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Do you have any hidden gem for 2013?

Posted by kcchongnz at Jan 4, 2013 7:26 AM | Report Abuse
1,225 comment(s). Last comment by chang0509 at Jun 6, 2014 1:43 PM
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bsngpg
2850 posts

Posted by bsngpg > Dec 23, 2013 1:50 PM | Report Abuse

Hi Housefordos : Would you mind to check if you have the same figure ? If I cannot regenerate your numbers, I am not fully understand the DCFA.

Base Yr 1;2;3;4;5;6;7;8;9;10;Terminal
FCF: 13,871; 14,565; 15,293; 16,057; 16,860; 17,703; 18,588; 19,518 ; 20,494; 21,518; 22,594; 332,460

PVFCF:-- 13,241;12,639;12,064; 11,516; 10,992; 10,493; 10,016; 9,561; 9,126; 8,711; 128,178;

PV of FCFF of core operations=236,535

Thank you


NOBY
937 posts

Posted by NOBY > Dec 23, 2013 5:43 PM | Report Abuse

bsnpng, actually your calculation is correct. I forgot to key in the FCF growth from year 5 to 10 and was assuming 0 growth in my original calculation. Thanks for checking my numbers. My new FCF/Share after correction is RM2.40.


bsngpg
2850 posts

Posted by bsngpg > Dec 23, 2013 10:56 PM | Report Abuse

Houseofordos : Thank you.


bsngpg
2850 posts

Posted by bsngpg > Dec 24, 2013 7:05 AM | Report Abuse

Hi Houseofordos : Would you kindly help me to understand
1)what are :Investment properties $0 and Interest in associates $0

2) Where to get these 2 items in Annual Report if both are applicable ?

3) Should both be added or subtracted when applicable ?

4)Do you have any example?

Thank you very much.


NOBY
937 posts

Posted by NOBY > Dec 24, 2013 9:04 AM | Report Abuse

bsnpg, I am not an expert but I think these 2 items can be found in the balance sheet. My understanding is that these 2 items are just added to PV of Free cashflow for the firm (FCFF) cause they are not the core segments of the business or just investments.

In first stage of DCF calculation, FCFF calculation only involves the FCF generated from core business which is Cash flow from operations minus capital expenditures. In order to get the FCFE (free cashflow to equity holders which is you) need to add back the present value of those investment items, excess cash and minus debt and minority interests.

Perhaps our FA guru KC Chong can explain in a more elegant way.


bsngpg
2850 posts

Posted by bsngpg > Dec 24, 2013 9:57 AM | Report Abuse

Hi Houseofordos: thank you for the kind explanation.

I got FCF/share at RM2.40 too.
I knew how and where to get the raw data from AR. Mission was accomplished. Thanks. Will move to another counter to sharpen my understanding.


kcchongnz
6656 posts

Posted by kcchongnz > Dec 24, 2013 10:08 AM | Report Abuse

Posted by houseofordos > Dec 24, 2013 09:04 AM | Report Abuse

bsnpg, I am not an expert but I think these 2 items can be found in the balance sheet. My understanding is that these 2 items are just added to PV of Free cashflow for the firm (FCFF) cause they are not the core segments of the business or just investments.

In first stage of DCF calculation, FCFF calculation only involves the FCF generated from core business which is Cash flow from operations minus capital expenditures. In order to get the FCFE (free cashflow to equity holders which is you) need to add back the present value of those investment items, excess cash and minus debt and minority interests.

Perhaps our FA guru KC Chong can explain in a more elegant way.


"I have nothing extra to add". Well done houseofordos.


bsngpg
2850 posts

Posted by bsngpg > Dec 24, 2013 11:04 AM | Report Abuse

KC: thks.


miketyu
465 posts

Posted by miketyu > Jan 1, 2014 9:41 AM | Report Abuse

Mr kcchongz,

Would you regard Focus Lumber FLBHD as a hidden gem?

Expected full year EPS to be 14sen, ROE around 11%
Graham net net value gives 0.85.
It has cash of 54230 and total liability of 11469.
What attracts me is the clean balance sheet and increased dividend payout from 6 sen a year to 8 sen this year.
It will achieve better profit as strengthening of USD will increase the selling price of plywood product.

What is your view on this?


kcchongnz
6656 posts

Posted by kcchongnz > Jan 1, 2014 1:01 PM | Report Abuse

miketyu, this was my previous comments on FLB.

Posted by kcchongnz > Oct 31, 2013 06:49 PM | Report Abuse X

Is Focus Lumber a good company? Is it worth investing?

I have not studied those stocks before you mentioned here. But since you ask, I will try to look into one of them. I will give my opinion if this is a good company worthy of investing.

Focus Lumber Berhad is engaged in the manufacturing and sale of plywood, veneer and laminated veneer lumber (LVL), and investment holding. The Company mainly produce thin panel plywood, of which the thickness is below six millimeter (mm) and are capable of further processing by laminate factories. It also produce thick panel plywood ranging from 6 mm to 18 mm.

The business is cyclic in nature and it appears to be good this couple of years although there is sign that it is slowing down.

It's business has a high net profit margin of about 10% and provides a return of 14% (>12%) of invested capital. The quality of its earnings is good. Free cash flow is abundant at more than 10% of revenue (>>5%). It has plenty of cash, amounting to 57 sen per share with zero debt and hence a very safe company to invest in. The only shortcoming is its business is quite stagnant with not much growth.

At 81.5, its PE ratio is 7.3 (<10), EV/Ebit=3.0 (<8) and price-to-book of 0.7 (<1). So it is not expensive and hence may offer investors a good investment.


OTB
7780 posts

Posted by OTB > Jan 1, 2014 2:33 PM | Report Abuse

Dear Miketyu,
Below is the IV calculation,

Year 2012
Stock name FLBHD
Sales 132803
Share price 1.19
No. of shares 103200
Market cap 122808
Net income 11600
Total Asset 131667
Equity 115877
Net profit margin (N.profit/sales) 8.73%
Asset turnover (sales/t.asset) 1.01
Financial leverage (Total asset/equity) 1.14
ROE 10.01%
Dividend payout 6192
Total capital 51600
ROIC - (N.profit-dividend)/total capital 10.48%
EPS 0.12
P/E 9.84
Total liability 15790
Cash & Securities 57537
Stock 18413
EV - (Mart cap + T.liability - Cash - Stock) 62648
EBIT 8384
EV/EBIT 7.47
Target price (EV/EBIT=8) 1.23
Current Price 1.19
Margin of Safety 3.48%
Potential gain 3.60%

In 2013, Projected ROE grows by 8%, my new target price for 2013 should be 1.23*8% = 1.33.

Thank you.
Ooi


miketyu
465 posts

Posted by miketyu > Jan 1, 2014 5:16 PM | Report Abuse

Thanks sifu Kcchongz and sifu OTB for the prompt reply.

May I ask few questions about the above valuations?

1.ROIC and CROIC should be > than what percentage to be considered investment grade stock? Should them be compared year by year or just looking at latest figure?
2. Should investment in properties and investment in associates included while computing figures for (Cash & Securities 57537) if they exist in balance sheet?

Really thousand thanks for your kind sharing.


OTB
7780 posts

Posted by OTB > Jan 1, 2014 10:40 PM | Report Abuse

Dear Kcchongnz,

For year 2012, EV/EBIT = 8, it means the fair price for the stock in 2012. If there is a growth of 10% in ROE in 2013, can I assume the fair price of the stock in 2013, EV/EBIT in 2013 should be lower than EV/EBIT in 2012 ? It means the fair price in 2013 should be higher than 2012.
Please advise. Thank you.


kcchongnz
6656 posts

Posted by kcchongnz > Jan 2, 2014 8:35 AM | Report Abuse

Two companies exactly doing the same business; one has a higher ROE should normally given a higher market valuation; ie EV/Ebit should be higher. This is because it is more efficient utilizing its assets.

Similarly if the same company has improved its ROE next year, then it should be selling at a higher EV/Ebit next year than this year. But there may be other factors, like market sentiment. Even if ROE is lower next year, it may sell at higher EV/Ebit if the market sentiment is so much better than this year, and vice versa. That is the beauty of investing. There are so many uncertainties. The future is unknown.

Be caution about ROE. The E can be deceptive. It can include one-time off non-recurring items and it often does. It can also be amplify by leverage, having more debts, and hence more risky. Hence I advocate the metric of ROIC, a little bit more work to compute.


sephiroth
14113 posts

Posted by sephiroth > Jan 14, 2014 11:13 AM | Report Abuse

kcchongnz, need yr help to check on the fundamental of EUROSP, thanks a lot, quarterly rpt seems very good


Very low share base of 44.42m shares(price very easy to move)
Closing price RM0.69/NAV RM1.01
Cash RM17.87m or 40.25 sen per share
Borrowings RM3.4m or 7.72 sen per share
Receivables only RM2.233m

yesterday reported RM1.56m profit, seems pathetic, due to low share base, eps is a whopping 3.52 sen per share
1HFY14 profit RM3.12m or 7 sen per share
annualised 14 sen for full yr, at 69 sen, PE 4.92X

the improve results is also due to the strengtening of USD


kcchongnz
6656 posts

Posted by kcchongnz > Jan 14, 2014 11:22 AM | Report Abuse

sephiroth, I have done an analysis of Eurospan and compared with other furniture companies as shown below for your information:

Posted by kcchongnz > Dec 9, 2013 11:24 AM | Report Abuse X

A month has passed since I wrote a comparison of three furniture companies in Bursa, they are Homeritz, Latitude and Lii Hen. I have stated my preference on Homeritz due to its high margins, efficiencies and reasonably priced as compared to others.

Since then Latitude has released its latest quarterly report on 30/9/2013. Its revenue and net profit for the first quarter 2014 jumped by 27% and 63% to 531m and 30m respectively. The market also reacted positively with its share price rises by a whopping 38% from RM1.31 to RM1.81 at the close on 8/12/13. What a windfall for shareholders of Latitude. Another furniture company, Poh Huat also rode on the wave and its share price increased by 25% from 73 sen to 91 sen. Not sure why was that so as Poh Huat’s financial results are not impressive at all. On the other hand, the share price of Homeritz and Lii Hen remain unchanged from the same period.

Let us review the comparison on investing in those furniture companies again with the updated results. Also included are another four more furniture companies; Hevea, Eurospan, Poh Huat and Tafi.

Market valuation
First we examine which has the cheapest market valuation of all the furniture companies here with their latest prices and their twelve months trailing financial results as at 8th December 2013 as shown in Table 1 below:

Table 1: Market valuations of furniture companies
Company Homeriz Lii Hen Latitude Eurospan Hevea Poh Huat Tafi
Price 0.575 1.650 1.810 0.510 0.950 0.910 0.270
PE Ratio 7.7 5.9 4.3 6.8 4.2 5.9 NA
EV/Ebit 4.3 3.4 3.7 3.3 7.1 4.2 NA
EV/Ebitda 3.9 2.8 2.7 3.0 3.6 3.1 5.4

All except Tafi were making good profit for the past one year. We will rule out Tafi as an investment option because of its losses. They are selling cheaply too as all PE ratios are single digit with the lowest at 4.2 for Hevea and Latitude. Homeritz appears to be the most expensive at 7.7. In term of enterprise value, Hevea appears to be the most expensive at EV 7.1 times it Ebit. This is mainly due to its heavier debt burden. For the rest, EV is not much different from each other and they are all in a very low and tight range of 3.3 to 4.3 Ebit and 2.8 to 3.9 times Ebitda. However, Lii Hen and Latitude appeared to be the preferred choice as far as market price is concerned. Let us look at their operation performance for the past one year to see which company is indeed a better investments.
Margins and efficiencies

Table 2 below shows the margins of the business of each furniture company.

Table 2: Margins of furniture companies
Margins Homeriz Lii Hen Latitude Eurospan Hevea Poh Huat Tafi
Gross Margin 45.0% 15.1% 15.3% 21.1% 13.4% 16.7% 14.5%
Operating Margin 18.3% 6.7% 9.1% 5.7% 7.0% 5.7% -1.6%
Net Profit Margin 15.9% 5.3% 7.4% 5.6% 5.5% 3.8% -0.3%

All furniture companies have low to moderate gross margin in the teens and operating and net profit margin in the higher single digits. The exception is Homeritz with each of its margin from double to triple of the rest. For example its gross margin is 45%, three times that of Laitude and Lii Hen. Net profit margin shows the same difference. Thanks to its niche which differs from others in its design and manufacture of upholstered home furniture. It also has its own brand Eritz. Homeritz high margin business has return on invested capital in ROE and ROIC of 21% and 30% respectively, outperformed the rest of the furniture companies by a wide gap as shown in Table 3 below.

Table 3: ROE and ROIC of furniture companies
xxxxx Homeriz Lii Hen Latitude Eurospan Hevea Poh Huat Tafi
Net profit margin 15.9% 5.3% 7.4% 5.6% 5.5% 3.8% -0.3%
Asset turnover 1.1 1.6 1.1 1.2 0.9 1.5 0.5
ROA 17.3% 8.6% 8.5% 6.5% 5.2% 5.7% -0.1%
Leverage 1.2 1.3 1.5 1.2 1.8 1.6 1.1
ROE 20.6% 11.4% 13.1% 7.8% 9.3% 9.3% -0.2%
ROIC 29.9% 14.5% 16.7% 11.5% 8.5% 9.8% 4.8%

Two other companies, Latitude and Lii Hen also garnered ROE and ROIC comfortably above the cost of capitals above 10%, while the rest are marginally acceptable with the exception of Tafi. Wondering why some people chose Tafi. They must have something we don’t know.

Conclusions
Taken all into considerations, I still favour Homeritz as the top pick in furniture company to invest in. Although it has a slight higher enterprise value over its ebit, its margins and operational efficiencies are way above the rest. My personal top three ranking of the market valuations is as follow based on their respective market price now:

1. Homeritz
2. Latitude
3. Lii Hen

So which furniture company do you favour as an investment?

KC Chong in Auckland (8/12/13)


winwin
647 posts

Posted by winwin > Jan 14, 2014 9:18 PM | Report Abuse

kcchongnz, would you mind to check on the fundamental of properties stocks. Thank you very much


speakup
17119 posts

Posted by speakup > Jan 14, 2014 10:46 PM | Report Abuse

SYMLIFE PE only 3.6! ROE 17! Price now RM1.03 vs NTA 1.99!


aaron69
11 posts

Posted by aaron69 > Jan 15, 2014 10:44 AM | Report Abuse

Kc,now that 2014 is here,how about starting a thread for gems of 2014?Appreciate all the info that you've given.Thanx!


kcchongnz
6656 posts

Posted by kcchongnz > Jan 15, 2014 2:58 PM | Report Abuse

SymLife good?

posted by speakup > Jan 14, 2014 10:46 PM | Report Abuse
SYMLIFE PE only 3.6! ROE 17! Price now RM1.03 vs NTA 1.99!

Have been looking at some property stocks and most of them are undervalued, and with plenty of cash and very little debts. Read some of then here:

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/36493.jsp

But suddenly somebody mentioned about SymLife and I took a look. Gosh, what a big difference.

EPS of 8 sen as compared to its share price of RM1.03, nothing great. Please do not treat the sale of PPE as if it is part of the ordinary earnings as reported. It is deceiving. Looking at the cash flow from operations, negative for last two years, how? Some more need money for a lot of capital expenses, 40m last year, how?

That is why its balance sheet is getting worse each year with total debt increasing to 322m already last financial year, almost double of the previous year.

At 1.03, price is 13 times normalized earnings, same as total enterprise value against Ebit. Not cheap at all.

Why would I want to buy a property company with those kind of financials and price when there are so many much better ones and much cheaper?

Sorry, no good words from me on SymLife.


AyamTua
13645 posts

Posted by AyamTua > Feb 18, 2014 10:52 PM | Report Abuse

kcchongnz - humbling myself before you, sir ... need your kind thoughts, ,opnions and views on

AHB Berhad (AHB - 7315)
NTA 9.6070 / current price: 0.235
Source: http://bonescythe.blogspot.com/2014/02/ahb-rewriting-glorious-episode.html
Credit: Bonescythe

Questions

1. Graham Net Net qualifier? something like Hexza, PMCorp? NTA: 9.6070
2. An Undervalue qualifier?
3. A potential turnaround? A baby Homeriz?

thank you, kcchongnz ... take your time no hurry .. thanks


bsngpg
2850 posts

Posted by bsngpg > Mar 25, 2014 11:06 AM | Report Abuse

Hi KC Chong: would you mind to drop few lines on “Matrix”, a newly listed properties developer primarily in Seremban. Good eps, good div, good DPO(>40%), +ve cash flow, good ROE, at low cycle of the industry. Thks.


kcchongnz
6656 posts

Posted by kcchongnz > Mar 25, 2014 12:12 PM | Report Abuse

bsngpg,
I have no idea of Matrix. I truly believe you are good enough to analyze yourself as shown by the metrics mentioned by you. You may also refer to the following link to confirm your analysis:

http://bursadummy.blogspot.co.nz/search/label/Matrix

This guy is good.


bsngpg
2850 posts

Posted by bsngpg > Mar 25, 2014 12:16 PM | Report Abuse

KC Chong : Thank you.


chang0509
167 posts

Posted by chang0509 > Jun 6, 2014 1:43 PM | Report Abuse

Mr KC Chong, Parkson has dropped to such level. Can we buy more to average down the price? Or need to wait first

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