Lets forget about the rubbish analyst report and focus on fundamentals of Daibochi vs the offer price.

I pay more attention to its operational cash flows rather than accounting profits as I believe it is a better measure of how strong a company will be able to pay out dividends that ultimately determine how high the share price may be.

From Daibochi 2021 Q3 quarterly report, it reported an operating cash flow of RM66.83m before working capital changes, and free cash flows of RM62m after tax and interest payments (before capex). Annualising it will give us RM83m of free cash flows.

Given that it had spent capex of RM46m as of 30 April 2021, its expansion plan may well be on schedule for completion by Q4 ended July 2021. Assuming that Daibochi management will be able to secure new orders for 80% of its new capacity within two years, I project that free cash flows would grow up by 50% to RM124m by FY2023. That would be almost 38 sen of free cash flows a year.

Accounting profit will be much lower due to depreciation and amortisation line which will be over RM30m and accounting tax line which will be over RM20m. Therefore dividends will be restrained by net profit of the year or about 23-25 sen per share.

As Daibochi serves mostly MNCs and local prominent F&B brands, it would be justifiable to peg it to dividend yields of consumer food giants like Nestle which has a 10-year mean yield of 3.1%. That would value Daibochi at 0.23/3.1% = RM7.42 !!

One would then argue that Daibochi is much smaller than Nestle and more volatile in revenue or earnings. I would like to peg it to the highest yield given by any REIT listed in Bursa, which is around 7.0%. That would still value Daibochi at 0.23/7.0% = RM3.29.

Even its parent Scientex only gives out a low dividend yield of 2% only, Thong Guan at 2.5%. Daibochi at RM2.70 would yield close to 9%. Where else could you find such a bargain?

In DKSH but it has limit up after a sterling qtrly result. In YTLREIT but need to wait for hotels to return back to normal business. In Astro which is losing subscribers every year still.

Only in Daibochi now which is about to take off well from its well planned expansion. Scientex knows it better than any of us here.

An analyst may have many considerations, self interests is one, priviledged cliets' demand is another. He was the only equity analyst covering this stock (maybe another one from MIDF but I have not seen any update from MIDF yet) and should have been well aware of the sensitivitiy of his revised target price.

He raised the tp for Daibochi by 52% from RM2.66 to RM4.04 on 18 Sept 2020 "due to its rousing growth potential after its capacity expansion". After Daibochi reported a weak Q3 result on 23 June 2021, he then lowered the tp by only 5% to RM3.83, admitting that he should have been aware that workers' strike in Mymnmar would be a drag on its sales. What has since changed on Daibochi fundamentals that makes him cutting tp by 28% to RM2.75? Just because Scientex made a low priced offer, he has to throw away all his own assumptions and projections to get inline with the offer or what markets perceive it to be? What kind of professionalism is that?




Posted by observatory > Sep 14, 2021 5:42 PM | Report Abuse

@dragon328, analysts have many considerations.

For example, if he keeps the TP at RM3.83, he may be concerned that it looks contradictory when advising clients to take up the offer at RM2.70. So may be it's safer to set a lower TP first. Words like business adjustment processes, which nobody can understand what it means, can be used to justify the new TP.

For me a better way to handle this is to work out the TP based on true business fundamentals. Later on if the analyst wants to urge his clients to take up the offer, he could argue for it based on another set of reasons like liquidity issue or delisting lists. This way will be far more transparent.

But what is important is, based on pre-announcement consensus, the offer price represents a FY22 forward PE of about 14 times, as compared to past 5 year average of 20.5X and 10 year average of 18.6X.

Shareholders will have to judge for themselves
1. Is 14X forward PE a good enough offer?
2. Among Apollo, Samarang and Public, how likely will at least two of them also agree that the offer is good enough, and thereby parting their shares to clear the way for Scientex to acquire above 90%?
3. Even if 2 of the 3 funds above sell out, how likely will some other deep pocket investors/ institutions increase their stake to stop Scientex from reaching 90% without offering a higher price later?

I do not understand why he believed "there will be a lot of adjustments needed in Daibochi's cost structures and business practices to comply with its end clients' needs".

This is not the first time Daibochi is doing business with big MNC or local prominent brands. Why suddenly is there a need to adjust so many things in Daibochi's cost structures or business practices?

Is it due to the entry of Scientex as the major shareholder of Daibochi that requires so many changes in Daibochi's operations?

And I do not understand why suddenly the EBITDA margin of Daibochi would drop from over 15% in FY2021 to just 11% for FY2022 in his latest projections. Wasn't it Scientex who said that "taking Daibochi would also put it in a better position to meet the stringent requirements of multinationals and local prominent brands..."? Why would taking it private then destruct its EBITDA margin?

This clearly shows that this CIMB analyst has no integrity and firm conviction on his own analysis, easily influenced by the latest offer by Scientex.

He lowered revenue projections for Daibochi by 5%/0.5% for FY2022/2023 but very conveniently reduced projected net profit by a much larger 34%/21% for FY2022/2023 in order to arrive at a tp of 2.75 close enough to the offer price by Scientex.

The reason cited for lower earnings projections was higher overheads during the business adjustment processes. I doubt he had much idea of what he himself wrote about on the so called business adjustment processes, like "investing in risk mitigation factors for its facilities". What the fak!

I think CIMB Research team really needs to strengthen the governance of its equity research analysts to prevent another Marcus Chan (the CIMB analyst who covered Hevea and got fired for producing biased reports) from misleading retail investors for self interests.

These are exactly the attributes that make Daibochi attractive. Its long term and stable MNC client base is much much valuable than selling just commoditiy-like stretchable films and affordable housing.


Posted by observatory > Sep 14, 2021 12:02 PM | Report Abuse

Among the values of Daibochi is its stable MC client base. Its MNC clients include Nestle, Mondelez International, Pepsico, Hershey's, Dutch Lady and Ajinomoto. They are in the stable consumer staple industry. Daibochi has built up the base before Scientex's acquistion in 2019. Otherwise why would Scientex venture downstream in 2019 to acquire this client?

Another point is Daibochi has recently acquired Mega. This has complimented its portfolio as Mega caters to non-MNC clients.

Personally I prefer Daibochi to Scientex despite Scientex's share price growth in the past. I see the downstream converter business as the more valuable part of Scientex's portfolio.

Besides I like simple business. Investing in Scientex mean buying not just its plastic packaging but also the property business too. I would rather hold Daibochi and separately investing in a pure property play of my choice.

Of course, we minority shareholders of Daibochi has no financial power to fight against the taiko Scientex. What we are asking is for a higher offer price that will reflect the fair value of a great company at the edge of explosive earnings growth.

Scientex already made many minority shareholders of Daibochi suffer like hell in 2019 when it offerred a pathetic RM1.60 to take over Daibochi which was trading at RM2.30-2.50.

Now at least the offer price of RM2.70 is above the average market price in past weeks but is too low for minority shareholders who have been holding daibochi waiting to see the benefits of growing earnings in next 2 years.

Sell Daibochi and buy Scientex?? Easy way out? Hello, Scientex is trading at PER of over 15x and derives half of earnings from property development. Scientex earnings growth for next 2 years will be no way near that of Daibochi. Furthermore, Scientex share price has gone up over 80% since 2019.

There is no sincerity in this take over offer from Scientex. So petty, only good at playing tricks to depress minority shareholders, e.g. getting CIMB analyst to immediately revise target price from RM3.85 to 2.75, loading more costs to the upcoming quarterly result of Daibochi, etc.

Daibochi has not been doing well even after Scientex took over in 2019. Its earnings and share price have been depressed in past few quarters though other plastic packaging companies like TGuan and BPPlas have made tonnes of profits growth. Why was that so?

It was all because Scientex had the intention to privatise Daibochi so it could not let Daibochi to report good earnings until it launched the takeover offer.

If Daibochi is not doing well, why would Scientex want to raise its stakes at RM2.70, a much higher price than its original entry price of RM1.60? Because it knows very well Daibochi will see explosive earnings growth in the next few quarters after its capex expansion plan and softening of resin costs.

Not sure what those big holders of Daibochi will do but I am sure that this offer price is too low.

I will not sell it at 2.70 and is prepared to hold on to see the explosive earnings growth of Daibochi in coming quarters. I think this privatisation offer from Scientex will fail and Daibochi will remain listed after 21 days.

Public Mutual holds 7.32% and Samarang LLP holds 5.05% in Daibochi.

These two funds are key to blocking the mandatory takeover by Scientex at such an unfair price.

Minority shareholders like us can only hope Scientex does not get acceptance of over 60m shares in Daiboci in these 21 days of offer period for Scientex to increase its stakes to 90% and delist Daibochi.

Only if Scientex gets acceptance to increase its stakes in Daibochi above 90% then only Scientex can delist Daibochi, otherwise it has to maintain its listing status though holding over 75% stakes.

If scientex gets acceptance to increase its stakes in Daibochi to over 97.2% then it can compulsorily force all remaining minority shareholders of Daibochi to sell all shares to it.

The offer is not fair but reasonable.

Why cannot fight? Why do we have to accept the offer if not fair?

Daibochi is the largest flexible plastic packaging company in Malaysia for the F&B industry and has expanded business to Australia and Myanmar. Its earnings are at the edge of flying off after spending over RM50m capex to expand capacity by 60% in past one year. Scientex knows it very well that Daibochi has tremendous potential to scale new highs in new market reach and earnings base, hence the offer to increase its stakes from 61%. Scientex is trying to reap all the benefits of exponential earnings growth of Daibochi by taking it private, as it is eyeing all the projected free cash flows of over RM130m a year from Daibochi by spending RM345m to take it private, getting back all its money within 2.5 years.

should not sell even at RM3.00 to Scientex and don't let Scientex to get over 90% stakes. Hold on for higher offer price above RM3.00 or stay on to reap long term benefits from this great company. In time, it should trade up to CIMB's target price of RM3.83.

This round to RM1.00 easily!!

The offer price of RM2.70 is too low for Daibochi minority shareholders to accept, but it is a bargain price to Scientex to raise its stakes in Daibochi.

Offer price should be raised to at least RM3.30 - 3.50 to get more shares in Daibochi to get to 90% stakes.

Scientex got a controlling stake in Daibochi at rock bottom price of RM1.60 in 2019. Now 2 years on, it is trying to sapu all remaining shares at another bargain price of RM2.70.

The fact that Scientex is willing to offer 68% higher price than its original take over price in just 2 years clearly shows that Scientex sees great value and potential of Daibochi.

But it should offer a price with at least 50% premium to 5-day average market price or RM3.30 per share for Daibochi and RM0.80 per wb to show its sincerity, like what KLK offered to buy over IJM Plantation.

Daibochi is at the tail end of its expansion program to increase capacity by 60%. If it manages to secure enough customers for 80% of the additional capacity, its earnings will increase by 50% within 2 years to 25 sen per share. Operational cash flows will be even stronger at close to 40 sen per share. It would be able to declare dividends up to 25 sen per share every year.

For a dividend yield of 7%, Daibochi should trade above RM3.50.
For a dividend yield of 5%, Daibochi should be worth RM5.00!!

Scientex's offer of RM2.70 per share is way too low. I do not expect many minorities shareholders of Daibochi will accept it.

Samchem has gone past accumulation phase in the past 2 weeks since 19th August with close to 100m shares traded. Some funds or parties have accumulated around 50-60m shares of over 10% stakes just in past 2 weeks. Its share price will fly off from now on.

I think it may test 0.90 with volume around 10m, no need 25m like on 19th Aug, as more investors find it undervalued and will not sell below 0.90.

The reported loss after tax was due to a large deferred taxation item recognised for UK Wessex for the increased corporate tax rate to be effective from 2023. The actual cash tax paid was around RM65m only. In fact, the operational cash flows for the financial year was so strong that YTLPower was able to give out total 4.5 sen of dividends. Once the capex for the new Jordan power plant is over by end of this year, YTLPower will have over RM1.3 billion of free cash flows a year or over 15 sen per share for debt repayment or dividends for the next 15-20 years.

It is hard for Insas share price to stand above RM1.00 unless it can consistently declare dividends of 5.0 sen or above every year. Actually the company can just distribute out the dividends it receives from Inari, which may be more than 5 sen per share of Insas.

If the company chooses to just give out 1 or 2 sen dividend only, then minorities shareholders are not getting any much reward in holding on the share. It will be a value trap forever with the cash it receives being channeled to other subsidiary companies like M&A, Omesti or even Ho Hup as working capitals. Worse still would be when Insas cash is used to bail out other ailing companies owned by major shareholders or associates.

Instead of rewarding shareholders with more dividends, the company even got more money from minority shareholders by issuing the preference shares PA and will get more money when minority shareholders convert their warrants WC to ordinary shares over next 5 years. What is the point of holding onto this stock without much tangible benefit?

Genting will have over RM7.0 billion of operating cash flows per year once things get normalised from 2022. As major capex for Las Vegas and Genting Highlands outdoor themed park is over, and the likelihood of getting Yokohama IR licence has diminished, so the capex for Genting going forward will drop significantly to below RM1.5 billion. Assuming it will pare down debts by RM1.5-1.8 billion every year, it will still have close to RM4.0 billion of free cash flows or over RM1.00 per share every year. Things are looking up for Genting and its share price will likely go up back to its glory days of RM9.00-10.00 level in 2 years.

Nice closing for Samchem today, same for DKSH, Media, Ambank and MHB.

MHB is also cash rich but temporarily set back by operational disruption. Its earnings and cash flows will catch up once its heavy engineering division starts to execute its secured contracts smoothly.

You are probably right. I am sure Johari will find other ways of distributing out the cash in the company which will increase by 12-15 sen every year.


Posted by LuckyStorm > Sep 3, 2021 3:52 PM | Report Abuse

Media prima is not possible to declare dividend until they proposed capital reduction.
Accumulated losses around 900m in their balance sheet.
Share capital is 1500m, if proposed capital reduction of 70% of share capital will eliminate their accumulated losses and also won’t fall into PN17.
Correct me if i am wrong. Thanks

Buying back corporate office building is to save rental costs of RM7-8 million a year. Operating cash flows will be increased by the same amount after the acquisition.

Anyway this vaccine distribution is just extra income to DKSH in this year and next. From its existing businesses, DKSH may already get about RM160-200m free cash flows or over RM1.00 per share a year. Assuming dividend payouts of 50% of free cash flows or 80% of net profit, that would be 50 sen dividend steadily every year.

For a 7.0% dividend yield, this stock should trade at RM7.00.
For a 5.0% dividend yield, it should trade at RM10.00.

Typically DKSH would try to get a gross margin of around 7% from distribution. Assuming a cost of RM150 per dose of CanSino vaccine, the company may get a gross margin of RM10.50 from distributing 1 dose of vaccine. For 1 million dose, the gross margin would be over RM10 million.

There is a possibility for Media to declare an interim dividend in next few weeks but it will be more likely so at Q4 announcement. The company needs to complete the buy back of its corporate office building in Bangsar first.

Short term share price fluctuations are unavoidable. Not many investors appreciate the value and potential of Samchem yet as no research house covers this stock. By the time Samchem shows its ability to use strong operating cash flows to reduce borrowings by RM50m or more in next quarter, its share price will fly and you cannot catch it below RM1.00 anymore, like in the case of DKSH.

In the case of DKSH which is a big distributor of F&B products, it carried huge borrowings totalled RM567m in early this year with cash only RM50m. But within half a year, its operating cash flow was so strong that it could utilise it to pare down RM101m of debts to RM466m. It would be able to pay off all borrowings within 3 years. Same goes for Samchem with annual free cash flows of over RM100m that may be used to pay off all debts within 3 years.

You can never go wrong picking up stocks with strong cash flows, not only looking at accounting profits. You can check my recent comments on Media Prima, Ambank and DKSH, all have surged up after good quarterly results that confirmed strong operating cash flows.

Samchem is a big distributor of hundreds of industrial chemicals. There are times when the company sees opportunities to build up inventory stocks at bargain prices, it will load up by taking up short term borrowings. Otherwise, there is always time difference in collection from customers and payments made to suppliers, especially when the company revenue was up by 65%. It will need to draw down money from working capital facilities.

Short term borrowing increased by RM86m due to working capital changes, not a bad issue lah. The important thing is that operational cash flows before working capital changes were very strong at RM69.6m for 1H. As a result, cash balance increased by RM64m.

PER just 5.7x. Annual free cash flows close to 20 sen per share. After listing of its Vietnamese subsidiary company, easily another RM300 million will add into its cash coffer.

This is only the first day of strong rebound. Media is still extremely cheap with nett cash of 18 sen and annual free cash flows of 15 sen. When it starts declaring dividends possibly at Q4 this year, this stock will be over 80 sen.

Cheapest bank stock in terms of PER or price to book value. The worst is over, Ambank trading near year low will catch up with other bank stocks like CIMB or RHB which are trading near year high.

Overbought. will correct soon

Unbelievably cheap for the most profitable chemicals company in Bursa with PER of 5.5x and free cash flows of 20 sen per year

Excellent quarterly results!! This is a cash cow company with half year operational cash flows of RM98 million. It is already in nett cash position, just imagine how much cash this company will have with free cash flows of 15 sen every year!!

Superb results with half year free cash flows of RM100 million which was used to reduce debts. In 2 years, this company will be debt free and annual free cash flows shall be over RM160 million or RM1.00 per share!!!

Dividend 20 sen then share price should be close to RM4.00

Correct. High NTA is just a paper figure. Minority shareholders are not getting any good reward in holding this stock, just a petty 2-3 sen dividend per year. Even if Inari continues to distribute the bulk of its earnings as dividends, Insas will use such dividend money on other businesses or just keep in the company. Share price will not move past 90 sen if there is no consistent higher dividend above 5.0 sen or a corporate exercise that rewards minority shareholders.

JAG's average cost of purchase for his 222m shares of Media should be around RM0.38-0.42. He may be looking at ways to increase stakes below RM0.45.

Morgan Stanley started selling from 12 April where prices were around 0.65 and the last date it announced to have sold Media shares was 1st June when the lowest price was 0.52.

Thereafter, there has been over 20m shares traded. Who was selling? and why pushing down the share price so hard?

We shall know very soon.

Nett cash of almost 20 sen and free cash flows of over 10 sen every year make it a good privatisation target. Morgan Stanley will not sell much below 50 sen. So much undervalued!

It does not matter how much value of Inari shares Insas has if it does not sell it to realise the value. It does not matter how much dividend Insas receive from Inari if it does not distribute higher dividends. It is a value trap. What do minority shareholders of Insas get? Is there any good reason for investors to buy Insas above RM0.80?