You can contact the author (Teguh Hidayat) by email, The author live in Jakarta, Indonesia.

See my activities in Instagram, @teguhidx.

Value Opportunity: WOM Finance

In stock investing, there are many advantages if you choose to use the ‘super method’ of value investing. First, you can buy stocks and then left it just like that without the need to look at the stock price developments (except, say, once a month), so you have plenty of time to do whatever you like. Second, you always have the opportunity to find the 'hidden pearl', ie stocks which may offer extraordinary profit to hundreds of percent, in a relatively short time.

And although such opportunities do not always show up every day, but based on experience, we can get at least two to three ‘value opportunities’ in a given year, and the number could be much more if the market or Jakarta Composite Index (JCI) were in a good mood.

One of such opportunity is WOM Finance (WOMF). I first discovered this stock in early 2016 when it was still at the level of Rp75 – 80 per share, and the interesting fact is, it had been sideways in that price range for a some time, precisely since August 2015. While before the August, WOMF tend to fell from 200’s in 2013 – 2014, and even from a higher position in previous years. Based on experience, if a stock was fell steadily for some time, then usually it is the stock of a company that has bad financial performance, either it suffers losses or the net profit goes down (hence its shares fell). But when the declines are finally stop before it then move horizontally in a certain price range (and the transaction volume becomes illiquid), then it is likely that the valuation is already very low in that price range so it can not go lower.

And holaaaa .. I was right: In 2013, the company’s net income was Rp67 billion, but in the following year (2014) the income fell to Rp37 billion, and dropped once again to Rp25 billion in 2015. As the JCI were in a red state in 2015, reaching its peak in a panic selling event in August, WOMF also mercilessly dropped to below Rp80 per share in that month, and the price never recovered until early 2016.

But despite the stock never regains its market value, it was also not fall further, say to the bottom price of Rp50 per share. On the other hand the company is also never had serious problems like Trada Maritime (TRAM), Sekawan Intipratama (SIAP), or others. When I check the valuation of WOMF, I was right once again: At a price of Rp80 per share, the PBV was only 0.4 times, and that is a lowest possible valuation for a stock of a company whose financial performance, both historical and current, are actually not that bad.

So that’s when I took a conclusion: If later WOMF posts better financial statements, say its net income rose in the first quarter of 2016, that’s when the shares are worth a buy, because most likely it will fly shortly afterwards.

Aaaaaannd.. luckily, that's exactly what happened where in the first quarter of 2016 (the financial statements were released on late March 2016), WOMF booked a net income of Rp21 billion, which if annualized equal to Rp84 billion, or already greater than the highest net profit in 2013 of Rp67 billion. And after some research, the performance could be recovered because the company’s main business, namely financing services for motorcycle purchase, recently began to recover after it was squashed by various regulations from Bank Indonesia (BI) in 2012 to restrict the credit lending for automotive, like the policy of loan to value (LTV) and others in order to avoid a credit bubble, causing the business of financing services to collapse for some time.

However, although the motorcycle buyers initially shocked when they have to pay a high down payment, but they gradually get used to it, and the number of buyers of the motorcycle increased by itself, especially after the leading automakers like Honda, Yahama, Suzuki, and Kawasaki, ceaselessly launched dozens of new models, forcing the bikers to replace their bikes with the new ones. And because the inflation rate is recently under control, the BI also began to re-loosen the policy of credit lending, so the business of financing services is on fire again!

In conclusion, these shares of WOMF are currently undervalue, financial performance began to recover, and the company has a bright prospects in the future, especially since the company, although seem as a small company as its shares are classified as a penny stock, but actually is one of the largest financing services company in the country, also with a strong brand (WOM Finance is a prominent name in motorcycle financing services, only less popular than Adira). So that's it: We bought WOMF in large quantities large enough, and later it became one of our main holdings until today, especially after the company still posted a good performance in the  second quarter of 2016.

But by the way, WOMF is now trading at Rp199 per share, aka high already. So what now? Is it still have the chance to rise further? Well, let's check. At the price of the 199, PBV of WOMF is still 0.9 times, but the PER was already 9.0 times. With that valuations, although it is no longer as low as when it was still at Rp80 per share, but still lower than most of the other shares in the Stock Exchange which already insanely expensive, due to market bullish. And based on my experience in PP Property (PPRO), if we find any good and discounted stuff like this, the stock price can often increases to some levels that may have never imagined before, depending on the craziness of the market. I mean, if you already hold this WOMF from the beginning, then just let the profits run!

While if you are going to buy the stock for the first time, then first of all you should be able to see that the performance of the company should be this good for some future, at least until the end of the year, so the shares are likely will rise steadily (except if the JCI is down). So in this case the daily movement of the stock does not mean anything because we have to make this WOMF as a medium-term investment. And with that regard, you can buy the stocks little by little, while testing the market fluctuations.

PT WOM Finance, Tbk (WOMF)
Financial Performance Rating at Q2 2016: A
Share Price Rating at 199: AA

Disclosure: When this article was published, the author is in a position of holding WOMF at the average purchase price of Rp110 per share. This position could change at anytime without prior notice.

No comments: