Is White Horse a Value Trap? (Part 1 of 2)

Value Investing Case Study 06-1:  This 2-parter is on the fundamental analysis and valuation of White Horse Berhad.  Part 1 here focuses on the company analysis

Is White Horse a value trap?

White Horse Berhad (White Horse or the Group) is the leading tile manufacturer in Malaysia that is currently trading at RM 0.60 per share (as of 2 Nov 2020).

This is much lower than its Graham Net Net price of RM 0.76 per share (as of 30 Jun 2020).

The Graham Net Net is often taken as a proxy for the liquidation value.  

Even if White Horse is liquidated at RM 0.76 per share, there are still the fixed assets of RM 1.87 per share (as of 30 Jun 2020) available for the shareholders.

Is the market suggesting that all the fixed assets are worthless?  

White Horse is definitely trading at a low price relative to its valuation.  Is this a value trap? It is only a value trap if the valuation is wrong.

In this 2-parter I will lay out my case why I think White Horse is not a value trap. 

I present Part 1 here while Part 2 was published on 22 Nov 2020.  An update was published on 7 Nov 2021.

Now as to whether you should go and buy White Horse - see my Disclaimer.

This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you. Learn more.


  • What is the core business of the Group?
  • How did the Group use its funds? 
  • What is the current status?
  • How did the Group get here?
  • What is the future of the Group?
  • Pulling it all together

Valuation date

2nd Nov 2020

Company name

White Horse Berhad

Stock name in Bursa Malaysia


Company Bursa Malaysia code


Bursa Malaysia sector

Industrial Products and Services

Listing date on Bursa Malaysia

Oct 1999

Financial Year End


Latest Quarterly results

2nd Quarter, 30 Jun 2020

Shareholders’ Equity

RM 599 million (30 Jun 2020)

Market capitalization

RM 137 million (2 Nov 2020)

Corporate website

Table 1: Company Info

Case Notes

I selected White Horse as a case study because this is a Group where the Asset Value is higher than the Earning Power Value.

According to Prof Bruce Greenwald, you can get strategic insights by comparing the Asset Value and Earning Power Value.  Refer to Fundamentals 02

White Horse is also a good case study of how to:
  • Deal with the differences between Asset Value and Earning Power Value.
  • Assess intrinsic value in a turnaround scenario.

I am assuming that you have the skills and interest to analyze and value companies.  If you don't have the interest or skills yet want to invest based on fundamentals, you can still do so by relying on experienced analysts. Those who do this well include people like Seeking Alpha.* Click the link for some free stock advice. If you subscribe to their services, you can access their business analysis, valuation, and risk assessment.

What is the core business of the Group?

“Tiles are often used to form wall and floor coverings and can range from simple square tiles to complex or mosaics. Tiles are most often made of ceramic, typically glazed for internal uses … Thinner tiles can be used on walls than on floors, which require more durable surfaces that will resist impacts.”  Wikipedia

White Horse started in Johore in 1992 as a joint venture between Taiwanese, Malaysian and Singaporean parties.    

From an initial set-up of only 2 kilns, the Group has since grown so that today it has 15 kilns.  It is also recognized as one of the leading ceramic tile manufacturers in the Asia-Pacific region. 

The Group has 2 manufacturing facilities in Malaysia and one in Vietnam.   In total, the Group has an annual production capacity of 35 million square meters. 
  • The Group initially manufactured and distributed red bricks and roofing tiles.  Today the Group produces ceramic floor and wall tiles, interchangeable floor and wall tiles, and also porcelain tiles.
  • Its products are sold in Malaysia, Vietnam, and exported to more than 30 countries around the world. 

The major accolades of the Group included:
  • The Malaysian Brand Laureate Awards 2010 - 2019
  • Ceramic World, the Group’s showroom is recognized by The Malaysia Book of Records as the largest tile showroom in Malaysia
  • The Readers Digest Platinum Trusted Brand Award 2010 - 2020 in the Wall & Floor Tiles Category
  • The first tile manufacturer in Malaysia to be invited by the Italian Association of Ceramic as one of the exhibitors of CERSAIE since 2012.  White Horse is ranked 18th on CERSAIE’s leading companies in terms of world production and consumption.

How did the Group use its funds? 

The Group has a total capital employed (TCE) of RM 757 million as of the end of Jun 2020, with SHF accounting for about 79% of it.  

About 89% of the TCE is deployed for its operations with the balance tied up in cash.

As you can see from the table and chart, it has deployed its funds effectively.



RM million

Shareholders’ Equity



Minority Interests



Total Debt and Lease     








RM million

Net Operating Assets

Net OA


Net Financial Assets

Net FA


Non-Operating Assets






Table 2: Sources and Uses of Funds (2nd Quarter Jun 2020)

White Horse - sources and uses of funds
Chart 1: Sources and Uses of Funds

What is the current status?

White Horse reported a YTD Loss after tax of RM 43.0 million for Q2 2020, compared to a loss of RM 18.6 million for the same period last year. 

According to the Group, the current year's performance is due to the impact of the Covid-19 pandemic, slow market pace in the construction industry, and stiff market competition.  The lower production volume has also resulted in a higher production cost. 

The performance of the Group over the past 12 years is illustrated in the chart below.

White Horse performance index
Chart 2: Performance Index

Notwithstanding the current Covid-19 issues, the performance of White Horse over the past 12 years can be described as “poor”:
  • The revenue in 2019 is about the same as that 12 years ago. It rose to 59 % above the 2008 figures in 2014 only to see a continuous decline since then.
  • The annual profits have been declining since 2014 with the Group suffering losses in 2018 and 2019. 2020 is likely to be another year of losses.
  • Gross profitability has been declining since 2010 due mainly to a declining gross margin. 
  • From 2008 to 2010 the average ROE was 10 %, but for the past 3 years, it has deteriorated to an average annual loss of 7 %.  

White Horse past 3 years performance
Table 3: Past 3 years of performance

In terms of capacity, the Group produced about 16 million m2 of tiles in 2019 compared to its annual production capacity of 35 million m2.  Production in 2019 has declined compared to the 2018 production of 22 million m2.  

I estimated that at its peak in 2014, the Group produced about 34 million m2 to 35 million m2 of tiles.  

To breakeven, (based on 2017 performance) the Group probably needs to produce and sell about 29 million m2 of tiles. 

The question is whether this decline is the result of some secular trend or the Group is in the down part of a business cycle.

If it is the former, then we have a value trap. But if it is the latter, White Horse could be a bargain. 

How did the Group get here?

The chart below shows the Group’s sales profile over the past 12 years. 

The Group business was carried out in Malaysia until 2012 when it first reported exports amounting to 13 % of its revenue. 

Prior to this, there were also some exports. For example, from 2008 to 2011, the Group has sold about RM 20 million (or an average of about 4 % of the annual turnover) of products and raw materials to a related party in Vietnam.  

Over the past 8 years, international sales (including sales in Vietnam) grew from 13 % of Group revenue in 2012 to 31% in 2019.
  • No doubt, the larger % currently is also due to the declining Malaysian sales, but it does show that international sales may have to play a bigger role going forward.  
  • In 2019, international sales were RM 163 million compared to RM 73 million in 2012. 

White Horse revenue profile
Chart 3: Historical revenue profile

Over the past 12 years, the Group expanded its operations by
  • Adding 2 kilns to its Malaysian operations
  • Acquiring the Vietnam facilities

In 2013 the Group acquired the entire equity interest in White Horse Ceramic Industries (Vietnam) Co Ltd (White Horse Vietnam) for USD 21 million or RM 64.74 million.  This is a related company that has been dealing with the Group since 2001. 

The rationales for the acquisition were
  • The Malaysian facilities were operating at 94% of capacity at that juncture.  It was more cost-effective and faster to acquire an existing factory than build one.
  • It would enable the Group to expand its exports

Unlike the exports, the results on the capacity side were not good.
  • According to the Circular issued for the acquisition, the Group's annual production capacity would be increased from 28.0 million m2 to 40.7 million m2.
  • I thus find it strange that in the White Horse website under the factory section, the Group current capacity is stated as 35 million m2.
  • Furthermore, in 2018 and 2019, the Group’s annual production was only 22 million m2 and 16 million m2 respectively.

At that juncture, only about 46% of White Horse Vietnam revenue was generated from sales in Vietnam while the rest were exported. 

As can be seen from Chart 3, both the exports and Vietnamese business has grown since then.  

Unfortunately, their revenue has not been sufficient to offset the declining revenue from Malaysia. 

The Malaysian property market started to soften in 2014/15 and has remained soft since then even before the Covid-19 pandemic. 

The sales decline has impacted a number of operating fronts
  • The cash conversion cycle which averaged 196 days from 2008 to 2010 has deteriorated to an average of 274 days from 2017 to 2019.
  • The administrative, selling and distribution expenses that average 17 % of sales from 2008 to 2010 have risen to an average of 21 % of sales from 2017 to 2019. 
  • The lower production volume has meant that the gross profits have declined from an average of 33 % from 2008 to 2010 to 15 % from 2017 to 2019. 
White Horse profit and expense profile
Chart 4: Historical profit and expense profile

The result is that the Group has been operating below its break-even levels over the past 2 years.  

Since hitting the peak revenue in 2014, the Group has implemented a number of measures to improve the bottom line.
  • Introducing new products as well as rationalizing its inventory control system
  • Lowering production cost eg heat recycling projects, downsizing of manpower, 
  • Stopping major capital expenditure since 2016. 

It should be pointed out that during the period from 2014 to 2019, the Group generated a total EBIT of RM 117.3 million after deducting RM 82.6 million for the following:
  • RM 21.4 million (net) from written off and/or written down inventories 
  • RM 12.1 million from impairment of Property, Plant, and Equipment
  • RM 49.1 million of unrealized forex losses

The long-term outlook of the Group would be different if these were considered as a one-off expenditure. 

What is the future of the Group?

What is the future?
Although the Group is facing losses and declining sales for the past few years, there is still good future prospects as:
  • The decline in the Malaysian revenue is merely due to being on the down part of a business cycle
  • The declining sales are not due to some secular or technological changes.  
  • There is the export potential

Malaysian demand

The chart below compared the Group’s Malaysian revenue index with the Malaysian property transactions index (for residential and commercial properties together)
  • The number of Malaysian property transactions peaked in 2014 and declined from then.  However, it seemed to have bottomed in 2018.
  • White Horse Malaysian revenue seemed to follow Malaysian property transactions. The correlation is 0.65. 

You can conclude that the Group’s Malaysian revenue decline is due to the soft property market. As the Malaysian property sector recovers, White Horse revenue should increase as well. 

I would expect the Group to return to profitability once the Group revenue goes above RM 650 million.  At the same time, the increased production volume would also enable the Group to bring its unit production cost down. 

White Horse - revenue vs property transactions
Chart 5: Correlation between White Horse revenue and Malaysian property transactions

If you compare White Horse’s Malaysian segment revenue with those of its Bursa listed peers, you can get another perspective of the impact due to the soft Malaysian property market.  The chart below shows such a comparison.

As can be seen, all the industry players suffered declining sales over the past few years.

White Horse peer Malaysian revenue
Chart 6: Peer revenue from Malaysia 
Note: For Seacara I only compared the tile segment. I also took the whole tile segment revenue for Seacara whereas, for the others, I compared only the Malaysian revenue. Seacara had a change in FY in 2019 so that 2018 values are extrapolated.  

Global demand

The ceramic tile market is a global market 

According to Research and Market, 
  • The global ceramic tile industry is projected to grow by 7.2 % per annum over the next 5 years. 
  • On the basis of product type, ceramic floor tiles dominate the market, accounting for more than half of the total market. Ceramic floor tiles are followed by wall tiles and others.
  • The residential sector represents the leading segment, holding the majority of the global market. Owing to their lightweight, anti-skid, and anti-bacterial properties, these tiles are preferred for use in places where hygiene is of prime importance.

Other market research groups also paint positive reports
  • Inkwood Research estimated that the market for ceramic tiles will grow at a CAGR of 8.05% from 2019.
  • Grand View Research estimated the global ceramic tiles market will grow at a CAGR of 6.7 % from 2020 to 2027.

The general view is that the global demand for ceramic tiles is growing at a higher rate than global GDP growth. 

In terms of the advantages and environmental issues regarding ceramic tiles, the following was reported:
  • Research and Market - Ceramic tiles manufacturing is an environment-friendly process. Recent technological advancements have also enabled manufacturers to further reduce the emissions of carbon and other harmful gases during production. 
  • Inkwood Research - There is an increasing demand for eco-friendly ceramic tiles. There is a growth in the use of ceramic tiles as a substitute for other materials.
  • Grand View Research - Ceramic tiles are durable, rigid, and environment-friendly materials. They comply with green building standards.

I believe that there is still an export potential for Malaysian ceramic tiles.  The following abstract from one of White Horse competitor - Kim Hing Bhd’s Annual Report illustrates this:

“The Group has repositioned its export market by targeting the USA market which has been abandoned by the Chinese suppliers due to the anti-dumping tariff implemented by the United State government against China.”

Pulling it all together

A definitive answer for whether White Horse is a value trap would be dependent on determining the Groups’ intrinsic value.

However, even at this stage, the indications are:
  • Ceramic tile is not a sunset product.  
  • The Malaysian business has declined due to the soft property market. I expect the Group to return to profitability when the property market recovers
  • There is growing global demand and hence export potential

At the same time, any increase in production would help to lower unit production costs and boost profits.

Given the large disparity between the current market price and the book value, there is enough reason at this stage to rule out White Horse as a value trap.

But if you want a more definitive analysis, follow me in Part 2.

End of Part 1 of 2

Part 2 of 2 was published on 22 Nov 2020

An Update was published on 7 Nov 2021

1) Gross profitability = gross profit margin / total assets 

Reading guide
If you are a first-time visitor to this blog, you may not be familiar with some of the concepts that I have used in my analysis and valuation.  I suggest that you check up the Foundations series - Fundamentals 01,  Fundamentals 02, and Fundamentals 03.   I also have a Definitions page in case you are not familiar with the terms I have used. 

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Disclaimer & Disclosure
I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

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