PE 20x is fair price to pay

In essence, investing is centred on the relationship between price and value. “Price is what you pay, value is what you get.”

When the price of a stock is so out of line in relation to the company’s intrinsic worth, value emerges. That’s where the bargain lies.

Armada at below 20sen was a bargain

Affin Hwang Capital starts coverage on Electronics Manufacturing Services sector

Affin Hwang Capital Research has initiatiated coverage on the Electronics Manufacturing Services (EMS) sector with an “Overweight” rating.

In a note today, the research house said the sector is not merely a beneficiary from the trade diversion but also set to ride on the rapid expansion of their common key customer - a global renowned household appliances brand.

“ATA IMS Bhd (Buy, TP: RM1.80), is our preferred sector pick, as we expect the group to continue charting strong growth on the back of capacity expansion coupled with margin enhancement from further vertical integration.

“We also initiate coverage on V.S. Industry Bhd (Buy, TP: RM1.60) given the group’s diversified customer mix and strong ability in securing new contracts, which makes it a prime beneficiary of trade diversion.

“Elsewhere, we highlight 3 other companies, namely SKP Resources Bhd (Non-rated, RM1.08), i-Stone Group Bhd (Non-rated, RM0.18) and MTAG Group Bhd(Non-rated, RM0.42), which form part of the "D" ecosystem,” it said.

on what basis you think it's super undervalued?

wow how low can BAT go?

1 year low

P/BV 1.9x

As far as stock selection criteria are concerned, which create long-term value, there are five simple ideas, which I regard as material. One, Size of Opportunity is a mother idea. It is less about how big a business was or is. It is virtually all about how big it can get from where it is. It dwells almost entirely in future rather than in the past or present. It is more about the size of a pond rather than the size of a fish. Pond has to be large so that there is headroom for a capable fish to grow.

Two, Management Quality is far more tangible than is believed to be. In the buoyant phase of markets, this truth is conveniently ignored but at one's investment peril. This can hardly be over-emphasized. Capital allocation and capital distribution skills are the hallmarks of a good management. Integrity, vision and execution are the defining attributes of a quality management. It is only when a large size of opportunity meets with quality management, that the outcome is gratifying.

Three, the union of the above two results in the Earnings Growth. This is key because the absence of growth or its materiality reduces equities to bonds. The growth doesn't necessarily have to be dazzling. What's more important for the growth is to be long-term, relatively predictable and consistent. Such growth creates compounding machines.

Four, while growth is essential, it is not enough by itself. It needs to be Quality Growth for it to create value. Quality comes from the ability of the underlying business to create rising economic value. That can happen only when business generates not only superior but also durable, predictable and consistent ROCE. Quality of business is at a heart of good stock picking for outstanding long-term value creation. Again, it is only when a reasonable growth cohabits with high quality of growth, that great economic value is created.

Five, an investor in a (such) business can create investment returns only if the underlying business can create economic value. Ultimately, investing is nothing if not business like. It is a myth to believe that one can earn investment returns even if the underlying business has inferior economic value creation; or, that a business creates outstanding economic value but somehow does not get reflected in investment returns. Neither can happen. Certainly, not over a long enough period of time. An investor can generate investment returns, even superior to the underlying economic returns if he can buy such a business at a Margin of Safety (or, Price-Value Gap) to its intrinsic worth. In essence, the science and art of investing lies in the above, rather, simple ideas. However, investing is simple but not easy.

One, certainty of growth of earnings (even if somewhat modest) is far more valuable than a dazzling growth but which is one time, uncertain or indeterminate.

Two, quality of growth (as represented by capital efficiency) adds far more to long-term value creation than just the earnings growth.

Three, it is important to buy only quality at as good a margin of safety as one can get, rather than buying inferiority but justifying that with arithmetical "cheapness", which more often than not is a "honey trap".

FCF/share range based on above assumptions:
15.12 - 15.96

my estimates based on very conservative assumptions of minimal growth and high discount rate of 10%

your conservative estimates kind of converge with mine as well.
Conservative -> FV = 350 / (7.7%-1%) = 5224 mio ->RM 15.93 / share

Recent FCF already above 400mil (u can cross check from annual reports)

2013 - 158m
2014 - 148m
2015 - 182m
2016 - 280m
2017 - 344m
2018 - 452m
2019 - 481m

take latest 5 year average = 348m

P/(5 year average FCF) = 9.3 times or cash flow yield of 10.75%

share buy back 0.92-0.935

i had backed up the truck at 1.02

if i can recall correctly, when they used to do margin of 6-8% their PE hovers around 9-10x

anyway, what is important is forward looking, management is continuously investing in R&D to improve its profit margin.

last 2 years, despite top line growth, bottom line was affected due to margin compression.

assuming mean PE of 8x on lowest end earnings estimates 22sen = 1.76
plus net cash of 34sen, you should be looking at least 2.10

yes agreed the management has been overly optimistic in the past. they should have learned from their past mistakes. the restaurant business has been a drag. i never understood the rationale for this venture.

whether market gives PE of 8x, 10x or 15x is beyond their control. they just need to focus in increasing their ROE and let the market do its work.

Tguan is the survival of the fittest. as the industry consolidates, only the best, efficient and well-managed, will survive. due to its small size, tguan unable to expand as in Scientex through acquisitions , but there's potential for the company to achieve that scale.

don't get me excited.

i will collect below 1.

good to collect at this price

basically, i keep 2 portfolios la. A and B

B is concentrated. just 5 stocks. comprising of big blue chips. defensive portfolio, passive investing

it's like following Benjamin Graham advice la.
A is portfolio for enterprising investor...comprised of many small mid cap stocks, rebalance every half yearly

hmmm, i'm more of Peter Lynch style. many small positions in what he himself termed it as "tune in later" stocks, so that i keep it in view and follow their story. skin in the game, yo!

Forgot to update latest net cash position. Was using 800mil. Latest net cash is whopping RM1bil.

FCF/share range based on above assumptions:
15.12 - 15.96

Just updated based on latest annual report

HLIND analysis

Price 10.30
Latest earnings 1.042
Average 5 years earnings 0.7367
NTA 5.18
Revenue growth 9.65%
Earnings down 3.31%
Profit margin 15%
EBIT margin 18%
ROE 25%
ROIC 62%
DPS 50sen
Dividend yield 4.85%
Net cash 3.19 (30% of market cap)
Latest FCF 481mil (6% growth)
Average 5 years FCF 348mil

Valuation
PER 9.88
Ex cash PER 6.83
P/BV 1.99x (ROE consistently around 25%, implied P/BV should be 2.5x)
P/FCF 9.30x
Cash yield 10.75% (triple of risk free rate)

Conservative estimates:
Assumed FCF Growth
Year 1-3 2%
Year 4-6 1%
Year 7-10 0%
Discount Rate 10%
FCF/share 14.48 (40% upside)


Assumed FCF Growth
Year 1-3 3%
Year 4-6 2%
Year 7-10 1%
Discount Rate 10%
FCF/share 15.32 (50% upside)

just take the company private. such a small company, market cap less than 500mil. its at big discount v. NTA. net cash is >50% of market cap.

on the surface, P/BV seems super cheap. what they need to do is increase their ROE and the P/BV discount would narrow.

good promotion though. the blog itself is called investment theme of OSK. lol

good try. but can do better, strip out exceptional one off items and re-assess based on core earnings.

didn't know Magni benefits from trade war. though i know Nike is doing well.

what i know of trade war beneficiaries are furniture companies and EMS or contract manufacturers

200mil revenue company. sales growing every year interrupted. china sales growing double digit.

business is resilient

ample of production capacity to absorb growing demand. sales in expansionary mode

profit margin temporarily squeezed due to high depreciation charges.

intensify cost optimisation and automation to mitigate potential escalating cost and further enhance profit margin

new products to meet growing demands

moving forward, capex is reducing. more free cash flows to support dividend payment. recent quarter positive FCF

accumulation phase by insiders

at least your portfolio is lean and concentrated. something which i wish to achieve in the long run

i own 30 stocks at this moment. a self-made index. hahaha

surprised to see Magni and PChem.

thought you are more of thematic play?

my view is oversupply concern yes, but recent selldown is due to stretched valuations. growth already priced in

HLIB target price RM4.22

insiders are buying. that's a good endorsement of its future prospect

time for re-rating

beneficiary of trade war
has no China exposure (v.VS)
strong balance sheet
high return on capital

very much undervalued.

it remains a pipe dream for the company to hit 1billion market cap

a quick glance, perhaps valuation was overly optimistic? PE 30x

looking forward to 40sen earnings

Superlon growth story is only at infant stage.

I like companies with exposures to the Vietnam market. Vietnam economy is growing explosively.

John Neff and Peter Lynch would have endorse Poh Huat!

in my opinion, PE 7x is unreasonable. strip of 43sen net cash, we are talking about PE of 3-4x.

not like the company is destroyer of value. top and bottom line growth. strong balance sheet. healthy free cash flows. ROE >10%.

Posted by Icon8888 > Sep 26, 2019 2:44 PM | Report Abuse

Fair value RM4

Still Long way to go


Mine is about RM5. Trust me, its not a number randomly pick from the sky.

i can afford to wait for market to close the gap.

Finally, the dinasaur has moved. A bit.

the more i read on the prospect of Vietnam economy, im really impressed.

it's one of the fastest-growing economy in the world, growing above 7-10% in the next decade

looking to buy some stocks with exposure to the Vietnam economy, HLIND is one good proxy

@cherry88

i believe PoHuat has the potential to increase their dividend payout. over the last 2 years, they have spent a substantial amount of capex. moving forward, capex is lower hence higher FCF supporting higher dividend. look at latest quarter, their FCF has increased substantially, amount to 8% cash yield.

Posted by cherry88 > Sep 24, 2019 10:39 AM | Report Abuse

Wah...Affin maintain its target price at RM1.48 while TA upgrade to RM2.06. why so much difference ? Let's take average of RM1.77 with our target (revise downward from RM2)


What you should focus from their reports is their earnings forecast.

FY2021
Affin 23.7sen
TA 22.7sen
AmInvest 22sen

FY2020
Affin 21.8sen
TA 20.5sen

The forecasts are fairly similar. what differs in their target price is the choice of PE multiple, which is driven by market sentiment.

as highlighted by AmInvest, very likely a favourable bias towards market perception for furniture stocks given the positive structural change i.e. trade diversion from the trade war benefiting furniture companies, particularly PoHuat.

do their valuations deserve a 7x, 8x or 10x? is anyone guess. but what is certain positive catalysts is in place. their earnings for FY2019 would be significantly better.

Management sounds positive too.
"The protracted trade war has resulted in the shift in the global supply chain and bought about some positive surprises to several countries in the South East Asia region. For the global furniture trade, Vietnam is expected to benefit the most, with furniture exports increasing by 30% this year, followed by Malaysia as orders shift to
these South East Asia exporters. There are now clear indications of permanent structural changes in the supply chain as more and more manufacturers relocate out of China to this region.

As part of the global supply chain, we have registered increased orders for both our Malaysian and Vietnamese operations. We have adapted our production activities to accommodate a wider range of products for our US customers. We are beginning to see improved operational results, particularly from Vietnam where we have
enjoyed smoother production runs following the adjustment period."

net cash of 43sen, valuation is dirt cheap considering current PE is only 6-7x.

historically, Q4 is their strongest earnings. even a modest 8 sen would resulted in full year EPS of 24sen above my expectation of 22sen.

US dollar is strong against Asian and emerging currencies. Expect it to strengthen to 4.26 next year. key event to watch is on the possibility of Malaysia being excluded from the FTSE Bond Index.

currency aside, the trade diversion due to the tariffs is also expected to benefits Malaysian furniture exporters via increased sales to the US.

2 positive catalysts awaiting furniture stocks.

anchor on 10x multiple, Liihen should head towards RM4.
40sen full year EPS is achievable, similar to what they earned back in 2016.

a lot of funds are losing patience.

but at current price, it's a very nice yield

1.6sen dividend on Friday. 2% yield better than nothing.