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When to sell? A case of Pintaras Jaya kcchongnz
When to sell? A case of Pintaras Jaya kcchongnz
The adjusted share price of Pintaras has been on a very steady climb 5 years ago until early 2013 when its share price jumped at a faster rate after the May 5 General Election. The climb of share price accelerated two weeks ago and closed at RM3.95 on 18th April 2014. For the past one year, the share price has increased by a whopping 163%. So has the share price risen too much too fast? is it time to sell for a profit now?
Past valuations of Pintaras
Checking my previous reports, my first valuation on Pintaras was done on 31st August 2010 when Pintaras closed at an adjusted price of RM0.86. My concluding statement was “all three methods above give a fair value of Pintaras in excess of RM3.35” (or an adjusted price now of RM1.68). That was less than 4 years ago.
About 2 years later, I posted another valuation of Pintaras in i3 using the discount cash flow analysis and below was my comments.
[Posted by kcchongnz > Nov 9, 2012 10:27 AM | Report Abuse X
Pintaras 1st quarter 2013 results shows another improvement of net profit of 18% to 14.3 m, or 18 sen per share. Its net cash from operations also increased by 19% to 20.6 m. As a result net cash holding also improved by 10% to 134.6 m, or 1.68 per share. A discount cash flows analysis with conservative assumptions using the twelve month trailing Ebit, 3% growth for the future and 10% discount rate will yield an intrinsic value of Pintaras of RM7.72 (adjusted price of RM3.86) per share. Is there a frog jumping around? ]
Less than two months ago on 22nd February 2014, I wrote another discount cash flow analysis article on Pintaras giving an intrinsic value of RM4.72 (adjusted) when its share price was RM2.96 then as shown in the appended link below:
http://klse.i3investor.com/blogs/kcchongnz/46864.jsp
At the close of RM3.95 on 18th April 2014, both of the intrinsic values evaluated on the first two reports were exceeded. Its share price has also increased by 33.5% in less than two months since the third report above was written. It is inching towards its new intrinsic value of RM4.72.
So the pertinent question is, “Has Pintaras share price risen too much too fast that it has exceeded its intrinsic value now?” If so I would definitely sell it before May and go away. To answer this question, let us refer to the assumptions used for my third report above of which the intrinsic value was estimated as RM4.72.
Previous growth assumptions
In the previous discount free cash flow analysis of Pintaras, it was assumed that the FCF will grow at 5% for the next 10 years and subsequently 3% forever, even though it has been growing at a CAGR of
17% for 8 years since 2006. It appears that this assumption is a little conservative.
Many analysts are bullish about the construction industry for the next 5 years. As at to date, Pintaras has already secured RM303 m foundation contracts to be completed in the next one year, as compared to the total trailing twelve month revenue of RM184.4m which includes its tin can business. It does appear that Pintaras is one of the leading foundation contractors, if not the top foundation contractor after securing some of the most prestigious foundation projects recently. So what is the growth for next year, and the next 5 Years? Is it a CAGR of 64% (303/184.4-1)?
Revised Intrinsic value of Pintaras
Of course FCF is very difficult, I would say impossible, to grow at 64% a year for another 5 years. I wouldn’t even assume half of that rate. But let us assume that it grows at a conservative rate of 10% a year, or 5% higher than the previous assumptions, for the next 5 years, 5% the subsequent 5 years, and then 3% forever. Are those assumptions too liberal?
With these new assumptions, the present value of all its future cash flows, or the intrinsic value as obtained from the discount free cash flow analysis at 10% discount rate is RM5.60. At the closing price on 18th April 2014 at RM3.95, the margin of safety investing in Pintaras is a comfortable 42%.
Reverse Discount Cash Flow Analysis
But this is confusing. A change of the growth rate by just 5% for the next 5 years causes so much change in its intrinsic value. So let us not make any uncertain future growth assumptions. But instead, we see what growth rate the market is expecting for Pintaras by doing a reverse discount cash flow analysis (DCFA) and see if that expectation is reasonable. For those who are interested in this reverse DCFA, please refer to the appended link below:
http://klse.i3investor.com/blogs/kianweiaritcles/36514.jsp
The reverse DCFA shows that Pintaras at RM3.95, the market expects the free cash flow of Pintaras to grow at 2.5% a year from now to forever.
Sell or buy?
So what do you think of the reasonableness of this growth expectation? If you think this expectation of 2.5% from now to forever is too high, then you should sell the stock. However, if you think the FCF can grow by 10% for the next 5 years, it may be advisable to buy more of Pintaras stocks.
Please let us know your thought.
K C Chong (20/4/14)
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Discussions
4 people like this. Showing 47 of 47 comments
Hi KC Chong: I do not opine that it is your responsibility to update regularly the status of the “recommended” (replace with "discussed" if you dislike the word recommended) stock. Nevertheless when I saw your comment pops up at the right time to share your view on the significant change on share performance, I were touched with your generosity and good deed. THANK YOU VERY MUCH !!!
2014-04-20 16:51
you may be find another stock similar like pbbank. So why to ask when to sell?
2014-04-20 18:38
It isn't about responsibility...... He assume us as his students. He doesn't wan2 see us fail
2014-04-20 18:38
Posted by carson > Apr 20, 2014 04:19 PM | Report Abuse
hi kcchongnz, what do you think of wct, another const. mid cap, please give your views on its fundamentals and any upside in 2014 and are we facing another financial meltdown or just a mild corrections going forward
I am not a know-all person. As am individual I have my limit; limit of knowledge, time, capability etc, especially if you talk about macro thingy and predicting what will happen in the future. I don't know about the future, and I don't know about every stock, not even 5% (may be 1%) of stocks in Bursa.
I did make a comparison of some construction companies in term of efficiencies which include WCT. It is not bad a company. Most of all, it is inexpensive. Please refer to the following link:
http://klse.i3investor.com/blogs/kcchongnz/46573.jsp
2014-04-20 18:54
Posted by KinSoon Kok > Apr 20, 2014 04:34 PM | Report Abuse
All we need 2know is at wat price u sell 4profit taking, sir.
Kin Soon,
You may have missed the point. For sure I am at profit for investing in Pintaras Jaya since I started buying it 4-5 years ago. But when to sell? This I have deliberated in the article. Hope you can read it again.
Your question of "when to sell for profit" is not appropriate for value investing. The article has explained that I will sell if the price exceeds the intrinsic value of the stock, not just for any profit. This you must spend a little effort to learn how to estimate the intrinsic value of a stock.
Without having a feel of what the intrinsic value of a stock is, it is hard for me to decide when to sell or whether to buy.
I suggest you read what I think you should do here:
http://klse.i3investor.com/blogs/kcchongnz/50550.jsp
Your question may be more appropriately directed to technical analysts.
2014-04-20 19:13
HiKcchong,
Mind to give me your report? My concluding statement was “all three methods above give a fair value of Pintaras in excess of RM3.35” (or an adjusted price now of RM1.68). That was less than 4 years ago.
I tried to search your posts but could not get it.
Thanks.
2014-04-20 20:32
Can you evaluate one company? EUPE?
My opinion,
Cons
1:From my perspective, its earning capabilities do not meet my requirement at all. Its ROIC,ROE,FCF for the last 5 years do not meet my requirement .
2:Have not been giving dividends for 10 years.
Pros
1: Expanding footprint in KL. Launching three projects and two of the projects worth 720m that contribute to its bottom line significantly.
2: There might be a sign of a change in divdiend policy (gave dividend in 2013)
3: Graham net net= RM1.28 intrinsic value
2014-04-20 21:10
kcchongnz, just to get a little bit of advice from u. I am using the projection of future eps growth rate to calculate my intrinsic value and i find this method at times is not workable on certain counters as this calculation requires consistently growing company which make the eps growth rate more predictable. I tried to learn the DCF method but is quite uncomfortable with this method as you are required to predict the cash flow growth rate. Maybe you can share once again your spreadsheet as I really keen to pick up some valuable knowledge from you, thanks.
2014-04-20 21:43
Just calculate using eps growth rate method based on last friday closing with a projection of 15% eps growth rate (actual growth rate is a lot higher, i am using a more conservative figure) and i got RM3.53 as the intrinsic value.
2014-04-20 22:13
KC, thank you for the many analysis and valuable knowledge you have imparted selflessly here. My thought is that a company like Pintars with supernormal ROIC and ROE will definitely invite more competition in the future. No business can maintain this kind of ROE/ROIC for long periods as high margin business will invite more competition. In your article here,
http://klse.i3investor.com/blogs/kcchongnz/46430.jsp
you have explained some of the moats of Pintaras that allowed it to sustain its margin. How long do you think Pintaras can maintain this edge ? Perhaps lets say in worst case
1. Key management leaves the company.
2. A competitor company recreating the "specialized plant and equipment" that Pintaras has and encroaching their market share. How long do you think this would take ?
Thanks for your views.
2014-04-20 22:41
Posted by digiuser016 > Apr 20, 2014 08:32 PM | Report Abuse
HiKcchong,
Mind to give me your report? My concluding statement was “all three methods above give a fair value of Pintaras in excess of RM3.35” (or an adjusted price now of RM1.68). That was less than 4 years ago.
I tried to search your posts but could not get it.
Thanks.
digiuser016, thanks for your interest in my valuation report for Pintaras. You are really detailed from all the posts I read by you. Can't bluff you.
That report is a very old report, 4 years ago? Pintaras's fundamentals has changed dramatically since then. Revenue and earnings has improved from 106m and 20.7m to 184.4m and 55.4m respectively. And its expected revenue for the coming 12 months could be more than 300m now.
So it is the present and the future which is important.
I haven't join the forum yet 4 years ago and hence I did not post it in i3, but distributed to my friends then. If you are interested (it is really outdated), give me your email address here.
KC
2014-04-21 02:54
Posted by digiuser016 > Apr 20, 2014 09:10 PM | Report Abuse
Can you evaluate one company? EUPE?
My opinion,
Cons
1:From my perspective, its earning capabilities do not meet my requirement at all. Its ROIC,ROE,FCF for the last 5 years do not meet my requirement .
2:Have not been giving dividends for 10 years.
Pros
1: Expanding footprint in KL. Launching three projects and two of the projects worth 720m that contribute to its bottom line significantly.
2: There might be a sign of a change in divdiend policy (gave dividend in 2013)
3: Graham net net= RM1.28 intrinsic value
By looking what you have given here, for sure I am not interested in this company. Sorry I won't spend time on this in this forum.
However, you may be right looking at the future, as the future is more important. But to me, the future projection, if you have any, is only an expectation.
And for me, “I know of no way of judging of the future but by the past” Patrick Henry
2014-04-21 18:05
Posted by kcchongnz > Apr 21, 2014 02:54 AM
thanks for your interest in my valuation report for Pintaras. You are really detailed from all the posts I read by you. Can't bluff you
Haha, you have a sense of humor. I am interested to see how you change your intrinsic value in accordance with the change fundamentl of a company. This is why I want to get the report.
My email: johnwong19xx@gmail.com
2014-04-21 18:17
digiuser016,
As a record here, I just sent you that report as requested. Just to record here that I didn't bluff. Cheers.
2014-04-21 18:30
haha. thanks yeah.
Haiyo... we know you are a trustworthy person,I did not think you bluffed when I read the article. I want to get the report to know how you change your intrinsic value. OK?
2014-04-21 18:39
hi kcchong,
Do you have the report that contains "all three methods above give a fair value of Pintaras in excess of RM3.35"
Thank you.
2014-04-21 18:46
digiuser016,
I may be joking here. But in the www, there are all kinds of people. A few months ago I was accused of not only bluffing, but cheating, pusing, copy and paste,etc. This thing is real.
2014-04-21 18:46
Posted by digiuser016 > Apr 21, 2014 06:46 PM | Report Abuse
hi kcchong,
Do you have the report that contains "all three methods above give a fair value of Pintaras in excess of RM3.35"
OOp, send you the wrong report which was in November 2012, not the first report which was on August 2010.
Here is the one in your email.
Really cannot bluff you.
2014-04-21 18:59
Posted by ksng0307 > Apr 20, 2014 09:43 PM | Report Abuse
kcchongnz, just to get a little bit of advice from u. I am using the projection of future eps growth rate to calculate my intrinsic value and i find this method at times is not workable on certain counters as this calculation requires consistently growing company which make the eps growth rate more predictable. I tried to learn the DCF method but is quite uncomfortable with this method as you are required to predict the cash flow growth rate. Maybe you can share once again your spreadsheet as I really keen to pick up some valuable knowledge from you, thanks.
I got no idea of how you calculate your intrinsic value and hence not in the position to comment.
I have many spreadsheets but they are not user-friendly. I have previously sent out to many i3 forumers, but very very few used them. So I don't think you can get anything out of them.
Why don't you join my fee-based web course on investment.
2014-04-21 19:16
Posted by houseofordos > Apr 20, 2014 10:41 PM | Report Abuse
KC, thank you for the many analysis and valuable knowledge you have imparted selflessly here. My thought is that a company like Pintars with supernormal ROIC and ROE will definitely invite more competition in the future. No business can maintain this kind of ROE/ROIC for long periods as high margin business will invite more competition. In your article here,
http://klse.i3investor.com/blogs/kcchongnz/46430.jsp
you have explained some of the moats of Pintaras that allowed it to sustain its margin. How long do you think Pintaras can maintain this edge ? Perhaps lets say in worst case
1. Key management leaves the company.
2. A competitor company recreating the "specialized plant and equipment" that Pintaras has and encroaching their market share. How long do you think this would take ?
Yes, the article cited by you has explained what I think about Pintaras moat. There is nothing much i can add if you still think its ROE and ROIC is unbelievable.
One thing the management of the company is the major shareholder. Dr Chiu holds about 60% of the shares, I think. So there is the perfect alignment of the interest of management and shareholders. So if Dr Chiu sells off the company, it will be a complete different story for Pintaras Jaya. He is still young, <60? Will he cash out? I don't think so in the near or mid-term basis.
Yes, high ROE business will certainly attract competitions. But heavy foundation is not an easy construction works. But I think more important is there is plenty of work in the next few years and there is simply not enough resources in the market, and hence its high price demanded. the other thing is even if you have good managers, but if they are not owners and there is no alignment of interest, it is totally different.
2014-04-21 19:27
I have read plenty of Warren Buffett books. If I apply his teaching, it seems impossible to buy any share in KLSE? Somebody told me that his teaching is only applicable in efficient market, but not in KLSE. Since your investment rate of return exceeds 50%, I believe your approaches are much more suitable in KLSE.
2014-04-21 21:01
Thank you for your report.
Well, It is very interesting to read your reports.
The first report contains three valuation method- dividend+pe, pe, and dcf(5 years average fcf and golden growth model).
The second report contains one valuation method- dcf(trailing twelve months fcf, damodaran)
The third report( you published it 2 months ago) has one valuation method dcf> 2 years average fcf(golden growth).
You have used different data for the same model(5 years fcf, 12months, 2 years). Haha, valuation is an art, not science.
2014-04-22 00:56
Posted by KinSoon Kok > Apr 21, 2014 09:01 PM | Report Abuse
I have read plenty of Warren Buffett books. If I apply his teaching, it seems impossible to buy any share in KLSE? Somebody told me that his teaching is only applicable in efficient market, but not in KLSE. Since your investment rate of return exceeds 50%, I believe your approaches are much more suitable in KLSE.
I have never read any book from Warren Buffet. Has he ever written any book?
I think you could have read books written by others about him. I think again you got his ideas completely wrong from your statements above.
Posted by KinSoon Kok > Apr 21, 2014 08:13 PM | Report Abuse
Sir, u mentioned about your fee-based course. Can u give more infor.
Give me your email address here if you are interested asap. We are starting soon. I myself am excited about it.
2014-04-22 03:49
Hi kcchongz I am really keen with the course as well. My email
alxleecj@hotmail.com
hope to hear from you soon.
2014-04-23 02:26
Hi kcchongz, hope to get the valuation reports on Pintaras from you too.
My email is mikekhew.zeal@gmail.com.
Thank you!
2014-04-23 15:23
Hi kcchong, i'm interested in your valuation report on Pintaras as well as fee based course. appreciated send the detail in
lindahui188@outlook.com
2014-04-23 20:34
Hi Kcchong, i am interested your valuation report too..appreciate if you could share.
Email: cyong2020@yahoo.com
2014-04-24 11:24
I have done a lot of work on Pintaras Jaya, valuations and all that. You can go here:
http://klse.i3investor.com/blogs/kcchongnz/
2014-04-24 11:32
Sell, sell, sell. Pintaras profit down!
Yes, that is the mentality of most so-called investors. They are “investing” by looking at EPS quarter to quarter, nothing else.
Pintaras just announced that its third quarter results and EPS dropped to 5.8 sen from 8.6 sen, or about 30%. But was that really a drop in its real earnings in the first place?
Pintaras gross profit actually increased by about 13% from 15.9m to 18m for this third quarter. The net profit dropped by 23%, mainly because of the expensing of 4m on the option granted to the management. This 4m expense is just an estimation of the value of this option (using Black-Scholes OPM, I guess) and it is a non-cash item.
There was also a drop in income of some non-operating items.
So in fact, the core operation of Pintaras was doing better for this quarter as compared to the corresponding quarter last year. How can one knows about this? Just look at its cash flow statement, and the increase in cash and cash equivalent of its balance sheet.
Don’t forget that this period has not included any revenue of the two biggest projects so far of more than 70m each just secured a couple of months ago which have not started during that period yet.
2014-05-21 19:26
Hi Kcchong, i am interested in your fee base course.
Email: jason.cclaw@gmail.com
2014-05-22 09:40
Posted by NOBY > May 22, 2014 09:19 AM | Report Abuse
superb... the sell off for PTARAS has started... i m preparing my bullets..
That is the difference between a true investor who understand the business of a company he invests in, the concept of "Mr Market", know how to read financial statements and analyze, and have a feel of valuation, and the crowd.
2014-05-23 12:09
Hi kcchongnz, interested in joining your fee base course. Please email me at amudzaffar@gmail.com.thank u.
2014-05-23 20:47
Posted by vnewee > Jun 22, 2014 12:17 AM | Report Abuse
Hi kcchongnz, please email me details of your course. thank you.
How to email you? No email address also.
2014-06-23 10:21
sorry that i have forgot my email kcchongnz. here you go:vnewee@gmail.com. please email me details of your course. thank you. :)
2014-07-10 18:59
Hi kcchongnz,
do you still conduct any FA courses? I am interested as well. If you did see this msg, can you also send me an email on the course detail, email: Choon_fei2001@yahoo.com
2014-09-27 11:21
Posted by choon_fei2001 > Sep 27, 2014 11:21 AM | Report Abuse
Hi kcchongnz,
do you still conduct any FA courses? I am interested as well. If you did see this msg, can you also send me an email on the course detail, email: Choon_fei2001@yahoo.com
Many people here asked me before wanting to join my online course, but when I sent them the particulars, especially they know that they have to pay a fees, although it is a small sum, they gave up joining. Little do they know that many are penny-wise pound foolish.
Yes, I have one course starting now. Please email me if you are truly interested. Remember, there is a fee.
ckc14training@gamil.com
I just received this email an hour ago from one of my students.
Lam Kun Onn
6:05 PM (1 hour ago)
to me
Dear KC,
I just read of yr comment in KNM:
"Do you really follow investment bankers recommendations to buy shares? What were the outcomes from those investments? @#%&*"
my answer is yes and it costs me RM35k in just less than 5month on TAS recently. The "tuition fees" is truly expensive and I will not hesitate to pay you as little as RM100 each month to minimize similar mistake in future.
no wonder yr comment ended with 4 letter words..&%#@ hahaha...
wish you a nice week end.
regards,
Lam
The below two posts were from my students in i3investor a week ago:
Posted by coolio > Sep 17, 2014 02:02 PM | Report Abuse
I'm a KC student, glad to be his student & great to be his first batch student! what I can say is I really benefited from his course. He inspire you, entertain you (with winning stocks), and you end up learning tons of knowledge even in short period of time and you will be able to pick your own winning stocks! Cheers
Posted by SS661M > Sep 18, 2014 08:12 AM | Report Abuse
Some of u might think, what is so great about KC? My remisier's promises much higher returns. Well, I'm sure that KC's returns is in fact higher than what he published. He does some short term investments that he never mention or publish them. His intention is to teach u fundamental investment so that u can get some decent returns while keeping your job. He is not intended to teach you to punt, like what your remisier is doing. I guess the course is almost done but i'll still subscribe to KC. $100 monthly is nothing compare to the amount i invested. I think i pay much more brokerage fees than that. I do that because i have unlimited Q&A session with KC through email. I can learn all his FA skills but can never learn all his experience. I m learning from other oldbirds in I3 forum. When learning with KC, u just say u don't know and he'll be more than happy to teach u. If u want to learn from those oldbirds, u got to show them your kungfu and they will defend their superior position. That is how u learn from them. It isn't easy. Sometime i have to make a fool of myself and in the end of the day i learn nothing. Reason is the oldbird also dun know much but just hearing news from here and there. If you are going to make one right decision in your share investment life, let it be this one. Join KC!
2014-09-27 15:35
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hi kcchongnz, what do you think of wct, another const. mid cap, please give your views on its fundamentals and any upside in 2014 and are we facing another financial meltdown or just a mild corrections going forward
2014-04-20 16:19