure.
c) Property Market Slowdown/oversupplied
A sluggish property sector has reduced tile demand as fewer residential and commercial projects launch. Stricter home loan approvals and an oversupply of properties further weaken construction activity, limiting sales growth.
d) Increased Competition
The import of Chinese tiles has intensified competition, forcing White Horse Berhad to compete with cheaper alternatives. Stiff pricing pressure from both local and regional players constrains margins, making differentiation and efficiency crucial for sustainability.
e) Highly commoditised product with little moat/differentiation. Highly sensitive to market economic cycle.
Key takeaways:
Since 2016, this company's stock has been on a diet, slimming down from RM2.20 to RM0.73, but beneath the ugly chart lies a quietly improving business. Despite struggling from 2019 to 2021, with earnings margins gasping for air, the company has since tightened operations, improved its net-net current asset, and consistently generated free cash flow—with reported losses mostly due to depreciation and write-offs rather than real cash burn. Even better, instead of drowning in debt, it has been paying it down. So, while the market sees a fallen stock, the balance sheet tells a different story—one of a company that might just be setting itself up for a comeback.
Back in 2015, the company already saw the writing on the wall—real estate oversupply and rising import competition were looming threats. Subsequent years proved those concerns valid, and the stock never quite recovered from its pre-2016 glory days. But fast forward to 2020, and despite the gloomy backdrop, revenue has been growing, and net income margins have been improving. While a full comeback to its golden era might be wishful thinking, if this trend continues, the market may have severely mispriced the stock—leaving plenty of room for a huge upside if earnings strength persists.
Valuation
If revenue holds around RM450 million with a net income margin of 3.5%, that translates to a net income of RM16 million. Applying a 10% discount rate, the capitalized value would be RM160 million. Add in the net cash position of RM72 million (as of Sept 2024), and we get a total estimated value of RM232 million—44% higher than the current market cap. While markets can stay irrational longer than we’d like, the numbers suggest this stock might be a bargain hiding in plain sight.
With RM232 million in estimated total value and 220.5 million shares outstanding (excluding treasury shares), that gives an implied per-share value of RM1.05—44% higher than the current market price.
With a net-net current asset of RM310 million, dividing by 220.5 million shares gives a per-share value of RM1.40—making this a classic Ben Graham net-net stock with a huge margin of safety. If the real estate property segment improves, a target price of RM1.20–RM1.40 isn’t far-fetched.
Conclusion
The potential upside hinges on a modest recovery in net margins—essentially a return to historical norms rather than any spectacular revenue surge. In a highly commoditized and fiercely competitive market, the profit outlook isn’t about shooting for the stars but rather getting back to solid ground.
