Able Global Berhad sells milk under the brand names Able Farm and Tarik Tarik. I had purchased a 0.5% position to feel out this stock. My rule is to double the starting position or sell it off when I don't feel confident about the company's prospects. The company has low debt, a good ROE, and a decent dividend yield. The stock price seems low compared to these fundamentals. So, why do I not feel confident?
Able Global is expanding its dairy business into Mexico. Analysts applaud their spirit of entrepreneurship, but I am confused about the reason for choosing this particular country. I have reviewed the company's publications but did not find any rationale for this choice. When a company expands its operations, it is typically done at the edge of its circle of competence. It would, for example, expand into a neighbouring country or a product line that supplements the current products. It is unclear why a company would jump from Malaysia into Mexico. Able Global increased its debt burden to support this effort, raising the stakes even higher.
My second area of doubt concerns Able Global's digital brand strategy. There is no active presence of Able Farm on Instagram, TikTok, Twitter, or Facebook. But even worse, a search on Shopee does not even yield 25 listings of their products. You may argue that offering milk on a trading platform makes no sense because it would get spoilt during shipping. Let's clarify here that Able Farm offers condensed, evaporated and UHT milk variations, which you don't have to refrigerate. F&N and Dutch Lady provide similar products in the Malaysian market. Searching these brand names lists hundreds of results on both Shopee and Lazada. Where are the Able Farm products? Let me be clear that the products do exist. I have seen those used in various street food hawker stalls for which Malaysia is famous. There is likely a long-time functioning supply chain behind these products, possibly with third-party wholesalers. They might not see the need to advertise to the ultimate consumer.
For my portfolio, I am looking for consumer staples where the brand name is the moat. Brand names must be supported by modern advertisements and other marketing efforts. The absence of modern marketing efforts for Able Farm and my reservations about the future Mexican operation made me conclude that the stock does not fit my requirements. I should have caught these objections because both already existed when I bought the stock. My lack of research and reflection was a mistake. By the way, selling the stock may also be a mistake when the Mexican operations take off successfully. I will be keeping an eye on the developments. Sold Able Global at 1.29 RM.
Disclosure: Long Fraser and Neave (F99 in Singapore)