Sold out: Able Global Berhad (KLS:7167)

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)

Coffee in my portfolio

I named my investment approach the Coffee Can Portfolio APAC after a buy-and-hold method developed by American analyst Rob Kirby. I tweaked the approach he suggested by focusing on infrastructure and consumer staples stocks. As a result, I have a bunch of coffee-related companies in my portfolio. I thought it would be fun to highlight those.

JDE Peet's is the unmistakable coffee king in my portfolio. The company offers many coffee brands all over the world: Peet's Coffee, Jacobs, Douwe Egberts, Campos, Tassimo, Senseo, L'OR, Super (Singapore), Old Town White Coffee (Malaysia), and tens of other brands. Some of those have cafe-type outlets which you can visit. The picture shows a pop-up store of Peet's Coffee in Shanghai.

Luckin Coffee is a Chinese coffee giant which runs cafes but has no packaged product yet. In some of their outlets, you can sit down to enjoy your coffee, but most are takeaway only. They have more stores than Starbucks in China, but in revenue, Luckin is still second because their products are cheaper.

Maxim's Caterers is a 50% participation of my holding DFI (Dairy Farm International). Maxim's has the license to exclusively run Starbucks stores in Singapore, Hong Kong, Macau, Vietnam, and Cambodia.

Maxim's Caterers has a joint venture with Fraser & Neave, another holding of mine, to run Starbucks stores in Thailand. This joint venture is also 50/50.

Staying with Dairy Farm International, its house brand Meadows offers instant coffee and 3-in-1 coffee mix in their supermarkets, such as Giant and Cold Storage as well as in third-party outlets (Foodpanda).

South-Korean consumer goods conglomerate LG H&H runs a beverage bottling operation that produces drinks from the Coca-Cola Company. The canned coffee brand GEORGIA is one of the Coca-Cola drinks they licensed for Korea. 

China Foods Limited is licensed to sell Coca-Cola beverages in 19 provinces of China. They don't offer GEORGIA, but they do have another canned coffee drink in their portfolio called Costa RTD coffee. Costa is a coffee shop chain acquired by the Coca-Cola Company in 2019. There are Costa coffee shops in China too, but it seems that China Foods is not involved in those. 

The strangest coffee drink from my holdings comes from Want Want China: Mr. Bond Coffee. I could not find any information about it. Are they referring to James Bond? The man shown on the can resembles detective Sherlock Holmes rather than master spy James Bond. Also, I am pretty sure Bond prefers Martini over coffee.

For the final two coffee servings, we leave Asia. British bakery chain Greggs sells coffee to go with their sausage rolls and sandwiches. Classics such as Mocha, Americano, and Latte, with special editions during holidays. Recently they added two canned coffee offerings: Caramel Latte and Original Latte, as the picture shows.

Associated British Foods offers various grocery items all over the world. In their long listing of those, I found Jarrah, which is an Australian brand of powdered coffee. You pour hot water over the powder to make it ready for consumption. Jarrah offers a hot chocolate variant too.

Family-owned REITs in my portfolio

Earlier, I discussed the pros and cons of investing in a family business. In the same post, I went through my own stock portfolio to identify all family businesses and the families behind them. Among them were a few of my REIT holdings too. Let's discuss those first.

A REIT is a property business which must be run according to a set of strict guidelines. Formal restrictions are meant to prevent the majority shareholder or REIT manager from taking advantage of the other, minority shareholders. Of course, abuse is still possible and we should be alert to it. A family that controls a REIT is able to dump their undesirable properties into it, for example when they also own a property developer which is in need of cash. This means the REIT does not buy the best properties available in the market. Additionally, the family could also be overcharging for such properties. It's a subtle form of abuse, but let's still try to determine if this could potentially happen in my current REIT holdings.

ESR-LOGOS REIT

ESR-LOGOS has a 6% shareholder in the person of Mr Tong Jinquan. He is the owner of Summit Group, a real-estate developer in Shanghai. I don't think there is any overlap in the activities of Summit and ESR. As a side note, ESR Group is a larger shareholder and Mr Tong recently sold a large part of his shareholding to them. ESR-LOGOS was likely just an investment to Mr Tong and he seems to be withdrawing his involvement.

AIMS APAC REIT

On the list of major shareholders in AIMS APAC REIT two private shareholders attract our attention: Chan Wai Kheong 5.83% and George Wang 9.28%. Mr Chan is a hedge fund manager, who was also involved in a recent boardroom drama within Sabana Industrial REIT. Besides Sabana, I could not find any other real estate interests of him. Mr Wang, on the other hand,  is not only a shareholder of AIMS APAC REIT but also Chairman of The Board of Directors of its manager. Furthermore, he is the founder of AIMS Financial Group which still has an interest of 7.61% in AIMS APAC REIT which they founded, as the name already suggests. All in all, a powerful position, but I could not find any cases where AIMS APAC bought properties in which Mr Wang had an interest. Also, in this REIT we find the ESR Group again with a shareholding of 12.82% to somewhat counterpoint his influence.

Frasers Centrepoint Trust, Frasers Logistics & Commercial 

The Sirivadhanabhakdi family has large stakes in Frasers Centrepoint Trust and Frasers Logistics & Commercial Trust through their stake in Frasers Property. All three entities are multi-billion dollar operations with their own business dynamics. Although they still share the same website, I did not see any suspicious transactions between them. Let us also note that Charoen Sirivadhanabhakdi did not set up this network of companies himself. He inherited this structure when he took over Fraser Property after winning the battle for its parent company the Fraser & Neave conglomerate in 2013. A battle that he mainly fought for the soft drinks division of Fraser & Neave rather than its real-estate holdings.

Sunway REIT

40.89% of the shares in Sunway Real Estate Investment Trust are owned by Sunway Berhad, which is controlled by the Cheah family. Sunway Berhad is a large Malaysian conglomerate with a lot of property development activities. As such, Sunway REIT taking over properties developed by Sunway Berhad is the whole idea behind the REIT. It owns malls, hotels, offices, a medical centre, industrial properties and a university campus, all developed by Sunway Berhad. I am not aware of any signals that these acquisitions were executed at any disadvantage to the minority shareholders of Sunway REIT.

Hutchison Port Holdings Trust

Hutchison Port Holdings Trust is not a REIT, but a business trust, which is comparable in nature. CK Hutchison Holdings Limited holds 30.07%, with the Li Ka-Shing family controlling CK Hutchison. Part of the port activities of CK Hutchison was disposed to the trust at its conception in 2011, more specifically the container terminals in the Pearl River Delta, China. I don't think any assets were added to the trust ever since, so there is not much to watch here. The share has been performing quite bad for other reasons. It looks like the valuation (P/E, P/B) simply deteriorated rather than the business performance. Maybe the stock is too boring to hold for a long time and consequently it can now be bought at a very low valuation, which I did.

The other REITs I hold have no family involvement. If I overlooked anything, feel free to alert me in the comments below. 

ESR Group Ltd

I am not invested in ESR Group, but I noticed their presence in AIMS APAC, ESR-LOGOS (obviously), Sabana Industrial REIT (20%) and Cromwell European REIT (28% through Cromwell Property Group).

Perhaps this should not surprise me because I prefer to invest in industrial and logistics properties and ESR considers itself a REIM (Real Estate Investment Manager) in this particular sector and focused on Asia too. This means they develop, buy, sell and manage logistics properties, similar to the recently transformed Capitaland Investment Ltd. I don't like to invest in REIM's, since it is basically trading and the profits come and go depending on economic cycles. It's also a key people-based business and those key people may leave. There is not really any moat. Besides all that, the balance sheet of ESR looks quite over-levered with debt.

ESR Group grew fast in recent years. In 2021, they took over ARA/LOGOS. Their holdings in Cromwell and ARA-LOGOS (now ESR-LOGOS) are the result of this acquisition. The last one is clearly within the focus of ESR Group, but I am not so sure about the office-oriented Cromwell Property Group, which is an Australian developer. Their Cromwell European REIT is 50/50 invested in offices and logistics properties in Europe. But note that ESR Group's focus is Asia rather than Europe. I wonder if Cromwell Property Group and Cromwell European REIT might be disposed of by ESR at some time. 

Maybe the conclusion from this review is that I should monitor ESR Group more closely rather than the family holdings in the REITs I own. 

Disclosure: at the time of posting this article, I hold shares in Sunway REIT, ESR-LOGOS REIT, AIMS APAC REIT, CK Hutchison, Hutchison Port Holdings Trust, Cromwell European REIT, Sabana Industrial REIT, Fraser & Neave, Frasers Centrepoint Trust and Frasers Logistics & Commercial.