$INSAS / 3379 (INSAS BERHAD): A Cigar Butt Opportunity or Value Trap?

1. Background
📌 Insas Berhad is an investment holding company engaged in diverse sectors including technology, property investment, project financing, stock broking, car rental, fashion retail, and food & beverages.

2. Business Segments
📌 Insas operates across five primary business segments:

(i) Stock Broking & Structured Finance
📌 Stock Broking: Holds a 60.825% stake in M&A.
📌 Structured Finance: Operates Insas Credit & Leasing, a boutique structured finance provider.

(ii) Investment
📌 Equity Holdings: Owns 14.36% of INARI, 9.96% of OMESTI, and 14.029% of HOHUP.

(iii) Technology & IT
📌 Technology Investments: Holds a 27% stake in DFX.

(iv) Manufacturing, Consumer Products & Car Rental
📌 Manufacturing: QBI Packaging manufactures ghee products and offers dry packaging services.
📌 Consumer Products: Melium Group, Malaysia's leading luxury fashion retail group, represents brands such as Aigner, Givenchy, Hackett London, Max Mara, MCM, Roger Vivier, and Tod's. It also operates in the F&B sector as a franchisee of Dome Cafe.
📌 Car Rental: Insas Pacific Rent-A-Car provides short-term and long-term car rental services and chauffeured limousine services.

(v) Property Development
📌 Property Portfolio: Insas Property manages a mix of landed and high-rise residential units, as well as shops and office spaces, aimed at generating rental income and resale.

3. Subsidiary, Associates & Investments (FY23)
📌 60.825% stake in $KLSE-M&A
📌 27% stake in $KLSE-DFX
📌 14.36% stake in $INARI / 0166 (INARI AMERTRON BERHAD)
📌 14.029% stake in $HOHUP / 5169 (HO HUP CONSTRUCTION COMPANY BHD)
📌 9.96% stake in $OMESTI / 9008 (OMESTI BERHAD), which itself holds 10.396% in HOHUP and 36.42% in $MICROLN / 0126 (MICROLINK SOLUTIONS BERHAD)

4. Financial Overview
📌 Revenue: The company recorded a revenue of RM216.84 million, reflecting a 0.2% increase compared to FY22. However, Profit After Tax (PAT) significantly decreased by 42.9%, totaling RM122.76 million.
📌 Cash Position: The company's total cash position reached a new high of RM1.05 billion, with borrowings at RM395.67 million, resulting in a net cash position of RM652.58 million.
📌 Net Cash per Share: In FY23, the net cash per share reached a new high of RM0.98.
📌 Gearing Ratio: The gearing ratio dropped to its lowest at 0.17, indicating very little debt.

5. Director's Remunerations vs Financial Performance (FY23)
📌 Director's Remunerations: Increased by 7.5% to RM15.66 million compared to FY22. Meanwhile, the company’s revenue saw a slight increase of 0.2%, and PAT decreased by 42.9%.

6. Dividend Paid
📌 Dividends: The dividend remains the same as FY22, with 2.5 sen for ordinary shares and 3.8 sen for preference shares, despite the decrease in PAT. This raises the question of why the company continues to issue preference shares despite its strong cash position.

7. Valuation
📌 Cash Position (Q3FY24)
The company has a cash position of RM1.16 billion. After deducting short-term and long-term borrowings, the net cash stands at RM926.49 million, translating to a net cash per share of RM1.24, indicating a 14.8% discount to the current share price.

📌 Book Value (Q3FY24)
Net Assets: The net assets per share are RM3.63, representing a 236% discount to the current share price.

📌 Cash & Equities
Net Cash: With a net cash position of RM926.49 million.
Equity Holdings:
INARI: Valued at RM1.88 billion.
HOHUP: Valued at RM10.54 million.
OMESTI: Valued at RM7 million.
Total Value: Combining net cash and equities, the total value is RM2.82 billion, representing a 276.9% discount to the current share price.

8. Conclusion
📌 Advantages
✅ Undervalued: Currently trading below its intrinsic value and even below its net cash position, offering investors a high margin of safety.

📌 Disadvantages
❎ One-off Cash Increase: Recent disposal of M&A equity for RM29 million may be a one-off boost to the company's cash position.
❎ Lack of Growth: The company shows limited growth prospects.
❎ Low Dividend Yield: Dividend yields are relatively low.
❎ Underperforming Equity Holdings: Holding stakes in poorly performing and some loss-making companies.
❎ Decreasing Stake in INARI: The stake in INARI has decreased significantly from 44.05% at listing to 14.36%. There is concern this trend may apply to M&A as well.
❎ Management Salaries: Increased management salaries despite poor performance.
❎ Preference Shares: Despite being cash-rich, the company continues to raise funds through the issuance of preference shares.

📌 Summary
The company needs a catalyst to boost its share price, such as privatization or increased dividends. Although it has acted like a private equity firm (e.g., pushing the listing of INARI and the RTO of M&A), it currently holds few high-performing equities or subsidiaries. To improve, the company should invest in promising businesses rather than merely holding cash. Without significant corporate action, the company is likely to continue trading below its intrinsic value.