Posted by kcchongnz > Jun 3, 2013 03:42 PM

Is SBCCorp a good company? Is it a good investment? 

Posted by ccs999 > Jun 1, 2013 04:02 PM | Report Abuse 
Hi kcchongnz, any comments on Cenbond 7171 & SBCCORP? 
Appreciate your commenrs and thanks. 

SBCCorp’s share price shot up from RM1.00 to RM1.58 now, for a 60% gain just in 3 months. Wow! Even at this price, it is trading at a PE of just 5 and a price-to-book value of just 0.5, damn cheap isn’t it? So the momentum is there and the valuation is undemanding, what are you waiting for? 

But wait, this thread is about finding a good company to invest, then only check if it’s valuation is not to high before investing. Let’s don’t jump the gun and evaluate if SBC is a good company or not first. 
Siah Brother has been an established name in construction, in particular the superstructure construction. By superstructure I mean the building from above the ground, after contractor like Pintaras has done its foundation and basement work. Superstructure construction works has been a very competitive work and margin and profit is low. In fact the margin for SBCCorp is surprisingly high at 21% last fy. That was because of the inclusion of investment and other income. However the turnover of SBC is surprisingly low at 127m last year. Even with such seemingly good results last year, ROE is only at 9.2%, below my required return. ROIC at 8.8% is also not good enough, hardly above the weighted average cost of capital. 

There is also up and down in construction and with many inherent problems in the industry. Unless that company is big and has influence, or it has a niche (like my favourite Pintaras), it is really hard to survive in this dog eat dog environment. Many construction companies, some high fliers, have vanished into the thin air after each crisis. Hence I could not myself rate SBCCorp as a good company. Below is my assessment: 

SBCCorp a Good company? 1.580
Good governance ?
Durable business No
Growth No
ROE Yes 9.2% <12% 
ROTC Yes 8.8% *=WACC 
Balance sheet Neutral D/E 0.26 
Cash flow ok

Screens for investing
ROTC Neutral 9% *=WACC 
P/B Yes 0.5 <2.0 
PE ratio Yes 5.0 <20