Value Unlocked or Value Trap??

In the midst of searching for undervalue stock, I have come across this company that has just announced its Q4 results with more than 3000% jump in profit compared to previous year’s Q4. There was a big jump in Other Income – due to the reversal of impairment loss on its property development project.

Upon further reading and searching, I find it interesting:-

Company: Poly Glass Fibre (M) Berhad

Market Capitalisation : Rm48.8 mil ( 160 mil shares @ Rm0.305)

Last 5 years performance:-

	Revenue (Rm ‘ Mil)	Profit (Rm’ Mil)
28/2/2017	47.9	34.2*
29/2/2016	41.8	4.4
28/2/2015	43.9	5.5
28/2/2014	40.6	5.9
28/2/2013	33.9	22.9*

• Both included reversal of impairment loss on property development project.

The company is in fibre glass wool business and has been listed for more than 20 years.

Latest PE ratio at 1.43 but PE (excluding one off item) = 22

Loan & Borrowing = Rm29 mil, Gearing =15.4%.

Cash balance only at Rm1.9 mil

Net Asset per share = Rm 0.995 ( Share price @Rm0.305, Price to Book ratio at 0.31, discount of 69%) and its biggest asset is the land held for development known as Diamond Creeks Country Retreat (more than 800 acres land in Tanjung Malim). In fact, it is a project that was “deferred” and there was a long disputed litigation which has dragged more than 20 years.

As the principal business of glass wool is not growing much over the years and cashflow is deteriorating, I would normally give it a pass. However, what triggered my interest  is the reversal of impairment loss was made by the company after the Federal Court decision to dismiss motion by plaintiff, is that an indication that the Company can revive the project and the value of this 800 acres land will be unlocked ?  

Further reading of past annual reports and checking on the company website as well as on Diamond Creeks Country Retreat, this is my personal view on the company:-

1. The cash position is low and it may get into cashflow problem soon
2. It has not declared any dividend ( at least for more than 15 years)
3. I believe the Tanjung Malim land is agriculture land, probably only for homestead or orchard. Since the company has acquired the land for around Rm3 psf in 1996, the value of the land may have appreciated but viability of the project is still a big question mark due to its location.

It is still not clear to me whether it is a gem or a dud. My biggest concern is its cashflow and the value of the land is still highly uncertain. Hence, I would rather wait till the Company could prove the worthiness of the land by generating good cashflow out of it.