miketyu, Everybody is different. That is the beauty of this world.
For me, I am a fundamental investor. So my reference is the intrinsic value of the company, and the concept of margin of safety in investing in its stock. So if the share price goes beyond its intrinsic value, I definitely will sell. But if there is still 20% margin of safety, I likely will keep the stock.
MFCB announced that they have obtained approval for a 90years concession on a 9477 ha land to plant rubber and that the development of this land is expected to enhance the long term net assets and earnings of the group.
Is MFCB a planter? Do they have the expertise in this field?
Jaack, yeah saw that announcement last night. I don't know if it is a good development for MFCB or not. On one hand, all companies strive to grow their business. It would be best if they can grow in the power and limestone products business which they have the experience. But I guess it is good to go regional too. They do not have the experience in plantation, but I guess they can employ expertise. Skill and unskilled labour there is cheap too. I think rubber plantation which they intend to do would be a good business as this natural rubber has been getting less and less in supply but there is always demand for it.
I remember 4-5 years ago this company Kfima ventured into palm oil plantation which they totally did not have any expertise at all. But now the plantation division has been providing them with steady 30% of their revenue and profit. So many critics "dropped their spectacles".
I think there is a good way of capital allocation for growth.
Dear kcchongnz, i enjoy and have learned alot reading your postings,thanks again! is it advisable to buy those stocks you recomended recently at this juncture as KLSE is at the historical high? do we have to put a stop loss in case of major correction? THANKS
tonywong, For fundamental investors, unlike technical followers, there is no such thing as stop loss. Both have different approach in buying and selling stock.
Fundamental investors buy a good company at reasonable price. Best is cheap price with big margin of safety. They only sell if the stock price has gone up closed to or above the intrinsic value. They do sell even they are at a loss if the fundamentals of a company deteriorates.
Many great fundamental investors do not bother much about macro economy or historical stock prices. They think it is extremely hard to predict macro-economic stuff.
It is the value of a stock the fundamental investors are concerned of, not the broad stock market. Again, it is hard to predict if the broad market will go up more or retreat.
Posted by tonywong > Aug 3, 2013 02:23 PM | Report Abuse Dear kcchongnz, a very good piece of advice. As this is my first investment in KLSE, i feel more confident now . THANKS KCCHONGNZ !!!
tonywong, if you know mandarin, you must listen to the video appended below.
Dear KC, Thank you very much for your excellent analysis of MFCB intrinsic value. However, I failed to arrive at certain entries of your data. I would be much obliged if you could kindly enlighten me on how to get these figures, viz: Ebit, Income tax, D&A, cost of capital, capitalized earnings and minority interest. I have tried to look at the 2012 financial statement of MFCB, but somehow I cannot find or add up to the above mentioned data like yours. Thank you again.
nokenzo, definitely you won't get the same figure as mine. There is no way another person doing the EPV will get the same numbers as another. No way. This is because valuation is an art more than a science (don't remember how many times I have mentioned this).
For example, what ebit do you use? I use an average ebit margin of 16%, which is the average ebit margin of last 5 years to last year's revenue to get the constant ebit for the rest of the life of MFCB. Some may use average of 3 years, some last year's.
Income tax, I based on the percent of last year's ebit. What other use?
Capex? I used lat year's capex which is the lowest. This is for EPV, you assume there will be no more growth and hence no capex for growth, just maintenance capex which will be low. D&A? I can't use the pass years D&A because the non cash added back will be more than the maintenance capex. It is not possible for write back of D&A higher than capex for the rest of its life, can it? Can you get back more money (in D&A write back) than the expenses on the plant and machinery you spend on for the long term? So I used an arbitrary D&A of 75% of capex.
Cost of capital is the weighted average cost of capital (WACC) of equity and debt holders. It is worked out based on followings:
WACC Wt R WACC Market cap 421767 86.0% 10.0% 8.6%
Total debt 68712 14.0% 5.3% 0.7% 490479 9.3%
Tax rate 25.00%
Capitalized earnings is just normalized ebit/WACC.
Minority interest I just based on the last year income statement that worked out to be 38.2% of the net profit belongs to the minority interest. Hence 38.2% of the EPV goes to MI. Frankly speaking I am not 100% sure if this is correct. But I think so.
So you see EPV is more an art. For that matter, all valuation methods are more art than science. There is no right or wrong.Important thing is whether your assumptions are realistic and logical. Also use various valuation methods and if the results are all close, then the valuation may make sense. I guess if you do the EPV using sensible inputs, you will arrive at a figure close to mine too.
Hi KC, Thanks alot for your prompt reply, I really appreciate it. Shall try again base on your assumption. I am a novice and try to understand what you mean. You are really kind to enlighten me. Thanks again.
it is interesting to see how you calculate the intrinsic value of MFCB but I still do not really get it. As I had invested in GUH, it will be useful if you can show me how to calculate the intrinsic value of GUH. thanks a lot
Posted by mlg123 > Aug 11, 2013 02:07 PM | Report Abuse Hi KC, it is interesting to see how you calculate the intrinsic value of MFCB but I still do not really get it. As I had invested in GUH, it will be useful if you can show me how to calculate the intrinsic value of GUH. thanks a lot
I remember I have commented before that GUH is a value stock if you are looking for a cheap property stock but with reasonable financial performance to invest in. Below is my EPV for GUH based on the last two years financials. The assumptions are ebit margin averaging 13%, tax rate 23%, net capex about 4.5m as shown, cost of capital 10%. Please note these limitations.
Revenue 280386 EBIT 35721 13% NOPAT=EBIT*(1-tax rate) 27581 23% Average maintenance capex -16741 Add average D&A 12282 Normalised EBIT 23122 Cost of capital, R 10% Capitalized earnings=Nor Ebit/R 231287 Add cash 160286 Add others 0 Less debts -117 EPV 391456 Less minority interest 0 EPV to common shareholders 391456 Number of shares 185414 EPV/share 2.11 > Margin of safety 36%
When I don't comment I don't ask for things, when I do comment I ensure I share freely. This is true for any capable person but for those who say they are capable and good but continue to take, pls be aware of them.
Hi KC, I tried for whole day to get the figure you gave in market cap like wt? 86% and 10.0%, and in total debt 14.0% and 5.3% ???. How you get these figure? Sorry I am still in MFCB trying to understand your intrinsic value. Hope you don't mind parting your knowledge. Thank you in advance. The following was what you wrote.
Cost of capital is the weighted average cost of capital (WACC) of equity and debt holders. It is worked out based on followings:
Market capitalization=421.8m, Total debts=68.7m Total equity + debts=490.5m Weight of equity=421.8/490.5=86% Weight of debts=68.7/490.5=14% Cost of equity=10% after-tax cost of debts=(1-25%)*7%=5.3%
7% is the before-tax cost of debt, interest rate from bank borrowing, loan stock interest etc. It is an assumption as I don't really know exactly that cost.
25% is the tax rate, also an assumption but I think should be pretty close. So (1-25%)*7% is after tax cost of debt.
Actually don't worry too much about the calculation of WACC. One could just use say 10%, and that would be fine.
Dear KC, Thank you so much for your clarification. I am marveled by how you can readily arrive at the intrinsic value of so many stocks. You are great and unselfish. Salute to you. I am from Northern Malaysia. If you happen to come to this part of the world, please let me know. My email: nokenzo@hotmail.com. I am a science graduate trying to understand finance, just like a fishmonger trying on masonry work. lol.
Hi KC, What do you think of MSC? Lately alot of talk about the failed COW in Koba Tin and price has dropped. I understand this was last year's news and 2Q has passed.
nokenzo, again, i don't know much about this company. all I know is it is a well established and professionally run company.
I don't look at it in detail because its earnings is very volatile and hence hard for me to judge what is the intrinsic value of the company. One year it can earn 56m but the following year lost 93m.
It is beyond my level of competence to understand this type of business.
Basic PE for MFCB with a growth of 4.8% and a dividend yield for last year of 4.4%,
Basic PE = 8 + 0.65*4.8 + 4.4 = 15.5
Business risk: MFCB’s business has high efficiencies with average return of assets of 6.5% and high return of capital of 18.5%. Cash return (FCF/IC) is great at 20%. Hence there may a good moat in its business. An arbitrary 5% premium is applied to its business risk.
Financial risk: MFCB has a very healthy balance sheet with net cash of 130m. Hence a premium of 5% is applied.
Earnings visibility: MFCB has quite stable and reasonable operating profit margins of 20%. Its cash flow from operations is also stable, about the same as its net income. It has stable and high free cash flow every year, averaging more than 10% of revenue. A premium of 5% is applied.
Hence the absolute PE for MFCB is:
Abs PE = 15.5* [1+(1-95%)] *[1+(1-95%)] * [1+(1-95%)] = 17.1
Fair value of MFCB= 17.1*0.239 = RM4.09
Ooop, it is way above its present share price of RM1.82.
Posted by mhchai > Sep 13, 2013 07:35 PM | Report Abuse kcchongnz, can you help me to calculate the fair value of PRKCORP ? TQ
The earnings of Prkcorp is volatile and hence hard to estimate its intrinsic value. Sometimes it sell land and boast up its earnings which may not be sustainable. I would recommend you to the following blog for hsi writeup on Prkcorp. He knows much more than me about Prkcorp.
However, if you are interested, here is a rough estimate of the intrinsic value of Prkcorp based on absolute PE.
Katsenelson’s absolute PE for Prkcorp
Basic PE for Prkcorp with a growth of 2% and a dividend yield for last year of 2.6%,
Basic PE = 8 + 0.65*2 + 2.6 = 11.9
Business risk: Prkcorp’s business has low efficiencies with slightly below average return of assets of 7.8% and return of equity of 10.1%. Cash flow is good. A discount of 5% is applied to its business risk.
Financial risk: Prkcorp has a very healthy balance sheet with a reasonable debt-to-equity ratio of 0.2. Hence no premium nor discount is applied.
Earnings visibility: Prkcorphas earnings is not stable. a discount of 20% is applied.
Hence the absolute PE for Prkcorp is: Abs PE = 11.9* [1+(1-105%)] *[1+(1-100%)] * [1+(1-120%)] = 9.0
PRKcorp is an asset rich company, applying a graham net net valuation method as a most conservative way of valuation as described by KC still presents a decent margin of safety
Graham net-net valuation of Prkcorp
Graham net-net BS value Wt Liq value Per share Cash and cash equivalent 208122 100% 208122 2.08 Property development costs 132434 100% 132434 1.32 Land held for development 14658 100% 14658 0.15 Investment Properties 5107 100% 5107 0.05 *Other investments 76231 80% 60984.8 0.61 Inventories 6410 50% 3205 0.03 Trade Account Receivables 129945 75% 97458.75 0.97 Property, plant and equipment 85483 0% 0 0.00 Port facilities 86320 0% 0 0.00 Intangible assets/tax recoverable 25267 0% 0 0.00 Total assets 769977 Total liabilities 189876 100% 189876 1.90 Total equity 580101 0 Number of shares 100000 100000 Net tangible asset per share 5.80 3.32
*These are available for sale financial assets (quoted shares in Malaysia)
You are already conservative doing that. If quoted share, use 100% market value. Port facilities should worth something.
And have you deducted minority interest? Anyway, my estimate is higher because of the above. But conservative is good especially when contemplating whether want to invest or not.
kc, good point, should i just deduct minority interest from equity section ? disclaimer? aiya who am I ? its not like I have so much influence... hahaha...
MFCB's 9 month result shows a slight dip in revenue of 2.5%. However its ebit and pretax profit increase by 25%. This was due to higher margin especially in power generation. The bottom line hence very good. But more importantly, its share price has risen by 16% (including dividend) since 4 months ago when it was RM1.70. So is it too expensive now? Bear in mind that a good company is not a good investment if the price is not right.
My opinion is it is not expensive at all. In contrary, MFCB is dirt cheap in relation to its earnings, especially if you measure by its enterprise value. As earnings increases, EV/Ebit becomes even lower.
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....
newbiestock
630 posts
Posted by newbiestock > 2013-08-02 10:31 | Report Abuse
magnum and keckseng undervalued LOLZ u are funny as wel as stewpead ler