TDM – would asset sale be an easier path?

TDM is Bursa plantation company with a healthcare arm.

Professor Bruce Greenwald opined that you can get strategic insights by comparing the asset value (AV) with the earnings power value (EPV) of a company.

In a very competitive environment would have the AV = EPV ie the assets have been well deployed to generate profits. If a company has a strong economic moat, you would expect EPV to be much greater than the AV. If you have a case of the EPV being much smaller than the AV, you have under-utilized assets.

In the case of TDM, a Bursa Plantation company, the AV is RM 0.40 per share. But its average earnings over the past decade was negative. The EPV can be thought of as zero.

This is clearly as case of under-utilised assets. Many would hold the Board and management accountable. Maybe the company should take a leaf from the sale of Boustead Plantation where the Revised Asset Value is about double the Book Value. But was sold at a price that is a bit higher than the Book Value.

Of course, you could argue that looking at historical earnings is not a good reflection of the future. And it is not the full story and TDM has a healthcare arm in addition to its plantation arm.