Sunday, February 23, 2014

Baker Technology: A cash cow company

This is the first time i'm doing a write up on this company called Baker Technology. I've been invested in it since the beginning of 2012 and dividend yield has been great so far. This company has no debt at all with quite a big stash of cash kept away. It's cash position stands at S$205.9 Million currently. This translates to a cash of 23.6 cents per share. At the current trading price of 0.31 cents, isn't it a good bargain? 


As stated on its website: 
Baker Technology Limited (Baker Tech) is a leading manufacturer and provider of specialised equipment and services for the oil & gas industry. Its core business is in the design and construction of a wide range of equipment and components for use in the offshore environment.
The current situation of the industry which Baker Tech is in is still relatively competitive. Order book has slowed down from 3Q of FY12 to 2Q of FY13. However, for the past 2Q which is the second half of FY13, order book has seen an increase. It's primarily market is in China contributing 76% to its net order book followed by Singapore at 23% and the middle east at 1%.


With 100% cash and zero gearing(no debt), this company can ride out the downturn relatively easy. During the downturn in 2012 and 2013, this company has given dividends of 10 cents in FY12 and 5 cents in FY13. This is almost 50% dividend yield for the past 2 years. Of course if you had bought the shares at a higher price, the dividend yield is about 40%. Still not bad at all. As i had bought the shares much earlier, i had in fact got back more than 40% of my money.

With cash of 23.6 cents a share and only slightly more than 50% of my initial invested capital in this stock, my risk exposure is relatively small now. I will stay invested in this company and who knows maybe i will get back all my initial invested capital within the next few years. Till then, it would be a free cash cow company providing me income for as long as its there.


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35 comments:

  1. Hi,

    It is really something special that you have discovered. Nice!

    I have zero knowledge of this stock, but just curious, is the high dividends yield of 40 - 50% a one-off event? Is it because of any special events/reasons? Will you still be expecting such payout in future?

    Once again, congrats on your gain :)

    ReplyDelete
    Replies
    1. Hi Solace,

      They have paid special dividends for FY12 and 13 which explains the high dividend yield. Whether they will pay this high again next year I'm not sure. However based on their past payouts, even without special dividends, the normal dividend can still be 3 cents.

      There have been reports that the oil and gas sector is seeing a recovery. If that happens, baker tech can benefit from it too. With zero debt and huge amounts of cash, I would think their dividends will still be attractive.

      Delete
  2. Hi SGYI,

    Thanks for the writeup. Do you have the DPU information prior to FY12 ?

    ReplyDelete
  3. Hi betta man,

    The DPU history can be retrived from SGX website. For FY09, DPU 2.25 cents. For FY10, DPU 3 cents. For FY11, DPU 1 cents with rights issue.

    ReplyDelete
  4. Hi there,

    Thanks for highlighting this stock. I will be tracking this stock from now on. Seem like a value stock!!

    Regards,
    Gerald
    www.sgwealthbuilder.com

    ReplyDelete
    Replies
    1. Hi Gerald,

      Glad to know a fellow investor and blogger has the same view as me. At current prices, it seems good especially with the cash of 23.6 cents per share they have.

      Delete
  5. Thank you for your write-up. The counter is very active now! You will be famous (like AK71) and will have great following if the stock price does shoot up in the near future.

    ReplyDelete
    Replies
    1. Hi Anonymous,

      I think its active now because of the special dividend it is giving once again. For the past 2 years, most of the time i see this counter with low volume. I actually had doubts about investing in this counter 2 years back(was a newbie back then) but since it has given such good returns on dividends, i have no worries about the risk exposure i'm into already.

      This stock can be really volatile and shoot up anytime. AK is much more experienced than me so i cannot compare with him. :p Still got lots to learn.

      Delete
  6. HI SGYI

    BT giving out 5 cents at this may . Given current price , it's a yield of 16 + %. Correct me if i am wrong .

    Will look out for this counter too.

    ReplyDelete
    Replies
    1. Hi Small time investor,

      Yes, you're right. It's a yield of 16+%.

      Delete
  7. Hi SGYI, if u buy in now, will u still be entitle to the dividend in FY13. Maybe yes right since they still need the AGM to approve in Apr. The special dividend as I know from the same industry is mainly because of disposal of investment from Baker. I noted that its profit is actually 13.6m and 12.5m base on core business in 2012/13. That is to say, it require to invest its cash of 200M this year to get the profit in following year. This may be one reason why they say short term it is challenging and long term it is good. Core business is associated with outlook of Rigs in both China and Singapore. Over the next 3 yrs, there will be 200 over rigs to be delivered.

    ReplyDelete
    Replies
    1. Hi Gavin,

      Yes, will still be entitled to the dividend in FY13 if you buy now. The ex-div date is on 6 May. Still a long way to go. Baker tech did dispose their subsidiary called discovery offshore last year. They own 20% of DO previously. From what i know, they did receive dividends from 2 of its investment subsidiary, York and DO, in 2011. In 2012, they did not receive any. As of now, they have disposed both of these investments.

      As you're in this industry, maybe you can shed some light of how Baker Tech derives its profit from? Why does it require to invest its cash of 200M to get profit in following year?

      Delete
  8. Hi SGYI,
    Thanks for the note on dividends. Short term business challenging bcos we although rig order backlog is good for past yrs and going forward, margin is thinner esp Chinese co slashing prices to get orders and squeezing suppliers in turn. As i mention base on Baker previous record and capacity, their core business is only about 12-15m net income excl. disposal. Recently they set up BT invest and appoint a new MD whose background is in investment and not technical in oil and gas. With so much cash in hand, they cannot just keep in the bank which is no good for the investor and keep giving special dividend and lower the warrant price diluting shareholder equity. They probably will acquire some companies which they have been looking all this well.. Or JV with Keppel or KS or related company to co-own a rig just like discovery.. Hence my reasoning of short term challenging but long term promising. Definitely good choice to buy for a co with zero debts and so much cash... Just my 2 cents thought!

    ReplyDelete
    Replies
    1. Hi Gavin,

      Thanks for the explanation. Really appreciate it. Hope they do some attractive acquisition with the cash they have. As long as the ventures turns out well, i think the prospects for them is relatively good.

      Delete
  9. And ya.. The good news is they are boosting up their capacity with new facility..

    ReplyDelete
    Replies
    1. Boosting up capacity sounds good. Producing more and increasing profits is what shareholders want.

      Delete
  10. Hi SGYI,

    Thank you for the write up. It is very good insight.

    Btw, I am relatively new to investing, and I will ask a silly qns, what platform do you use to purchase the shares?

    Thanks.

    ReplyDelete
    Replies
    1. Hi Cavan,

      I use citibank brokerage to purchase the shares.

      Delete
  11. Thanks for the post, I am actually attracted by the high dividend too and monitoring the stock, probably will enter a few lots only as basing on the previous history, the stock price drop quite steeply immediately after the Dividend payout.

    By the way,, you mentioned that you are using citibank brokerage, is their platform user friendly? Thinking of switching platform (am currently using poems)

    ReplyDelete
    Replies
    1. Hi Invest Openly,

      They are paying high dividends now because they have lots of cash. I heard they are going to use that cash for a business expansion soon so dividends may drop the next year.

      Citibank brokerage is quite friendly to use. As least to me i think its ok. They have a mobile app now too. Better than last time when they didn't have one and it was quite inconvenient.

      Delete
  12. Thanks for quick response. Their minimum commission is still at 18 bucks right? Being a small investor, it does make a difference as I am currently paying 25 bucks minimum.

    ReplyDelete
    Replies
    1. Hi Invest Openly,

      Yes its still 18.

      Delete
  13. hi just opened a trading account and looking for some stocks to add, what is a good price to purchase this lot? as i see that it's pb value is 1.16 now, dividend payout ratio looks good at 0.05 dps, and i also saw that the company isn't making as much money as it is in the previous years, and still able to payout quite a generous dividend.

    ReplyDelete
    Replies
    1. Hi newbie,

      A good price to purchase is below its pb value. I bought this stock long ago seeing that its intrinsic value was more than $1.

      As some readers have commented that this company is going into a new project, I supppse its earnings will improve. However, in the short term, dividends may could drop as they use their cash for the new venture.

      Delete
    2. hi thanks for your prompt reply will keep this as a watchlist and wait for it's price to drop further before decide whether to add this stock

      Delete
  14. Hi SGYI,
    Do you have any update on Baker Tech? New contract wins ? New Business ventures ?

    I have been monitoring this counter after you wrote about this company. Based on last few days price movement and the transaction volume, it seems that at least one party who has very deep pocket is buying/accumulating. Do you have any idea who is this party ?

    ReplyDelete
    Replies
    1. Hi,

      I do not have any insider info of this stock. What I know is from their investor relations only which everyone can see.

      Based on my experience, this counter always have big movements before its dividend distributions.

      Delete
  15. Strange company. Seems to be sitting on tons of cash for 4 years. Gross margin seems good. But net income has been lumpy in different years. Didn't like that their DPS in some years exceeded their EPS. Probably had so much cash they decided to give out as special dividends?

    Oil and gas industry seems highly competititve. Wonder if the company can maintain its edge?

    It's current financials indeed looks good - no debt, good dividend, low PE, P/B < 1. Worth tracking.

    Thanks for sharing.

    ReplyDelete
    Replies
    1. Hi Lizardo,

      Yes they gave out special dividends for the past 2 years so DPS exceeded EPS. Their cash alone is already 23.6 cents per share. With this kind of cash, they would be able to take advantage of any oportunities that comes. This company has been there for years and they are more than experienced in this field. How they will move forward is still unknown.

      Delete
  16. Hello,just started to read up on stock and i am looking around to know what stock i should invest. Is there a minimum on how much i can buy in a stock? Should i still invest in this stock?

    ReplyDelete
    Replies
    1. Hi,

      The minimum to buy Singapore stocks is 1000 shares. Just take the current price of the stock x 1000 and that'll be the minimum. However, there are some stocks which allows you to buy in 10 or 100 shares. They will have a number behind its stock name.

      Unfortunately, I cannot advise you if you should invest in this stock. I'm not allowed to do so also as I'm not a licensed financial advisor. What I did was to list down my analysis and let readers decide on whether to buy or not.

      Delete
  17. Ok. So it is 2 years since you posted this article, so what has Baker technology done to justify the cash cow tag?

    ReplyDelete
    Replies
    1. Hi Darren,

      This company is still a net cash company. However, unfortunately it does not have good growth thus the lacklustre price. Nevertheless, they will be able to ride out downturns better than other oil and gas companies especially during this extremely tough period for the industry now. Even big players like sembcorp and keppel corp are in trouble but this company is still relatively safe because it has no debts.

      Delete
  18. Hi it seems that this company had been removed from the SGX? is it being dissolved ? Thanks.

    ReplyDelete
    Replies
    1. Hi,

      Where do you see the company removed from SGX? I still see it.

      Delete