it is conservative from the sense that it assumes zero cash flow growth... i agree on that... no i do not think the business will contract year after year, but I m just saying that intrinsic value would be higher if you do the valuation based on an especially good revenue year. Knowing that CBIP revenue is derved from contracts rather than recurring. Say for example, you did this analysis last year (2011) where the revenue was not as high, the intrinsic value will be lower, but that doesnt mean that the company is not worth buying... so maybe other valuation techniques apply...
again if the revenue for the latest year was actually achieved by the average growth rate from the past 5 years, then the intrinsic value derived would be more conservative...
Yeah house you may be right. Last year revenue grew very high. Yeah it is better to be conservative if you want to invest in CBIP, in fact any stock. I agree with you here. Very good point.
house, if I follow your assumptions, using a CAGR of 7.1% from 2006, this is what I will get:
Revenue 345557 EBIT 61220 18% NOPAT=EBIT*(1-tax rate) 55871 9% Average maintenance capex -15987 Add average D&A 8910 Normalised EBIT 48795 Cost of capital, R 10% Capitalized earnings=Nor Ebit/R 495277 Add cash 191145 Add subsidiaries & JV, plantation 152148 191145 Less debts -17644 EPV 820926 17644 Less minority interest -55208 7% EPV to common shareholders 765718 Number of shares 272008 EPV/share 2.82 > Margin of safety 11%
The no-growth EPV will be RM2.82 per share when I adjust this year revenue from 520m to just 345m, Not much of margin of safety then. Very conservative?
It is very conservative... however based on OSK initiation report in June last year, their unbilled sales for palm oil mills are around 331m while for SPV its 310m. I think enough to sustain them for at least 1 year... the demand is coming mostly from Indonesia... so we may see some impact if palm oil price remains low...2012 revenue is going to be hard to beat... that s my opinion...
Posted by kcchongnz > Mar 27, 2013 10:22 AM | Report Abuse
Posted by iafx > Mar 27, 2013 09:27 AM | Report Abuse make no mistake, shareholders equity is NOT equal to Assets - Liabilities!
Somebody just Google and find the formula a bit different and declares everywhere about the above statement. He doesn't understand what is preferred shares, and hence why the difference of the formula. For heaven sake don't make a fool of yourself everywhere.
Yeah, if you want to learn anything about finance and investment, this is the chance for you to read every post here and understand. Btw, any input from you here?
house, sorry ah, a little diversion from serious discussion. Somebody keeps on trying to making fun of me; so I also try to have some fun too.
Yeah, now you have used various methods of valuing CBIP, how do the different methods reconciling with each other on the intrinsic value of CBIP? Do you see if there is enough margin of safety investing in CBIP?
On your cbip projections, i am looking at the yearly cagr, seems to be bit inconsistent and lumpy. 2008 is great year, but then next two years the earnings is not so good, then jumped in 2012, probally due to ssles of asset.
Why do you use 5% growth rate as the earnungs are up and down?
Either one, dcf or owners earning is difficult for inconsistent earning... so just wanna know how you all assume future returns. Got a method or pluck from the sky?
haha.... that's why initia;lly i told KC that DCF method is not suitable for company that have lumpy earnings / cashflow.. 5% for me is just a standard conservative number i use (slightly higher than inflation rate)... I prefer the EPV method that was discussed finally..
The problem is epv does not take into account of future earning increase or decrease.. if increase then ok, if decrease, the epv calc will be out of whack. So you see lumpy earning is hard to estimate.
I do basic dcf and then look for stocks with strong earning increase but sustainable, hopefully with some kind of moat.
Well you can always estimate EPV based on the average revenue you think is more reasonable... defnitely earnigns will go up and down, but fundamentally if in the long run it goes up, then you would still invest in the stock perhaps you can share what your valuation is for CBIP ?
Earnings are not guaranteed to go up forever. That is biggest trap of valuation.
Darling companies like transmile, rise earnings every year until one year in financial trouble, straight away collapse.
There are a lot of good companies which become train wrecks overnight due to poor management. It is very important to invest in companies which produce steady & predictable cash flow like what WB favors. If the business is too complicated, WB usually gives it a miss...
CPIB is mostly a contracting service, an industry i don't really like as it is very cyclic. However what interest me is the 37k of plantation, which should bring steady revenue.
@gark, great balanced view u have there, which is extremely important when come to counter selection & continuous observation. cbip a fair pick but certainly not without problem.
gark, the earnings of 91.8m, or 32 sen per share in 2012 is just from the business. It did not include the sale of asset. If that is included, earnings would be 240m, 0r 90 sen per share. Earnings is up and down each year. That is true and it is the nature of the industry, an industry which is highly correlated with the palm oil industry. However net profit and FCF is achieved every year, and they are substantial too. Look at the table below, don't you agree?
Even after capital expenses, there is substantial FCF too as shown below. You know most growing companies seldom have FCF because of the high capital expenses in the initial phase.
Note that all these figures do not include sale of assets (There may be unintentional included, not too sure)
gark, you can't compare this with Transmile, can you? Transmile involved in financial shenanigans, cheating, fraud.
Oh btw, I start looking CBIP after house asked me to do so. Have no intention to promote this share to sell high to anybody. I am not asking anybody here to buy this share too because I don't believe that will push up the share price. (Though I bought it when I first looked at it after house mentioned it)
kcchongnz, i am not faulting your analysis, in fact i think it is very good. I am invested in CBIP for a few years already and i think it is a great business & i am bullish on the palm oil industry.
However my argument is purely academic, as how do we predict the future cashflow if the current cashflow is not consistent? If you look at the list they suffer big drop in FCF in 2008 and 2011. So how can we tell that the future the revenue can only be up without taking account impact such as 2008 and 2011 might happen again.
The business of palm oil mill, is not exactly a moat i am looking for which has always troubled me. There are many players out there and margins can be squeezed if there is a price war. Similar to refinery contracting business, ie. Lipico, Desmet, oiltek and others now going into price wars with razor thin margins. They used to be very high margin and Lipico was once a high flying earner.
gark, you are wrong to think that I ever fault you anything. I told you many times I like criticism, especially constructive ones like yours, not destructive ones. You know what? You are the one of the very very few I can discuss with in an intelligent way in i3 about investment. Tell you what, I learned quite a bit from you too. See I learned from you about this thing which I didn't have any idea at all, "There are many players out there and margins can be squeezed if there is a price war. Similar to refinery contracting business, ie. Lipico, Desmet, oiltek and others now going into price wars with razor thin margins. They used to be very high margin and Lipico was once a high flying earner."
The reason why I put up the above post is I think you didn't realize that for example the revenue and earnings for 2012 exclude sales of asset which I gathered it from your post. I know you have CBIP and you were trying to add more to your portfolio too. You must like CBIP in certain way. You have doubts above its earnings, lumpy FCF etc and I told you about my view that it is not a concern by looking at the numbers. It is just different point of view. Good to talk about, isn't it?
Yeah I like CBIP, because I am bullish on palm oil. With the huge plantings in Kalimantan for the past 2-3 years, they will need lots and lots of palm oil mill approx 20-30 new ones per year for the next few years. Also CBIP have very good fundamentals and safety margin, ie net cash, low PE, good DY.
The best thing about palm oil mill contracting is that as long as there are plantings there will be mill even if the palm oil price soften. There is a lag time of 3-4 years between planting and milling.
Even though the price of palm oil is down, planters will still want to mill the fruit otherwise they lose it all (rotten fruit).
You require 1 palm oil mill for every 7k-8k ha of matured plantation (age 8-20). Usually they will start building the palm oil mill, when the planting reach age 4-5.
I need to do more research on CBIP's competitors...
1. CBIP hold a patent for CSS system until 2019, and have tax free status (pioneer) until 2015. This is a good moat. This explain why CBIP can get great margin for it's palm oil mill, but until 2015 only. 2. Advantage of CSS vs conventional is lower cost/automated system. But disadvantage is higher FFA (thus lower CPO price) 3. CBIP expect to consume 80 mil per year for the next 6 years to develop the 37k of plantation at Kalimantan. Returns from the plantation will not be seen until 4 years later. Due to this we expect for the next 5 years the FCF will be negative or very low.
gark.. totally agree on point 3... it also depends on how aggresive they are planting... they might even reserve cash for this planting expenditure rather than paying dividend.... I m not so keen on their upstream venture... although it will provide recurring income for them, they dont have track record in upstream and also there are tons of upstream players...
From OSK initiation report Total plantation land after the Indon acquistion will be 51000 ha New planting schedule in 2012 will be relatively slow at about 1,000 ha per annum before progressing faster at about 5,000 – 6,000 ha per annum. With an estimated plantation development cost of about RM16,000 per ha, CBIP would need to fork out about RM80m a year for each new planting of 5,000 ha. Its disposal gain of close to RM140m is sufficient to fund its Indonesian plantation development expenditure for two to three years. The management is estimating an annual capital expenditure of RM25m for FY12, most of it will be spent on its plantation operation. We are expecting minimal contribution from its plantation segment until after its trees reach maturity in 2015.
gark, the sarawak plantations were sold already due to poor yield I believe ? those other plantations you mention are not planted yet right ? reaosn is because i see 0 contribution from plantations in 2011 and 20112 revenue
They only sold Empressa or both?, yield is about 19 tpha dropping to 14 tpha. If a plantation yield can drop like that, means not good plantation management. Anyway sarawak yield is not too good, as SOP only manage about 17-18 tpha.
Kalimnatan can consistently give 23-25 tpha yield due to good volcanic soil.
here s an analysis on MBL which is also doing palm oil processing equipment. Main business (from i3) : The design and manufacture of oilseed expellers and ancillary machinery for oilseed crushing plants; the design, fabrication, installation and commissioning of oilseed crushing plants, and the manufacture and sale of spare parts
EPV analyis 2012 Revenue 50840 EBIT (average 24%) 12201.6 Tax rate (average-4years) 4% NOPAT 11713.536 Less Avg Capex 2102 Add Avg D&A 1124 Norm EBIT 10735.536 Cost of capital 15% Capitalized earnings 71570.24 Add Cash 37090 Add subsidiaries & JV 0 Less debts 0 EPV 108660.24 Less minority interest 0 EPV to common shareholders 108660.24 No shares 92000 EPV/share 1.18 Current share price 0.97 Margin of safety 21.76181085
The revenue estimate was done based on average revenue over 4 years. The current year revenue was actually much higher. The cost of capital set at 15% due to this being a smallcap and not much historical data. Even with such conservative estimates, EPV still comes up to 1.18 with a margin of safety at least 22%..
Yield can be found by dividing total FFB produced with the total planted land. All plantation company must report this statistic (total ffb & cpo produced)but not necessary the yield/ha.
MBL has a CAGR of 25.6% for EPS and is generating consistent cashflow except for 1 year in 2010. ROE is also healthy and they have a dividend payout policy of at least 40%
The most significant assumptions in a DCFA of a firm are the forecasting of future cash flows and the discount rate. The second one is easier because I know what is the required return I want investing in a stock. The cash flow is tough and it is the job of a professional analyst. Even that the professionals got that wrong most of the time. So gark you are not far off for saying plucking from the sky. I think Warren Buffet doesn't do DCFA before he invest in a company. He has his way.
For me I like numbers and I do this for fun. I can also compare with other methods of valuation. And I use a comfortable margin of safety when I invest because I know DCFA is very rough. Below is what I have done for CBIP. I start with a normalized revenue, apply an average EBIT margin to get EBIT. This avoid the inconsistent FCF way of doing the DCFA. After that I assume all earnings are reinvested into the business.
Results Value of Firm = $754.7 less value of debt $(21.9) non-operating cash $191.1 Investment palm oil $46.6 Interest in associates $105.0 Total value of equity $1,075.4 Less minority interest 1045.3 No. of shares 272.0 Value per share 3.84 MOS 35%
one who found a stock to have a good fundamental will always promote. Yes cbip is good/excellect i hope to bought it years before , has gave latest 50 cents dividen ..the nta has drop alot and at rm 2.50 this is very high premium , no doubt
compared to the preceding year, the net assets has fallen from RM 2.83 to 1.86 , well blow me down to buy it at 2.50 ...eeik, can anyone cover this (2.83-1.86)/1.86 x 100 = 52.15 %
that's 52.15 % drop...yuk , who have kept this shares and sold , banyak untung , and for who had just bought... te-net-te-net-te-net-te-net-te-net-te-net-te-net-te-net...eeik
Hey anbz, welcome here. Seriously you should read those post posted by the guys here (I am talking about me lah). These guys are good in fundamentals of investing. Guarantee you learn a lot about investing. Then you no need to lose money again loh. I hope you make money from now on. Btw, cbip's nta drops because of the 1:1 bonus. But nta is not so important as the earnings and its growth of the company. And of course you must also compare the price and its value.
anbz, visit this site and I offer to answer your question about fundamentals of investment (provided I know). It is an offer, it is up to you. Cheers
house, MBL appears to be very interesting after looking at its financials. Will write up something financial about it. gark, how do you look at the business of MBL and its moat?
full version?? si-tipu-roti-canai, c yr own posts:
Posted by kcchongnz > Mar 25, 2013 12:42 PM | Report Abuse
houseofordos
equity = Assets - Liabilities.
With assets overvalued, it means equity will be bigger. As ROE=NI/Equity,
Hence ROE will be smaller, hence not looked better.
Posted by kcchongnz > Mar 28, 2013 11:42 AM | Report Abuse
...
To calculate, the equity of the year is taken as the average of equity beginning and end of the year.
Posted by kcchongnz > Mar 27, 2013 10:22 AM | Report Abuse
Posted by iafx > Mar 27, 2013 09:27 AM | Report Abuse make no mistake, shareholders equity is NOT equal to Assets -Liabilities!
Somebody just Google and find the formula a bit different and declares everywhere about the above statement. He doesn't understand what is preferred shares, and hence why the difference of the formula. For heaven sake don't make a fool of yourself everywhere....
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
houseofordos
936 posts
Posted by houseofordos > 2013-03-29 17:52 | Report Abuse
it is conservative from the sense that it assumes zero cash flow growth... i agree on that...
no i do not think the business will contract year after year, but I m just saying that intrinsic value would be higher if you do the valuation based on an especially good revenue year. Knowing that CBIP revenue is derved from contracts rather than recurring. Say for example, you did this analysis last year (2011) where the revenue was not as high, the intrinsic value will be lower, but that doesnt mean that the company is not worth buying... so maybe other valuation techniques apply...