Is White Horse one of the better Bursa Malaysia stocks?

Value Investing Case Study 06-3: I first covered White Horse in Nov 2020. This is an update taking into account the financials for FYE 2020 and the Q2 2021 results.

Is White Horse one of the better Bursa Malaysia stocks

On 2 Nov 2020, White Horse Bhd (WTHorse or the Group) was trading at RM 0.60 per share. At that juncture, the price was lower than its Graham Net-Net of RM 0.76 per share (as of 30 Jun 2020). I had presented my rationale then for why WTHorse was not a value trap.

The price has since increased to RM 0.71 per share as of 18 Oct 2021. At the same time, the Graham Net-Net has also increased to RM 1.08 per share (as of 30 Jun 2021). Yes, the market price has increased by 18 % and the Net-Net by 42 % since then. 

This is despite the continuing losses:
  • In 2020, the Group incurred a loss. It was the third year of continuous losses since 2018.
  • For YTD 2021, the Group also incurred a loss. 

You could be forgiven for thinking that there is no hope for the Group. But if you are an investor with a long-term investment horizon, you should look beyond the immediate performance. Join me as I argue why WTHorse is still one of the better Bursa Malaysia stocks to invest in. 

If you are not familiar with the Group, please refer to the following articles as this post assumed some knowledge.

At the current price, there is still an investment opportunity. Should you go and buy it? Well, read my Disclaimer.


  • Investment thesis
  • Rationale
  • Valuation
  • Why is WTHorse one of the better Bursa Malaysia stocks?
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Investment Thesis

As of 18 Oct 2021, WTHorse was trading below its Graham Net-Net. The Graham Net-Net is often used as a shorthand for the liquidation value. I do not expect WTHorse to be liquidated. 

The Group’s problem is due to the soft property market that was aggravated by the Covid-19 Movement Control Order. I expect the property sector to recover within the next few years.

The market situation had resulted in the Group operating below its breakeven levels. However, it had taken steps to address this with cost down programmes and disposal of excess capacity.

The ceramic tile is not a sunset industry. WTHorse has the brand name and distribution setup. Together with its cost reduction programme, it would be able to benefit from the property market recovery. At the same time, the Group is financially sound and has the financial resources to withstand the soft market.


  • WTHorse is financially sound with zero net Debt. Despite the losses since 2018, the Group had been able to generate positive cash flow from operations.
  • The losses were due to operating below its breakeven level. The Group had taken steps over the past few years to address this by its cost reduction plans.
  • In 2021, the Group entered into a SPA to dispose its facility in Vietnam. This would improve the capacity utilization of the Malaysian plants and reduce the breakeven level. 
  • There is a link between Malaysian tile manufacturers' sales and the state of the Malaysian property market. The Malaysian property market had been soft since the mid-2000s. I do not foresee any improvement till another 2 to 3 years. 
  • Once the property market recovers, we would see WTHorse returning to profitability. Ceramic tile is not a sunset industry and the Group has the brand name and distribution network to ride the recovery.
  • The composition of the Board and Management Committee remained the same as last year. Management still has good operations and capital allocation track record. The only weak area is the poor track record for creating shareholders' value.
  • There is enough margin of safety based on conservatively estimated Asset Value and Earning Value where I have assumed another 3 years of losses.

The supporting details are presented in the following sections.

Financial strengths

As of the end of June 2021, the Group had a Total Capital Employed (TCE) of RM 648 million. 87 % of this was funded by Shareholders’ Equity with the balance from Debt (including leases). 

About 78 % of the TCE was used for the operations. Of the balance, RM 113 m was in cash, equal to about RM 0.48 per share. Because of this cash, the Group has zero net Debt. 

WTHorse capital structure
Chart 1: Sources and Uses of Funds

The Group had incurred losses since 2018. Despite the losses, the Group generated positive cash flow from operations during these loss periods. In fact, WTHorse had been able to generate positive cash flow from operations since its IPO in 1999.

Current performance

As of the end of Jun 2021, the Group had revenue of RM 193 million compared to RM 150 million for the same period last year.  It achieved a YTD loss of RM 22 million compared to a loss of RM 42 million for the YTD of last year.

Management had attributed the better revenue to better demand, particularly the replacement market. The lower losses were due to better gross profit than that of the previous year. This was due to the higher revenue, improvement in the production efficiency and cost-savings measures.

As illustrated in the chart below, revenue and gross profitability had been declining since the mid-2000s. I do not expect to see a turnaround in revenue or gross profitability in 2021.

Nevertheless, I expect the Group would be profitable in 2021 due to the one-off gain from the sale of the assets of White Horse Vietnam.  WTHorse had stated that the proposed disposal is expected to generate an estimated gain of RM 58.3 million. The Group would only have a trading company in Vietnam after the disposal. Management anticipates the disposal to improve the bottom-line of the Group in the longer term.

WTHorse performance index
Chart 2: Performance Index

Breakeven analysis

The losses for the past 3 yeas is because the Group was operating below the breakeven level. To turn around, the Group need to operate above its breakeven level. The breakeven level is dependent on the volume, variable cost and fixed costs.

There is not enough information in the Annual Report to determine the breakeven picture accurately. But to illustrate the breakeven position, I assumed the following in my breakeven chart:
  • Sales and costs from the various years were used as proxies for changes in volume.
  • Variable cost = Cost of sales less depreciation.
  • Fixed cost = Selling, General and Admin expenses + Depreciation.

As can be seen from Chart 3, the differences between sales and the total costs (variable costs + fixed costs) had been declining since the mid-2000s. By 2018, the Group incurred losses. 

WTHorse breakeven analysis
Chart 3: Breakeven Analysis

To return to profitability, the Group has either to increase its sale quantities, sell at higher unit prices or lower its costs. The Group had taken steps to address all of them.
  • By disposing of the Vietnam operations, it would reduce its annual production capacity. This would reduce part of the fixed costs associated with the manufacturing facility. At the same time, it would result in higher capacity utilization for the Malaysian plant thereby reducing the variable cost. Refer to the capacity utilization section of this article.
  • The Group had taken steps to address its variable and fixed costs even before the Vietnam plant disposal.
  • The sales would depend on both the quantity sold and unit selling price. These would depend on the market but if WTHorse could bring down the production costs, it could be profitable with lower sales volume. 

This is of course a back-of-envelope analysis as I do not have the production quantity or sales quantity. But it illustrates the direction to return to profitability.

Capacity utilization

According to its website, the Group has an annual production capacity of 35 million m2 of tiles. This is from both Vietnam and Malaysian operations. 

By disposing of the Vietnam operations, the annual production capacity would be reduced to 28 million m2.  I derived this from the following sources:
  • The Group's annual production capacity would be increased from 28.0 million m2 to 40.7 million m2. This was according to the Circular issued for the acquisition of White Horse Vietnam in 2013.
  • Notwithstanding this, in the White Horse website under the factory section, the Group current capacity is stated as 35 million m2. I have thus assumed that increase from 28 million m2 to 35 million m2 was due to the Vietnam facility. 

In my articles last year, I had stated the following:
  • 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 break even, (based on 2017 performance) the Group probably needs to produce and sell about 29 million m2 of tiles. 
  • Furthermore, in 2018 and 2019, the Group’s annual production was only 22 million m2 and 16 million m2 respectively.

The Group did not provide any information on the quantity of tiles produced in 2020. If I was to guess, it would probably be between the 2018 and 2019 quantities.  By disposing of the Vietnam facilities, the Group would have a better capacity utilization even with these quantities. In other words, the Group would not have to produce and sell 29 million m2 of tiles (based on the 2017 performance as per above) to break even.

Link to the property sector

The past decade had been very challenging for the Malaysian property industry.  The industry started the decade on a very positive note. However, the government soon instituted a number of cooling measures to reduce speculation. For example:
  • The Developer Interest Bearing Scheme (DIBS) was banned.
  • Real Property Gains Tax (RPGT) was increased.
  • The minimum property purchase price for foreigners was raised from RM 500,000 to RM 1 million.
  • The was a cap on the loan-to-value ratio for the third house.

Many of these measures were implemented in the first half of the decade but their effects persisted long after this. As can be seen from Chart 4, the number of property transactions had been declining since 2011.

I have also plotted the revenue index for a number of Bursa Malaysia companies in the tile sector on the same chart. You should not be surprised to see the revenue moving in tandem with the number of property transactions.

WTHorse performance vs property transactions
Chart 4: Performance vs Property Transactions

What does this all mean for WTHorse going forward?

Despite reducing its operating costs, WTHorse would only be able to turn around when the property sector improves.

In my article “Will the Malaysian Property industry turn around by 2024?” I had concluded that the financial performance of the property sector would only turn around in 3 to 4 years’ time because of the “big ship” effect.

According to the Redha Property Industry Survey 1H2021, the industry will recover between the next six to 24 months. 13% of those surveyed believed that it might take longer than 24 months for a full recovery.

However, I expect the other supporting sectors such as the construction and building materials to see the impact earlier. On this basis, I would expect WTHorse to return to profitability in 2023. It could even be earlier if the Group is able to reduce the breakeven levels further. 


There was no change in the composition of the Board of Directors or Management Committee. The members featured in the 2020 Annual Report were the same as those in the 2019 Annual Report.

I interpreted this to mean that there is no change in the business direction. The Group would continue to focus on cost reduction and improving productivity. 

Chart 4 compared WTHorse revenue with those of its peers. Its relative position in 2020 had not changed compared to that in 2019.

However, in terms of ROE, all the peers outperformed WTHorse in 2020 as shown in Chart 5. But this is not the true picture because of the following:
  • Kim Hin had a lower loss in 2020 compared to 2019 because of one-off compensation of RM 31 million received in 2020. 
  • YB Ventures improvement in 2020 was due to a one-off gain of RM 8 million from the disposal of land.
  • Seacara's profits in 2020 were due to the reversal of interests of RM 20 million. Without this, it would have made a loss.
WTHorse Peer ROE
Chart 5: Peer ROE

If you ignored all these one-off gains, WTHorse ROE in 2020 relative to the peers was the same as that in 2019.  Note that WTHorse performance is 2020 was after accounting for about RM 20 million of impairments and write-downs. In other words, it was made worse by the impairment. As such I would rate management performance as good.

In terms of capital allocation, from 2009 to 2020, the Group generated RM 684 million cash flow from operations. Of these:
  • RM 212 million was distributed as dividends. During the same period, the total PAT was RM 253 million. Thus the dividend was equal to a payout ratio of 84 %. Of course, no dividend was paid since 2018 when the Group incurred losses. Nevertheless, I would think this was a generous payout. 
  • RM 400 million was spent on investments.
  • Cash increased by RM 55 million.

I would rate it as a good capital allocation plan. 

Shareholders’ value creation

I looked at the following metrics from 2012 to 2020 when assessing shareholders’ value creation:
  • Comparing returns with the cost of funds.
  • Comparing the gains by an investor who bought a share at the end of 2008 with the cost of equity.
  • Looking at the Q Rating which is based on a number of valuation metrics. A high score relative to the panel meant that the company has the potential to create shareholders’ value.

As can be seen from Table 1, WTHorse returns were lower than the respective cost of funds. In order words, the Group did not create any shareholders’ value. You should not be surprised given its losses over the past few years.

WTHorse shareholders' value creation
Table 1: Shareholders' Value Creation
(a) Based on average EBIT/TCE from 2009 to 2020 assuming 24 % tax rate compared with WACC.

(b) This looked at how the SHF at the end of 2007 would have grown by the end of 2020 assuming that no dividend was paid. I compared it with the cost of equity.

(c) Computed assuming that an investor bought 1 share at the end of 2009 and held onto it till the end of 2020. His gain would be equal to a 0.6 % CAGR as shown below compared to the cost of equity.

WTHorse shareholders' gain
Table 2: Shareholder's gain

At the same time, WTHorse had an overall Q Rating of 0.38. This places it just below the 33 % position among the panel companies. Again, it illustrated that it would be challenging for the Group to create shareholders’ value.

WTHorse Q Rating
Chart 6: Q Rating


In my 2020 analysis, I stated that the 2 main risks when investing in White Horse were privatization risk and turnaround risk.

I had concluded that there was a low privatization risk then. Given that the current market price is even higher, the privatization risk today would be lower.

As for the turnaround risk, the risk remains. 


I valued WTHorse as follows:
  • Asset-based broken down into Graham Net Net, NTA and Book Value. This valuation took into account another 3 years of losses.
  • Earning-based using a 2-stage Residual Income model assuming another 3 years of losses and a terminal value based on an EPV.

The assumption of another 3 years of losses equal to that from 2018 to 2020 is an extreme case. This is because the historical losses included about RM 38 million of impairment. At the same time, because of the cost reduction programme, I expect the operating losses to be lower in the coming years.

Despite the pessimistic view, the chart below showed that the NTA or Book Value, and the Earning Value provided some margin of safety.
  • Conservative Asset Value based on Book Value = RM 2.10 per share.
  • Conservative Earning Value based on EPV = RM 1.01 per share.
WTHorse valuation
Chart 7: Valuation
Note: The Graham Net Net of RM 0.70 per share here is after including for another 3 years of losses. Without such losses, the Graham Net Net according to the Financial Statements is RM 1.08 per share. 

Asset value

As of June 2021, as per its Financial Statements, WTHorse had a Graham Net Net of RM 1.08 per share and an NTA of RM 2.48 per share. This is above the current market price. 

However for a conservative view, I assumed that the Group would continue to incur losses from 2021 to 2023 before returning to profitability. 

Assuming the same losses as in 2018 to 2020, this meant another RM 145 million of losses. But this is before accounting for the RM 58 million gain from the disposal of the Vietnam assets. The net result is then a total loss of RM 87 million. This is equal to RM 0.38 per share. 

Taking this into account, the Graham Net Net and NTA would be reduced to RM 0.70 per share and RM 2.10 per share before it returns to profitability. Note that in the case of WTHorse, the Book Value = NTA. 

Compare these to its current market price of RM 0.71 per share. While it is breakeven for the Graham Net Net, there is still a sufficient margin of safety based on the NTA o Book Value.

Earning value based on a 2-stage Residual income model

In a turnaround scenario, the challenge is forecasting the earnings and cash flows over the next 10 years.

I assumed the following:
  • Losses from Year 1 to Year 3 based on the average annual losses of 2018 to 2020.
  • For the transition period from Year 4 to Year 6, the EBIT went from RM 0 in Year 4 to RM 23 million in Year 6. The EBIT for Year 6 was based on the average annual EBIT from 2015 to 2017.
  • The EBIT in Year 10 was the average annual EBIT achieved from 2009 to 2014.
  • The capital charge was based on the WACC multiplied by the TCE of the previous year.
  • The TCE for each year = TCE of the previous year + the EBTT(1-t) of the current year. 
  • The terminal residual value is assumed to be zero ie no residual income. This assumed that the capital charge = EBIT(1-t)

The chart below summarizes the results of the model. The value of WTHorse = RM 1.01 per share.

WTHorse 2-stage valuation model
Table 3: 2-stage valuation model
Note:  At its peak in 2014, WTHorse produced 35 million m2 of tiles. I had assumed that in Year 10, the Group would have the average of the 2009 to 2014 EBIT. The average revenue for this 2009 to 2014 period was 77% of the 2014 revenue.  Assuming that the production volume was proportionate to the revenue, the Year 10 production quantity = 35 X 0.77 = 27 million m2. This is still within the reduced capacity (after the sale of the Vietnam assets).

Case Notes

As you see, the estimated intrinsic value will depend on the valuation models as well as the assumptions you make about the future.

This requires you to have a comprehensive company analysis. At the same time you need the business experience to identify the opportunities for improvements. 

If you do not have a business background, you may find this a bit challenging. If you face such a situation, one way is to rely on third-party analysis and valuation.  

There are several financial advisers who provide such analyses. 

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 tap into their business analysis and valuation.

Why is WTHorse one of the better Bursa Malaysia stocks?

The above analysis showed that the Group is financially sound. It has the resources to go through a prolonged downturn.

I have shown that:
  • The business is operating below the breakeven level and that the Group had taken measures to reduce the breakeven level.
  • There is a strong link between the Group’s revenue and the performance of the Malaysian property sector.
  • The Malaysian property sector is currently soft due to the Covid-19 measures as well the efforts in the early part of the past decade to cool the sector.

The Group is undergoing a turn around. The return to profitability is dependent on the property market turning around. I do not expect the Malaysian property market to remain soft forever. This is not a sunset industry but rather a cyclical one.

The steps taken by the Group to reduce cost and capacity will help it to be profitable at a lower production volume. At the same time, the Group has the brand name and distribution set up to benefit from any turnaround.

I have also estimated that there is sufficient margin of safety from both the Asset value and Earning value. This is assuming the worst-case scenario of another 3 years of losses. 

WTHorse is more than a cigar butt investment strategy as there is still potential for the business to grow. 

For these reasons, I consider WTHorse to be one of the better stocks in Bursa Malaysia to invest in.


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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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  1. Possibly WTHORSE benefiting from power crunch in China and high freight costs as imports from China becomes less competitive?

  2. The Malaysian tile manufacturers problem over the past 2 to 3 years is not just China but also the slow down in the property development and construction sectors. While I don't know whether there has been any decline in the import of tiles from China currently, I do know that the property and construction sector has yet to recover to the 2015/16 levels. I would not bet on White Horse turning around because the imports from China have declined. I would rather bet on White Horse turning around following the recovery of the property and construction sectors.


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