Is Perstima an investment opportunity?

Value Investing Case Study 80-1: A fundamental analysis of Perusahaan Sadur Timah Malaysia (Perstima) Berhad  to see whether it is a value trap or an investment opportunity.  

Perusahaan Sadur Timah Malaysia Berhad (Perstima or the Group) quietly dominates as a regional leader in the tinplate industry. With over 40 years of expertise, the company has expanded its footprint from Malaysia to Vietnam and the Philippines.

Despite its strong fundamentals and recent strategic expansion, Perstima's stock remains under the radar. The recent losses from its operations in the Philippines and a declining return on capital have raised eyebrows. But could these challenges mask a golden investment opportunity?

As tinplate demand rises with global sustainability trends, is this the perfect time to bet on Perstima before the market catches on? 

Join me as I dive into this company's numbers, challenges, and potential upside. My analysis shows that this is a fundamentally sound company undergoing a turnaround. It is trading below its intrinsic value. 

To be transparent, I invested in Perstima years ago and achieved good returns when I exited. I am looking to see whether there is another round to make money. 

Should you go and buy it? Well, read my Disclaimer. 

Contents

• Company background

• Operating performance

• Financial position

• Valuation

• Conclusion

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.

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.

Company background

Perstima is a producer and supplier of high-quality prime-grade tinplate for both domestic and export markets. 

Established in 1979, the Group started commercial production in 1982 in Malaysia. Today the Group has operations in Vietnam and the Philippines.

• Malaysia - The manufacturing plant, located in Pasir Gudang Industrial Estate, Johore, can produce 200,000 MT per annum. 

• Vietnam – Established in 2002, the operations was the first tinplate manufacturer in Vietnam. The plant currently has a production capacity of 120,000 MT per annum. It is situated at the Vietnam-Singapore Industrial Park in Binh Duong Province.

• Philippines – This was established in 2018 with the key activity as the manufacturing and sale of tinplate and tin-free steel. The manufacturing plant with a production capacity of 200,000 MT per annum is located at the Light Industrial Science Park, in Malvar, Batangas. 

The Group reports its segment performance by country. The Malaysian operations are still the biggest revenue and profits contributor as shown in Chart 1. In 2024, the Philippines operations are still running at a loss.

The Philippines plant commenced commercial operations in Aug 2022. According to the Group it “…is currently in its initial stages, with sales projected to grow steadily.”

Chart 1: Segment Performance

The tinplating industry is a mature one with a projected single-digit growth rate.

“The global Tinplate Market Size was estimated at 28.99 (USD Billion) in 2022…The Tinplate Market CAGR (growth rate) is expected to be around 3.04% during the forecast period (2024 - 2032).” Market Research Future 

“The global tinplate market size was valued at USD 30.07 billion in 2023 and is expected to grow at a CAGR of 3.3% during the forecast period (2024 to 2032). Asia Pacific dominated the tinplate market with a market share of 39.01% in 2023.” Fortune Business Insights

As such, despite the expansion into the Philippines, Perstima's revenue only grew at 3.1 % CAGR from 2013 to 2024.

Note: Perstima has March as its financial year-end. Unless stated otherwise, the year referred to in this article is the financial year. 

Tinplate steel, refers to a cold-rolled thin steel plate coated with a thin layer of metal tin on the surface. The cost of steel and tin, the key raw materials in the production of tinplate determines tinplate prices. 

In this context, both steel and tin are cyclical sectors. This makes Perstima a cyclical company. You can see from Chart 2 that in 2021/22 both the prices of tin and steel were much higher than the average prices from 2014 to 2024.

In the context of valuing Perstima, we should be looking at the performance over the cycle rather than extrapolating from the current performance.

Chart 2: Tin and Steel Prices

Operating performance

As can be seen from the left part of Chart 1, revenue growth over the past 12 years was mainly from the Malaysian and Vietnamese operations. These are operations with single-digit growth rates.

• Revenue from Malaysia grew at 2.5 % CAGR.

• Revenue from Vietnam grew at 3.3 % CAGR.

Hopefully when the Philippines operations run smoothly was can expect a leap in revenue. But thereafter it will also taper to be at a single-digit growth rate.

Profit growth tracked revenue growth except for 2024. You can see from the left part of Chart 3 that there was a large loss in 2024. This was due to: 

• Declining revenue due to lower sales demand. According to the company, “the global economy slowdown coupled with high inflation have significantly impacted major industries and commodities markets, including the tinplate industry…”

• Deterioration of gross profit margin due to lower sales demand, and the weakening of the Ringgit against the United States Dollar. Refer to the right part of Chart 3. According to the company, the loss was also due to “higher financing costs. Additionally, the operations in the Philippines were still in the early stages”

I also suspect that the spike in tin and steel prices in 2021/22 may have led to unusually larger profits in these years. When there was a soft market in 2024, there was a bigger loss impact.

If you ignore 2024, PAT grew at 3.7 % CAGR from 2013 to 2023.

Chart 3: Performance Index and Margins

While there was profit growth, trends as measured by the ROIC and ROE seemed to have a long-term downtrend. Refer to the left part of Chart 4. You can see the downtrend even if you ignore the 2024 performance. 

The main reason for this was that capital grew at a faster rate than profits. Excluding 2024,

• Total capital employed grew at 12.2 % CAGR compared to the 5.6 % CAGR in NOPAT.

• Equity grew at 5.4 % CAGR compared to the 3.7 % CAGR in PAT.

The higher growth rate in the funds can be traced to the funds for the startup of the Philippines operations. I could not find much information on the funds deployed in each country. But the following non-current assets from the 2024 Annual Report give you a sense of the scale.

• Malaysia – RM 32 million.

• Vietnam – RM 18 million.

• Philippines – RM 332 million.

Of course, a big portion of the Malaysian and Vietnamese non-current assets have been depreciated compared to the new Philippines plant. But I hope you can see that a big part of the funds was deployed for an operation that has yet to contribute to the bottom line. 

You can get a sense of the sources of the declining returns from the right part of Chart 4. Ignoring 2024 you can see that the decline in the ROIC was mostly due to the declining capital turnover. The operating profit margin and tax yield ie (1-tax) were relatively stable. 

Chart 4: Returns and ROIC drivers

Efficiencies

In a low revenue growth situation, the focus should be on efficiency improvements. One measure of this is gross profitability. You can see from the left part of Chart 3 that even ignoring 2024, there was a declining trend.

To see whether there are other signs of efficiency improvement, I considered several operating and capital efficiency metrics. The picture was not good.

• Operating efficiency as per the left part of Chart 5. Ignoring 2024, there were no improving trends for the 4 metrics. 

• Capital efficiency as per the right part of Chart 5. Ignoring 2023, only the cash conversion ratio had some improving trend.  

Chart 5: Efficiency trends

Another troubling picture was the increasing Reinvestment margin post-2021. This metric measures the Reinvestment. 

Reinvestment rate = Reinvestment / NOPAT.

Reinvestment = CAPEX & Acquisition – Depreciation & Amortization + net increase in Working Capital.

Over the past decade, Perstima had an average Reinvestment rate of 88%. The high Reinvestment rate meant that there was not much NOPAT left to distribute to shareholders. I suspect that the high rate was because of the investments in the Philippines.

If you look at the situation before 2018 (before the Philippines expansion), the average Reinvestment rate was around 25 %. 

Peer comparison

I found it challenging to find other tinplating companies for peer comparison. 

• There is no other Bursa tinplating company. The closest I could think of are CSC Steel and Mycron which are in coasted steel, and Malaysian Smelting which are in tin production.

• A Google search showed that there is no other global standalone tinplate company. Tin plating operations are commonly part of the tin packaging business (Ball Corp of USA), or part of the larger steel operations (Arcelor Mittal).

I thus focussed on Bursa competitors for peer comparison as shown in Table 1. You can see that Perstima had the best revenue growth rate from 2013 to 2023.

Table 1: Peer revenue

I looked at the trends of 4 metrics to get a sense of how well Perstima performed compared to its peers. Refer to Charts 6 and 7. 

• In the early years, Perstima was among the better if not the best performers. But it deteriorated over the years.

• The exception seems to be the EPS, where except for 2024, Perstima delivered the best results. 

Chart 6: Bursa Peer Return on Capital and EBIT Margin

Chart 7: Bursa Peer Levered Free Cash Flow Margin and EPS

Overall, Perstima outperforms its peers in most key financial metrics. Its higher ROC, EBIT margin and EPS demonstrate efficient operations, profitability, and effective capital use. However, the volatility in free cash flow margins warrants monitoring.

Financial position

I would rate Perstima as moderately sound financially. While there were some positive points, I have some concerns. The positive points included the following:

• As of Sep 2024, it had RM 145 million cash. This is equal to 17 % of its total assets. 

• Over the past 12 years, it generated positive cash flow from operations for 11 out of the 12 years. During this period, it generated RM 546 million cash flow from operations compared to the total PAT of RM 415 million. This is a good cash flow conversion ratio.

• It had a good capital allocation plan. Refer to Table 2. The cash flow from operations was sufficient to fund its CAPEX, including the Philippines expansion.

Table 2: Sources and Uses of Funds 2013 to 2024

My concerns include the following:

• I had already mentioned that its Reinvestment rate was high. But this was due to its Philippines investment and I would expect this to come down when the Philippine operations run smoothly.

• It had a Debt Capital ratio of 0.44 as of Sep 2024. This is the highest over the past decade. But looking at Table 2, I expect the CAPEX to come down once the Philippines operations run smoothly. The cash flow could then be used to reduce the Debt.

Valuation

I adopted the following picture in valuing Perstima. 

This is a cyclical company with a new start-up segment in the Philippines. As such, I looked at its performance over the cycle. While the tinplating sector is a mature one with a low single-digit growth rate, the Philippines' operations may give it a once-off revenue boost. 

I used the projected 2024 revenue trendline as the base. Refer to the dotted line in right part of Chart 8. Revenue would grow at 9 % per annum in Year 1 but reduced proportionately thereafter to 3 % at the terminal year. This is triple and the same as historical revenue growth rate respectively.

The profit was based on the operating model shown in the left part of Chart 8. 

• Given it cyclical nature of the tin and steel prices, I assumed the average 2013 to 2024 contribution margin as the long-term margin for the terminal stage.

• To model the losses due to the Philippines operations, I assumed that the base contribution to be the 2024 margin. Thereafter it would improve proportionately to the long-term margin.

• I assumed the fixed cost to be the average 2022 to 2024 fixed cost as shown in the left part of Chart 8. This would increase by 3 % per annum.

Chart 8: Operating Model and Revenue Projection

Note to Op Model. I broke down the operating profits into fixed costs and variable costs.

• Fixed cost = SGA, Depreciation & Amortization and Others.
• Variable cost = Cost of Sales that excluded Depreciation & Amortization.
• Contribution = Revenue – Variable Cost.
• Contribution margin = Contribution/Revenue

Apart from the earnings, the other key factor driving the free cash flow is the Reinvestment rate. The past decade's average was 88%. I assumed that in the long run, it would reduce to a more sustainable rate which I assumed to be half of the historical rate. I assume that it would take 5 years from the current rate to reduce to the long-term Reinvestment rate. 

On such a basis, I obtained an intrinsic value of RM 3.21 per share compared to its market price of RM 2.04 per share. There is more than a 30% margin of safety.

I think that my valuation is not an aggressive one. Based on the valuation model,

• The ROIC would be 6 % at the terminal stage compared to the past 12 years average of 11 %.

• The average EPS would be RM 0.19 per share compared to past 12 years average of RM 0.34 per share.

Valuation model

I valued Perstima based on a 2-stage valuation model as shown in Table 3. This is to enable me to incorporate the change in the Reinvestment rate. 

You can see that there was a loss in Year 1 and the FCFF was negative for several years due to the low profits relative to the Reinvestments.

The basic equations used in the model are:

FCFF = EBIT(1 – t) - Reinvestment.

EBIT = Revenue X Contribution margin – Fixed cost. 

Reinvestment was derived from the Reinvestment margin.

Table 3: Sample calculation

Notes

a) Straight-line reduction.

b) Pegged to growth rate.

c) Assumed proportionate improvement.

d) Assumed growth at a terminal rate.

e) Revenue X Margin and after accounting for Fixed costs.

f) Assumed proportionate improvement such that the Reinvestment rate at the terminal stage is 44% .

g) b X f

h) FCFF for each year = e - g.

j) Assumed constant D/E ratio. Refer to the WACC table. This was estimated based on the first page results of a Google search for “Perstima WACC”.

k) NPV for each year = (h X j).

l) Terminal for the year discounted at terminal growth rate.

m) 5 years NPV + terminal value.

n) Inclusive of any excess TCE. Non-operating assets, MI, and Debt.

o) Based on the number of shares.

Table 4: Estimating the cost of funds

Case Notes You can see that I carry out a peer comparison as part of my fundamental analysis. Generally, the peer comparison provides context and deeper insights. It provides a benchmark to gauge whether a company’s financial performance is strong or weak compared to others in the same sector.  Peer comparisons help assess the relative risk of investing in a particular stock. If one company has much higher debt levels or lower profitability compared to its peers, it could signal greater risk for investors.  It can also reveal how well a company is positioned relative to its competitors in terms of market share, innovation, and operational efficiency.  Comparing the growth rates of companies within the same sector can help identify firms that have better growth prospects. Peer analysis helps in evaluating a company's management effectiveness and strategic decisions.  Overall, a peer comparison enables you to make more informed decisions about the stock's relative value, risk, growth prospects, and competitive position. As you can see, fundamental analysis requires expertise and time. That is why I created the Fundamental Mapper to shortcut the process. You can see the position of Perstima as of 7 Jan 2025 in the Fundamental Mapper chart below. Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies.     PS: The Fundamental Mapper gives you a first-cut picture. You probably would not consider Perstima looking at just the Fundamental Mapper as if falls into the Turnaround quadrant. But a detailed fundamental analysis as shown in this article, provides opportunities where no one is looking.

Case Notes

You can see that I carry out a peer comparison as part of my fundamental analysis. Generally, the peer comparison provides context and deeper insights.

• It provides a benchmark to gauge whether a company’s financial performance is strong or weak compared to others in the same sector. 

• Peer comparisons help assess the relative risk of investing in a particular stock. If one company has much higher debt levels or lower profitability compared to its peers, it could signal greater risk for investors. 

• It can also reveal how well a company is positioned relative to its competitors in terms of market share, innovation, and operational efficiency. 

• Comparing the growth rates of companies within the same sector can help identify firms that have better growth prospects.

• Peer analysis helps in evaluating a company's management effectiveness and strategic decisions. 

Overall, a peer comparison enables you to make more informed decisions about the stock's relative value, risk, growth prospects, and competitive position.

As you can see, fundamental analysis requires expertise and time. That is why I created the Fundamental Mapper to shortcut the process. You can see the position of Perstima as of 7 Jan 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies.

   

PS: The Fundamental Mapper gives you a first-cut picture. You probably would not consider Perstima looking at just the Fundamental Mapper as if falls into the Turnaround quadrant. But a detailed fundamental analysis as shown in this article, provides opportunities where no one is looking. 

Case Notes

You can see that I carry out a peer comparison as part of my fundamental analysis. Generally, the peer comparison provides context and deeper insights.

• It provides a benchmark to gauge whether a company’s financial performance is strong or weak compared to others in the same sector. 

• Peer comparisons help assess the relative risk of investing in a particular stock. If one company has much higher debt levels or lower profitability compared to its peers, it could signal greater risk for investors. 

• It can also reveal how well a company is positioned relative to its competitors in terms of market share, innovation, and operational efficiency. 

• Comparing the growth rates of companies within the same sector can help identify firms that have better growth prospects.

• Peer analysis helps in evaluating a company's management effectiveness and strategic decisions. 

Overall, a peer comparison enables you to make more informed decisions about the stock's relative value, risk, growth prospects, and competitive position.

As you can see, fundamental analysis requires expertise and time. That is why I created the Fundamental Mapper to shortcut the process. You can see the position of Perstima as of 7 Jan 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies.

   

PS: The Fundamental Mapper gives you a first-cut picture. You probably would not consider Perstima looking at just the Fundamental Mapper as if falls into the Turnaround quadrant. But a detailed fundamental analysis as shown in this article, provides opportunities where no one is looking. 

Case Notes

You can see that I carry out a peer comparison as part of my fundamental analysis. Generally, the peer comparison provides context and deeper insights.

• It provides a benchmark to gauge whether a company’s financial performance is strong or weak compared to others in the same sector. 

• Peer comparisons help assess the relative risk of investing in a particular stock. If one company has much higher debt levels or lower profitability compared to its peers, it could signal greater risk for investors. 

• It can also reveal how well a company is positioned relative to its competitors in terms of market share, innovation, and operational efficiency. 

• Comparing the growth rates of companies within the same sector can help identify firms that have better growth prospects.

• Peer analysis helps in evaluating a company's management effectiveness and strategic decisions. 

Overall, a peer comparison enables you to make more informed decisions about the stock's relative value, risk, growth prospects, and competitive position.

As you can see, fundamental analysis requires expertise and time. That is why I created the Fundamental Mapper to shortcut the process. You can see the position of Perstima as of 7 Jan 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies.

   

PS: The Fundamental Mapper gives you a first-cut picture. You probably would not consider Perstima looking at just the Fundamental Mapper as if falls into the Turnaround quadrant. But a detailed fundamental analysis as shown in this article, provides opportunities where no one is looking. 

Risks and limitations

3 key parameters are driving the valuation.

• Number of years with losses.

• Reinvestment rates.

• Jump in the Philippines revenue.

Based on the valuation model, the operations would turn around and be profitable in Year 2. It is obvious that if the turnaround takes long, the intrinsic value will be lower. 

The Reinvestments based on the valuation model would be RM 41 million in Year 1 and be reduced to RM 26 million at the terminal stage. The average Reinvestment in the model was RM 35 million. In comparison, the average Reinvestment over the past 12 years was RM 31 million. This average included years with negative Reinvestments. 

I assumed that there would be a 9% revenue growth in Year 1. This would result in a revenue of RM 1.2 billion compared to the 2024 revenue of RM 919 million. This is a leap of RM 285 million effectively a 31 % increase. This is just a guess on my part.

To give you a sense of the scale, revenue from Vietnam in 2024 was RM 314 million. The past 3 years average revenue was RM 1.2 billion. 

The intrinsic value would be about the market price if I assumed a lower revenue growth rate of 6 %. 

I would think that my assumptions are not aggressive ones as illustrated in Chart 9. 

Chart 9: Projections

Conclusion

Perstima is fundamentally sound but faces challenges due to its cyclical industry, low revenue growth, and declining efficiency trends. Its strengths lie in its market leadership, ability to generate cash, and historical profitability. However:

• The heavy investment in the Philippines plant has diluted returns.

• Growth opportunities are limited due to the mature nature of the tinplating industry.

• The declining trends in ROIC, ROE, and efficiency metrics warrant attention.

I also see the following positive points.

• The Group is financially sound. 

• Compared to peers, Perstima has historically been a strong performer. 

• The Philippines plant has yet to contribute positively.

Given its good margin of safety, this is an investment opportunity rather than a value trap.

Investment thesis

Perstima represents a fundamentally sound investment in a mature but stable industry. The company’s market leadership, expansion into the Philippines, and strong cash generation provide a solid foundation for long-term growth. 

The current challenges, including short-term losses in the Philippines and declining margins, offer an opportunity to invest at a potentially undervalued level. 

This thesis hinges on Perstima improving operational efficiencies, stabilizing returns, and leveraging growth in the Asia-Pacific region. For long-term investors willing to wait for the Philippines' operations to stabilize and a tolerance for cyclical fluctuations, this is an investment opportunity.

END

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 

How to be an Authoritative Source, Share This Post

If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play. PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play.

If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play.

PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play. 

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.

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.

Your link text