My next analysis project will be on CCM Duopharma Biotech Berhad.

This is a pharmaseutical company, one of the big players in producing

medications and medical consumables. I was recommended to look at
this company by a friend whos a stock broker himself. Had a quick look
at the numbers of the company, and it does look promising.
However, I am also aware of the tendency to believe too much in the
broker, and so I decided to run a full analysis into the company myself.
The following analysis is done based on the checklist provided in Jeeva
Ramaswamys Creating A Portfolio Like Warren Buffett.

Is

the

business

simple?

Can

understand

the

business

thoroughly?
CCMDBIO is broken into 2 division: Duopharma and Duopharma (M)
Sdn. Bhd.
Duopharma:
The principal activities of its subsidiary are to carry out business as
manufacturer,

distributor,

importer

and

exporter

of

pharmaceutical products and medicines. Duopharma exports to

countries, such as Vietnam, Ethiopia, Sudan, South East Asia, Papua
New Guinea, Pakistan, Bangladesh, Sri Lanka, Republic of Yemen,
Singapore and Hong Kong. Its range of products includes tablets,
capsules, syrup, oral antibiotic, creams, haemodialysis solution, sterile
irrigation solution, sterile powder injectables, small volume injectables,
dental cartridges and eye drop preparations.
Duopharma (M) Sdn. Bhd:

Oral production of tablets, capsules, syrups are manufactured in

equipment and facilities, which facilitate the unidirectional flow of
materials.
Basically, CCMDBIO manufactures, distributes and sells medications.
Easy. Nothing too difficult to understand. PASS
Potential Moats?
High Cost of Entry: Pharmaseutical company required high amount of
cost to enter, from buying medication patents to hiring proper staff to
run the labs.
Manufacturing costs: CCM manufactures drugs with generic patents,
these drugs dont cost a lot in production (almost no R&D money
spent), would give them some advantage over large pharmaseutical
companies MARGINAL PASS
Whats the nature of this business? Does it operate in a NonExciting Industry

CCMDBIO manufactures, distributes and sells medications. Hardly exciting at

all if compared to IT or technology. PASS
Is the company operating in a Dirty Type of Business?
CCMDBIO produces meds, it is a clean business. FAIL
Has the company dominated in a Particular Segment of the
Market?
CCMDBIO does not dominate the medication markets in Malaysia. Its
main competitor is Pharmaniaga Berhad. FAIL
What is the companys Earnings Growth Per Share(EPS) over
the previous 10 years? Does is grow constantly?
Year

EPS

2003

0.20

2004

0.20

2005

0.21

2006

0.10

2007

0.31

2008

0.53

2009

0.31

2010

0.39

2011

0.43

2012

0.42

EPS does not grow consistently there was a slump in 2006 and 2009.
However in general the EPS has shown growth. EPS growth rate is 7.72
for the past 10 years. MARGINAL PASS
How does the Company use its Retained Earnings? Are retained
earnings reflected in their stock price?
Year

EPS

2003

0.20

2004

0.20

2005

0.21

2006

0.10

2007

0.31

2008

0.53

2009

0.31

2010

0.39

2011

0.43

2012

0.42

Total retained EPS is RM3.09 per share in the past 10 years.

AJIs

stock

RM4.14

price

change

(Y2012)

for

the

last

RM2.28

10

years:
(Y2003)

= RM1.86
Calculation: RM1.86 / RM3.09 = RM0.60
Each Ringgit retained by AJI generated only RM0.60 in its stock price.
Being able to generate increase of share price from retained earnings
show that AJI is heading at the right direction.
With only RM0.60 rise for every RM1 retained, the earnings are
probably under-reflected. Could be an indication of the stock being
undervalued the market has still not recognized the true earning
power of this company. PASS
What are the companys Owner Earnings for the last 10 years?
Does it grow consistently?

Year

Owner Income (millions)

2003

11.5

2004

18.7

2005

19.1

2006

15.5

2007

27.3

2008

40.7

2009

28.6

2010

35.5

2011

38.6

2012

37.8

Owner income in general increases, though there was a sharp drop in

2006 and 2009. Growth rate of 12.6. Acceptable figure. PASS
What is the companys recent earning momentum? Is it
comparable to its long-term growth rate?
AJI posted EPS of 0.42 in Financial Year (FY) 2012, a slight drop from
2011. AJIs EPS growth at 2009 2011 is at RM0.06 a share average.

2012 EPS is off the momentum. FAIL

Does the company hand any one-time event that recently
increased earnings?There is no one-time event that recently
increased the earnings. PASS
What is the companys operating cash flow? Does it grow at a
constant rate?
Year

Cash Flow (millions)

2003

49.2

2004

33.5

2005

31.1

2006

30.4

2007

64.1

2008

66.1

2009

43.2

2010

56.3

2011

68.7

2012

67.1

AJI in general builds up its cash position before bleeding it out in 2004,
2009. The drop in 2004 cash flow is because AJI invested a lot in its
Capital Expenditure, whereas 2009 is due to the high price of oil.
Nonetheless, it shows that AJIs directors are responsible enough to try
to build a strong cash position to take on recessions, or sudden spike of
raw materials price. FAIL
How has the business performed in previous recessions?

Year

Net Income (millions)

2003

12.2

2004

12

2005

12.5

2006

2007

18.7

2008

32

2009

19

2010

24

2011

25.8

2012

25.6

Malaysian economy hit downturn in 2008-2009. AJIs profit dropped

from RM32 million to RM19 million sales are not affected as revenues
increased. profit dropped as the spike of raw materials cause the profit
margin

to

shrink.

AJI could have just raise it price to recover the profit (which it certainly
could and not lose market share), but the strong cash position allow
them the option to not do that. FAIL
If a particular products success attracted you to a company,
what percentage of that companys sales come from that
product?
The home MSG brand would be the major product of AJI. However, I
cant seem to find any report about the percentage. NOT APPLICABLE
Does

the

company

have

client

concentration?

AJI did not report its client concentration, or I just cant find it. NOT
APPLICABLE
Does

the

company

have

managable

debt?

AJI reported no debt for the year 2012. In fact, AJI has been free of
loans and borrowings since 1984. PASS
Does

the

company

have

managable

short

term

debt?

AJI reported no short term debt for the year 2012. In fact, AJI has been
free of loans and borrowings since 1984. PASS
What

is

the

companys

current ratio?

As of 2012, AJIs asset/liability ratio is 7.10. This is an excellent number,

since AJI has assets 7 times its liabilities. PASS
What is the companys long term debt? is it managable?
AJI reported no long term debt for the year 2012. In fact, AJI has been
free of loans and borrowings since 1984. PASS
Does

the

company

pay

little

or

no

interest

expense?

Free of debt, AJI reported no interest expense for the year 2012. This is
great as AJI can invest current earnings back into the company and
those earnings will grow into the future. Great advantage to long term
shareholders. PASS
Does

the

company

have

preferred

stock?

As of 2012, AJI did not reported issuance of any preferred stock. PASS

What is the companys Return On Equity for the last 10 years?

Does it trend upward?
Year

Return of Equity

2003

10%

2004

9%

2005

9%

2006

4%

2007

12%

2008

18%

2009

10%

2010

12%

2011

12%

2012

11%

ROE jumps around for the first 5 years, and then stabilizes around 1012% for the last 4 years. Despite not growing, at least AJI is
maintaining the profit percentage.

Average ROE is at 11%. The numbers are satisfactory, as AJI generates

11% profit from the shareholders money. Certainly beats the meagre
3-4% from FD. MARGINAL PASS
Does the company have more equity compared with its longterm debt?
As in 2012, AJI is holding RM235 million of shareholders money, against
RM0 of debt. Excellent financial position. PASS
What is the companys net profit margin in the past 10 years?
Does the company generate constant upward-trend profit
margin or at least maintain an average profit margin?
Year

Profit Margin

2003

8%

2004

7%

2005

8%

2006

4%

2007

10%

2008

15%

2009

8%

2010

8%

2011

8%

2012

8%

AJIs profit margin is not increasing, but is steady at 8 % for the past 4
years.

Its

not

spectacular

number,

but

at

least

its

maintaining. MARGINAL PASS

Does the company have a high pretax profit margin?
Year

Pretax Profit Margin

2003

10%

2004

9%

2005

8%

2006

4%

2007

11%

2008

19%

2009

11%

2010

11%

2011

10%

2012

10%

AJIs 10 year pretax profit margin average is at 10%. Acceptable. PASS

What is the companys Return on Assets for the last 10 years?

Is it growing constantly or at least maintaning an average ROA
for the last 10 years?
Year

Return on Asset

2003

9%

2004

9%

2005

9%

2006

4%

2007

10%

2008

15%

2009

9%

2010

10%

2011

10%

2012

9%

AJIs 10 year ROA average = 10%. Its not growing, but at least it is
maintaning.MARGINAL PASS
Does the company need to spend large amounts of money as a
capital expenditure (CAPEX) to stay competitive?

AJI will need to spend money buying equipment, maintain its factories
and vehicles. Here is AJIs CAPEX vs pretax income data:

Year

CAPEX/Pretax Income

2003

213%

2004

186%

2005

219%

2006

123%

2007

38%

2008

53%

2009

74%

2010

73%

2011

87%

2012

53%

The capital commitments include those contracted and not contracted,

as an attempt to be conservative. The average is 118%.
AJI is involved in a capital intensive business, producing and selling
MSGs and food flavourings. So naturally it might have to spent money

keeping its factories working. I take heart at the massive drop in CAPEX
in 2012, perhaps AJI has gone through the heaviest reinvestment
phase. FAIL
What is the companys investing strategy? is the company
investing in its area of expertise?
From its 2012 annual report, AJI is currently aiming at working at these
goals:
We will continue to expand our presence in Asia and Middle East
countries through further introduction of value added products to the
markets. At the sametime, Company will continue to further improve
supply chain management, efficient use of plant capacity and explore
further ways to reduce costs to meet its long term sustainable and
profitable growth
AJI is not venturing into fields out of its expertise. It is merely trying to
improve bottomline operations, and increase its market share in the
middle east. PASS
Does the company have related-party transactions with the
family members or relatives of the senior management of
board

of

directors?

In FY 2012, AJI recorded a RM140 million of related-party transactions.

AJI did not report with whom the related party transaction is made.
However, since AJI itself is an expansion of Ajinomoto Japan, and that
Ajinamoto Corporation has interest in AJI Malaysia, certain amount of
related party transaction would happen anyway.
Plus, the board itself are of the view that:
all the transactions above (related party) have been entered into in
the normal course of business and have been established on
negotiated terms and conditions that are not materially different from
those obtainable in transactions with unrelated parties.
I allow such amount of related party transactions. PASS
Are you able to understand the footnotes of the companys
financial statements?
I wont say I understand all, but I can see the intention of AJI to produce
a report that is readible. I dont think AJI is trying to cheat of swindle its
investors. PASS.

Is

management

candid

in

its

performance

reporting?

This is what Ajinomoto Malaysia chairman General Tan Sri (Dr.) Dato
Paduka Mohamed Hashim Bin Mohd wrote in annual report 2012:
The Company celebrated its 50th year anniversary in 2011 and took a
first

step

towards

the

next

50

years.

However, the

Business

environment surrounding the Company was very challenging for the

financial year ended 31 March 2012. Fuel prices increased to historical
high level after Lehman Shock and the prices of raw materials surged
up further. Competition in the domestic market became increasingly
aggressive. Nevertheless, under such difficult business environment,
revenue still manage to grow by 3 per cent or RM8 million for the year
under

review

to

RM325

million. The

increase

in

revenue

was

contributed by higher domestic sales in terms of better selling prices

through effective selling and marketing strategies. However, the
increase in revenue could not fully absorb the higher input costs in the
year. Nonetheless, the higher revenue together with cost saving efforts
contributed to a higher Profit before tax of of RM33.5 million.
AJI did not try to paint too rosy of a picture about its earnings, but
chose to be rather humble about it. Its candid, and honest. PASS
If you are buying the stock for dividend, does the company pay
the dividend without interruption and have a history of
raising dividends?
Year

Dividend (RM)

2003

0.06

2004

0.08

2005

0.08

2006

0.08

2007

0.1

2008

0.12

2009

0.15

2010

0.16

2011

0.17

2012

0.17

AJI has been paying dividend for the past 10 years researched, and
there is a general trend of rising dividends. PASS
What is the percentage of earnings paid as a dividend? is it a
small percentage of the revenue?
Year

Payout Ratio

2003

30%

2004

40%

2005

39%

2006

81%

2007

33%

2008

23%

2009

48%

2010

41%

2011

40%

2012

40%

AJI paid out 40% of its profits in dividends on average for the past 10
years. The percentage is large, but still leaves AJI with enough cash to
reinvest into the business. excellent. PASS
Does the Company have any hidden asset that might be overlooked
by analysts?
AJI does have buildings and land, but the most expensive hidden asset
AJI has is the brand. Ajinomoto is such a strong brand for MSG in the
country, that no one would beat it. There not even a strong direct
competitor for the MSG market at all! PASS
Does the company have a low percentage of net receivables?
Year

Receivables/Revenue

2003

16%

2004

15%

2005

15%

2006

14%

2007

34%

2008

13%

2009

12%

2010

10%

2011

11%

2012

11%

For the past 10 years, the average receivables/revenue percentage for

AJI is 15%. This means that AJI is getting large portion of its profits paid
to its accounts, which is a good thing. PASS
Does the company have more pension assets than vested benefits?
AJI does not run any pension programs for its employees, but
contributes to EPF. Whenever the staff retires, AJI has no obligation to
pay any post-retirement benefits. PASS
What is the inventory buildup?
Year

Inventory (RM, Mil)

2003

26.9

2004

33.6

2005

28.2

2006

29.5

2007

25.1

2008

32.3

2009

46.3

2010

52.3

2011

62.8

2012

63.2

Inventory increased almost 100% from 2008-2012. That is a concern to

me until I see the small increase in 2013. It could probably mean that
AJI has grown its market to the point that it almost matches with its
production rate. However, I would pace a careful eye over AJIs
inventory. FAIL
Are the companys total diluted share decreasing over time? or
at

least

maintain?

AJI has had no dilution, and had not bought back any shares since
2004. This will help to keep the price stable, and shows that AJI is not
starved of cash to fund its operations.PASS
Does the company have any treasury stock on its balance sheet?
AJI has 19 million shares unissued, and held as treasury stock. If AJI
ever found it self in need of cash, they can release these shares to
raise funds, and not have to resort to borrowing from banks.
Excellent. PASS
Does the company retire any stock recently?
AJI did not retire any stock for the past 10 years. FAIL
Did any insider bought the stock recently?
There has been on insider stock purchase recently. FAIL
Do the insiders how a large percentage of the company?
Excluding the parent Ajinomoto Corporation, insider ownership is less
then 1%. FAIL
Does the company have a small percentage of institutional ownership?
looking for the list of substantial shareholders in AJIs 2012 report,

institutional ownership would be around 14%. The company not

excessively owner by them. PASS
Is the company able to raise the price of the product according
to inflation?
Raising prices should not be a problem for AJI, as its flagship brand
Ajinomoto is unrivalled in the local MSG market. The company are in
strong cash position that they could actually absorb high raw materials
costs, and dont have to raise prices. The company even pays divident
that year (2009). PASS
Does the company trade at PE ratio less than its growth rate?
AJI has a owner income growth rate of about 11 for the last 10 years. In
May 2013 AJI is trading at PE ratio of 10, which means that the stock
was selling for lower than the long-term growth rate of owner
income. PASS
Does the stock trade at a discount to the companys intrinsic
value?
The following assumptions are made in calculating AJIs intrinsic value,

AJIs EPS growth rate for the next 10 years is conservatively

estimated 7% for the first 5 years, 5% for the next 4 years, and

3% for the next 2 years.

A discount rate of 12%.

The intrinsic value for AJI is at RM5.95 per share. As of May 2013, AJI is
trading at around RM4.50 per share. PASS
Does the stock trade at a right margin of satefy?
Margin of safety depends on individuals, I choose to stay at 20% of the
intrinsic value.
AJI intrinsic value is RM5.95 per share. Taking in 20% margin of safety,
the entry price would be at RM 4.76.
AJI is trading at around RM4.50, still below the 20% margin of
safety. PASS
NUMBER OF PASSES: 33
NUMBER OF FAILS: 9
CONCLUSION: AJI is a good buy for now. strong cash position, stable
business and revenue provides comfort for dividend investors. The
concern would be at its high CAPEX and invsntory levels. Nevertheless,
the pros far outweigh the cons.