Our conviction of DIP Corp remains, despite a collapse in stock price
A strong start to the US corporate earnings reporting season is giving beleaguered stocks a much needed boost of confidence. Worries over geopolitical tensions, trade and regulations of tech companies remain and will likely keep volatility at elevated levels but the rebound is a welcomed relief.
Most of the stocks in our Global Portfolio closed higher for the week mirroring the improved sentiment. Nevertheless, total portfolio value declined 4.1%, dragged down by heavy losses for DIP Corp. 
Shares for DIP stumbled, falling some 26.1% in the past one-week after releasing its latest quarter results for the financial year ended February 2018. The stock has been one of our best performing, until this latest setback. Its price has now fallen below our initial acquisition cost. We have parsed through the numbers and we do not believe the steep selloff is warranted.
One the main metrics that the market is unhappy about was the drop in sales revenue per job advertisement, which fell 14% y-y. The rationale is that giving excessive discounts to generate sales is bad strategy. This is true to a point, but not necessarily. The other reason behind the sharp drop in prices could be DIP’s own lowball profit growth forecast of just 6% for FY19.
Firstly, whether the decline in pricing is due to increased competition or by design, it is not necessarily a bad thing from a business point of view. The key is whether the additional sales generated outpaces price decline – that is, what is the price elasticity of demand?
Chart 1 clearly shows that for DIP, the demand elasticity is likely >1. Even though price declined 14%, the number of job postings grew 33% resulting in sales growth of 15% for the latest financial year (see Charts 2 to 4).
Chart 1: Robust growth for number of job postings
Chart 2: Revenue per job posting
Chart 3: Revenue is still growing at double digits
Chart 4: Demand elasticity for DIP is likely >1
The beauty of a digital business model is that sales and earnings can grow proportionately faster than capex, has low marginal costs and build network effect at the same time. Case in point, DIP’s cost of sales actually fell in absolute terms in FY18 despite generating higher sales volume.
Digital platforms tend to have far fewer supply constraints. This is evidenced by the company’s sales growth relative to total assets base (excluding cash) over the years. Net cash has risen consistently on the back robust cashflow from operations, from ¥188 million in FY12 to the current ¥14.7 billion.
Operating expenses – principally personnel, marketing and promotion as well as rental costs – did rise in FY18 as the company seeks to expand its customer reach, from hiring more staff to increased promotions via TV commercials and web ads and opening new offices in Sapporo and Sendai.
Even then, Ebitda margin extended its long-term uptrend, expanding from 11.1% in FY12 to 30.4% in FY17 and 31.5% in the latest FY18. Net profit margin showed a similar trend, expanding from 3.3% in FY12 to 18.6% in FY17 and 19.8% in FY18 (see Chart 5).
In other words, DIP is not sacrificing margins simply to generate sales growth.
Chart 5: Ebidta and net profit margin uptrend intact
Remember, DIP is a market leader. It operates one of the largest web portals and mobile applications for part-time and temporary jobs in Japan. Given the benefits from network effect and near zero marginal cost, reducing prices can actually gain market share and improve profits.
We are still upbeat on the outlook for DIP. There remain numerous factors in its favour.
Japan’s economy is in the midst of its longest stretch of growth since the asset bubble burst in the 1980s. A gradually recovering economy, ageing population and shrinking workforce have led to rising job vacancies. Furthermore, the country is seeing a shift away from permanent positions – demand for temporary and part-time jobs are typically high for an ageing society. Unemployment has fallen to the lowest level in decades – there are currently 1.58 jobs for every job seeker.
Plus, the trend is clearly biased towards usage of online job postings, which carry more information. A digital platform – such as that of DIP’s – is the fastest and most efficient way to match job seekers with prospective employers.
Job postings online have exceeded that in print media (including free papers) since April 2015 and now account for 69.8% of all postings (see chart 6).
Chart 6: Online job posting continues to gain ground over print
Valuations are reasonable with trailing PE of 18 times and EV/Ebitda at only 10 times – relative to net profit and Ebitda growth of 22% and 19%, respectively.
The company has guided for sales growth of 11% but net profit growth of just 6% in FY19. This suggests operating expenses will rise at a faster pace – DIP plans to keep increasing sales capacity (hiring more staff), expanding existing offices as well as opening new ones to grow its footprint. This reflects a sound longer-term strategy instead of maximising short-term profits, as equity markets prefer.
We are fairly confident DIP can achieve its topline target and believe it can exceed its own profit growth forecast if margins can continue to improve, which has been the trend in the past years. The company also pay dividends, which totaled ¥43 last year and expected to increase to ¥45 in FY19.
We bought 33,000 shares in Hong Kong-listed Nine Dragons Paper Holdings for some US$49,909.9 After this purchase, cash holding in the Global Portfolio was reduced to 16%.
On the home front, investor sentiment for the Bursa remains cautious. The benchmark index, FBM KLCI gained but market breadth was noticeably negative for the better part of the week.
I acquired 14,500 shares in Sarawak-based construction and property company, Hock Seng Lee. We believe that government budget allocations for development in the East Malaysian state will continue to be robust for the foreseeable future. And HSL has the necessary expertise, experience and home ground advantage. You can check out the latest InsiderAsia report on the company on www.absolutelystocks.com for more details.
The Malaysian Portfolio gained 0.6% for the week and lifting total returns to 62.7% since inception. This portfolio continues to outperform the benchmark index, which is up just about 3.6% over the same period, by a long distance.

Performance Comparison Since Inception (%)
  • Tong's Value Investing Portfolio
SCGM BHD661.20879.71.550102.322.628.4%
AJINOMOTO (M) BHD1,50012.27818,417.522.58033,870.015,452.583.9%
PANASONIC MANUFACTURING MSIA40024.9559,982.034.62013,848.03,866.038.7%
SUPERLON HOLDINGS BHD12,0001.17514,100.01.21014,520.0420.03.0%
KERJAYA PROSPEK GROUP BERHAD11,0001.02511,280.01.64018,040.06,760.059.9%
Y.S.P.SOUTHEAST ASIA HOLDING10,5002.48326,075.02.45025,725.0(350.0)(1.3%)
LUXCHEM CORPORATION BHD16,5000.71711,825.00.64510,642.5(1,182.5)(10.0%)
CHOO BEE METAL INDUSTRIES BHD16,0002.19035,040.02.41038,560.03,520.010.0%
FORMOSA PROSONIC INDUSTRIES18,0001.54027,720.01.47026,460.0(1,260.0)(4.5%)
HONG LEONG INDUSTRIES BHD2,0009.59619,191.011.00022,000.02,809.014.6%
OKA CORPORATION BHD12,0001.54118,488.01.35016,200.0(2,288.0)(12.4%)
WILLOWGLEN MSC BHD10,0001.01010,100.01.18011,800.01,700.016.8%
Total  202,298.2 231,767.829,469.614.6%
Shares bought       
HOCK SENG LEE BHD14,5001.53422,243.01.54022,330.087.00.4%
Total shares held  224,541.2 254,097.829,556.613.2%
Shares sold       
No transaction.       
Cash Balance    71,252.6  
Realised Profits / (Losses)    95,793.8  
Change since last update Apr 12, 2018       
Portfolio      0.6%
FBMKLCI      1.2%
Portfolio Returns Since Inception  200,000.00 325,350.4125,350.462.7%
Portfolio Returns (Annualised)      17.8%
Portfolio Beta      0.579
Risk Adjusted Returns Since Inception      108.2%
Performance ComparisonAt Portfolio StartCurrentChangeRelative Portfolio Outperformance
FBM KLCI1,829.71,895.23.6%59.1%
FBM Emas12,700.413,236.04.2%58.5%
*Current price is as at April 19, 2018. 
*Portfolio started on Oct 10, 2014 with MYR200,000. 
*This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks.

BATU KAWAN BHD15-Feb-1703-May-1720019.5003,900.018.9603,792.0(108.0)(2.8%)
BATU KAWAN BHD15-Feb-1704-May-1740019.5007,800.018.9007,560.0(240.0)(3.1%)
UNITED PLANTATIONS BHD13-Feb-1708-May-1750026.15013,075.028.42014,210.01,135.08.7%
UNITED MALACCA BHD08-Feb-1709-May-171,0005.8005,800.06.2006,200.0400.06.9%
UNITED MALACCA BHD08-Feb-1711-May-171,0005.8005,800.06.1906,190.0390.06.7%
WILLOWGLEN MSC BHD23-Nov-1630-May-1713,0000.7689,985.91.72022,360.012,374.1123.9%
YEE LEE CORPORATION BHD12-Jan-1729-Jun-176,0002.50015,000.02.48714,924.0(76.0)(0.5%)
CLASSIC SCENIC BHD26-Jan-1613-Jul-174,0001.4135,651.31.8157,260.01,608.828.5%
MIKRO MSC BERHAD01-Dec-1627-Jul-1742,0000.33113,920.00.54522,890.08,970.064.4%
CLASSIC SCENIC BHD01-Dec-1627-Jul-174,0001.4135,651.31.7907,160.01,508.826.7%
PANASONIC MANUFACTURING MSIA21-Jan-1627-Jul-1740026.12510,450.037.10014,840.04,390.042.0%
ELSOFT RESEARCH BHD30-Mar-1724-Aug-178,0001.84414,750.02.65021,200.06,450.043.7%
JOHORE TIN BERHAD - WA 12/1704-May-1724-Aug-1717,0000.65511,135.00.68011,560.0425.03.8%
FOCUS LUMBER BERHAD03-May-1730-Aug-176,0001.6609,960.01.5309,180.0(780.0)(7.8%)
WILLOWGLEN MSC BHD23-Nov-1630-Aug-177,0000.7685,377.01.43010,010.04,633.086.2%
WILLOWGLEN MSC BHD23-Nov-1628-Sep-177,0000.7705,377.01.1808,260.02,883.053.6%
LII HEN INDUSTRIES BHD14-Dec-1628-Sep-175,0002.82014,100.03.72018,600.04,500.031.9%
COMFORT GLOVES BERHAD28-Aug-1708-Dec-1725,0000.96024,000.00.93023,250.0(750.0)(3.1%)
JOHORE TIN BHD08-May-1708-Dec-179,0001.60014,400.01.18010,620.0(3,780.0)(26.3%)
THONG GUAN INDUSTRIES BHD12-Dec-1608-Dec-175,0004.24321,215.04.10020,500.0(715.0)(3.4%)
KERJAYA PROSPEK GROUP BERHAD12-Jan-1715-Mar-1811,0001.02511,280.01.54016,940.05,660.050.2%
KERJAYA PROSPEK GROUP BERHAD - WARRANTS B 2018/202308-Mar-1815-Mar-183,0000.0000.00.330990.0990.0-
LUXCHEM CORPORATION BHD30-Aug-1715-Mar-1816,5000.73212,072.50.72011,880.0(192.5)(1.6%)
WILLOWGLEN MSC BHD14-Dec-1722-Mar-1820,0001.01020,200.01.26025,200.05,000.024.8%
MUAR BAN LEE GROUP BERHAD26-Oct-1722-Mar-1813,5001.24016,740.01.17015,795.0(945.0)(5.6%)
A Note to Readers
It is my pleasure to share with you my Value Investing Portfolio. However, I must emphasize that it is by no means a recommendation or a solicitation or expression of views to influence you to buy or sell any stocks. I am just sharing openly on what I am doing with my stock portfolio.
Further, I like to remind all investors that investing is not just about the profits or returns. You will inevitably suffer stock losses too. You need to understand your own investment objective, risk appetite and the amount of loss you can afford to bear. So, while many investors talk only about absolute returns, I am also sharing the computed risk-weighted returns of my portfolio.
Tong Kooi Ong