Would Warren Buffett Buy Yeo Hiap Seng?

YeoHiapSengLogoWarren Buffett has a soft spot for consumables. Some of the companies in his portfolio include Coca-Cola, Procter & Gamble and Kraft Foods.

In fact, around a fifth of Buffett’s portfolio has been allocated to consumables. These are companies that make things that are consumed. Once the consumables are consumed, they are gone. If a consumer wants any more, they will have to go out and buy more.

Yeo Hiap Seng (SGX: Y03) makes consumables. It is one of Singapore’s largest food producers with a market value of S$1.3b. Over the last four years, Yeo Hiap Seng’s Net Income Margin has climbed steadily from 6.7% to 17% last year.

What’s more, the company’s Gross Margin has strengthened steadily from around 37% to 41%. Interestingly, its margins compare well with Khong Guan Flour Mill (SGX: K03), which operates in a similar space. Buffett is likely to look favourably on that.

Warren Buffett is also a stickler for efficiency. Yeo Hiap Seng’s Asset Turnover of 0.6 is slightly better than Singapore’s blue chips. It implies that the company has generated $0.60 of sales for every dollar of asset employed in the business. The Asset Turnover for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 0.5.

Yeo Hiap Seng’s share price is no more volatile than the market. Buffett tends to take a dim view of companies whose share price volatility cannot be explained by macroeconomic activity. In the case of Yeo Hiap Seng, its volatility of 21%, whilst a little higher than the market average, is not worryingly different.

So far, so good. But there is one more thing that Buffett is likely to be mindful of, namely, the book value. In the case of Yeo Hiap Seng, it is valued at a 60% premium to its net assets. That doesn’t exactly leave much in the way of a comfortable margin of safety.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.