KhongGuanLogoBiscuits have been part and parcel of Khong Guan Flour Milling (SGX: K03) since 1947. The company is today one of Singapore’s biggest biscuit manufacturers.

In fact, you would be hard pressed not to find its products sitting on a supermarket shelf alongside the many imported biscuits that find its way into our Garden City. But would that be enough to entice Warren Buffett to take a nibble?

Warren Buffett, we know, likes companies with low earnings volatility. That is not something that Khong Guan has in abundance. The company’s Net Income has been up and down like a fiddler’s elbow.

In 2010, Net Income was S$5.9m. The following year it fell to S$4.6m and fell again to S$1.9m in 2012. Last year, net profits jumped to S$14.7m thanks to a one-off investment gain. Interestingly, revenues have risen steadily.

Net Income Margins at Khong Guan are not especially high. On average they tend to hover around the 5% mark, which is lower than the market average. The median Net Income Margin for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 15%.

Buffett likes efficient businesses. That is something in Khong Guan’s favour. Its Asset Turnover of 1.0 implies that it generates $1 of sales for every dollar of asset employed in the business. Yeo Hiap Seng (SGX: Y03) generates S$0.60 for every dollar of asset employed, which is similar to the Asset Turnover for chocolate maker Petra Foods (SGX: P34).

Khong Guan is not heavily geared company, which is something that Buffett would find attractive. In fact it had a net cash of over S$29m. Additionally, with a market cap of S$55m, Khong Guan is valued at below its book value.

Khong Guan can best be described as an enigma. It has some qualities that Buffett would like to see in a business. But at the same time, probably not quite enough to tempt him to whip out his cheque book.

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