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Monday, April 23, 2018

(Icon) Muda Holdings - My 2018 Sailang Stock

Author: Icon8888 | Publish date: Mon, 23 Apr 2018, 10:57 AM

1. Stock of The Year

In 2016, I nominated Air Asia as the Sailang Stock.

In 2017, I nominated Hengyuan as the Sailang Stock.

In 2018, I am nominating Muda Holdings as the Sailang Stock.

2. Massive Expansion of Profit Margin

Muda Holdings is principally involved in manufacturing of carton boxes. Its manufacturing plants are mostly located in Malaysia.

Carton boxes manufacturing is not a glamorous business. However, something drastic happened to the industry recently.

In mid 2017, China announced that it will stop importing foreign wastes for reclycling purpose (plastic bottles, old newspaper, etc) because those things can cause massive pollution to its air and rivers. The ban came into full force by end 2017.

s a result, China's paper making industry experienced severe shortage in raw material supply. This caused paper product selling price to skyrocket as manufacturers passed on the cost to consumers.

As China is the Factory of The World, whatever happened there will spill over to other countries and regions. The selling price of Muda's carton boxes had also benefited, boosting its revenue.

On the other hand, due to China's import ban, developed countries such as Australia, Europe, US and Japan suddenly found that their market for waste products had disappeared overnight. As China was traditionally the biggest buyer, there is currently an oversupply of waste products all over the world (plastic bottlers and old newspaper piling up in developed countries).

As a result, Muda's raw material cost has also dropped drastically. To put it in simple mathematical term :

Increase in Revenue + Decrease in Raw Material Cost = PROFIT MARGIN EXPANSION.

The effect of this positive development in the industry has already started to show up in Muda's December 2017 quarterly result.

All eyes on coming quarters. Hopefully the company can continue to deliver strong profitability.

3. Concluding Remarks

By nominating Muda as the Sailang Stock for 2018, I am not saying that share price will skyrocket in the future. All I am saying is that in view of recent uncertainties in the market (trade war threat, etc), the industry Muda is in seemed to be defensive due to structural changes. As a result, earning visibility looked good.

Success in stock market is 50% about skill, 50% about luck. There is no guarantee that you can make money by punting Muda, but this is one stock that I think can give us a decent chance.

For further information, please refer to the following excellent research article by our fellow forum member :-

Have a nice day.

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