Posted by Najib Zamry > 2013-12-31 13:56 | Report Abuse

KC ChongNZ, I can't find fault with your pick, not even one. Good recommendation.

Posted by winniechan > 2013-12-31 15:13 | Report Abuse

Thank you KC for all your unselfish sharing of knowledge.
Wishing you a joyful and fruitful 2014 :P

Posted by yfchong > 2013-12-31 21:41 | Report Abuse

Dear bro KC, I would like to Know wat is the intrinsic value of cenbond thks.

Posted by jennylee1382 > 2013-12-31 23:16 | Report Abuse

Kcchongnz can buy at what px

Posted by houseofordos > 2014-01-01 00:31 | Report Abuse

hi KC, a clear and concise analysis. A few questions on PPHB as the extremely high earnings yield attracted my attention :-
Based on the PE numbers you are getting, it looks like this based on 2012 annual report ? I was getting higher number as you since I am using trailing 12 months. Can you share how you got EV/EBIT of 3.4 ? Besides excess cash, did you subtract anything else from the EV calculation from 2012 results ?

EV = Market Cap + Debt + Minority interest - Excess cash

I played around with the numbers and I think you probably subtracted investment properties, investment in subs and land held for development assuming that these are not contributing greatly to the revenue ?

Posted by Ooi Teik Bee > 2014-01-01 01:53 | Report Abuse

Dear Kcchongnz,
What is the standard for EV/Ebit ?
Please advise.
Thank you.

Posted by bigFAT > 2014-01-01 01:59 | Report Abuse

same gang is attacking same counter ..jcw gang..as usual

Posted by pohtingfung > 2014-01-01 10:25 | Report Abuse

A good analyses...Thank you...

Posted by kcchongnz > 2014-01-01 12:50 | Report Abuse

Posted by yfchong > Dec 31, 2013 09:41 PM | Report Abuse
Dear bro KC, I would like to Know wat is the intrinsic value of cenbond thks.

Posted by jennylee1382 > Dec 31, 2013 11:16 PM | Report Abuse
Kcchongnz can buy at what px

I am using the same valuation method as the gentleman below with some slight different assumptions. However, our valuation do not differ by more than 10%. that is pretty close.


Posted by houseofordos > Dec 23, 2013 12:12 AM | Report Abuse
4. Valuation
a. DCF valuation
As CENBOND's earnings are consistent and it generates free cashflow, a discounted cash flow valuation was used. Since CENBOND's latest cashflow was exceptionally high, I decided to use the 6 years average FCF as a starting point in the analysis to avoid over-optimistic valuation results. With the assumption of a 5% growth for the next 10 years and 3% perpetuity growth, the FCF/share came up to RM2.14 which represents a 25% margin of safety.

Current stock price $1.58
Share outstanding (Mil) 120000
This year FCF $13,871
Next year's FCF (mil) $14,564
Growth for the next 5 and 10 years 5.0%
Teminal growth rate, g 3.00%
Discount rate, R 10.0%

PV of FCFF of core operations $203,000
Non-operating cash $76,865
Investment properties $0
Interest in associates $0
Debts ($4,599)
PV of FCFE $275,266
Less minority interest ($18,813) 6.8%
FCFE $256,453
Number of shares 120000
FCF per share $2.14 34% higher than = $1.58
MOS 25%

Using a reverse DCF calculation shows that at the current price, the market is expecting almost no growth in CENBOND's free cashflow at all for the rest of its life which is highly unlikely.

Posted by kcchongnz > 2014-01-01 13:25 | Report Abuse

Posted by Ooi Teik Bee > Jan 1, 2014 01:53 AM | Report Abuse
Dear Kcchongnz,
What is the standard for EV/Ebit ?
Please advise.
Thank you.

This depends on the individual expectation as well as the particular industry. But when we compare valuations of companies of the same industry what what we do now for the packaging industry, then obviously we would prefer a lower EV/Ebit one. But in absolute term, I think the following discussions before are interesting:


Posted by kcchongnz > Dec 11, 2013 02:02 PM | Report Abuse X

Posted by houseofordos > Dec 11, 2013 01:03 PM | Report Abuse
I was just wondering what would the basic EV/EBIT be for the calculations if we were to use EV/EBIT rather than PE for valuation method in this thread.

This sounds like an interesting statement to me. First of all, all these thing is arbitrary. For example why use the base PE of 8? Why not 10, 5, 15? But if you flip the PE ratio over, the earnings yield (E/P) is about 12%. That may be is the yield the original author of this absolute PE valuation method wants. What about EV/Ebit, what should be the base then?
All I can say is if you replace P/E with EV/Ebit, you should demand a EV/Ebit of lower than 8 above. This is because:
1) The cost of debt is lower than the cost of equity, and hence valuation using EV must be lower when compared with market capitalization.
2) The denominator Ebit has not taken tax into consideration. Hence EV/Ebit must be lower than PE.
But how much lower we must demand EV/Ebit than PE ratio? Again it is arbitrary. What about an earnings yield of 20%, or EV/Ebit of 5? Or should earnings yield be 15%, or EV/Ebit of 6.7?
It also depends on what kind of industry it is.

Posted by houseofordos > Dec 11, 2013 02:20 PM | Report Abuse
Tax rate of about 25%, cost of equity (the returns required to own the stock) of about 10%
So lets say the base EV/EBIT = Basic P/E (8) x 0.75 x 0.9 = 5.4x which is close to what you calculated
Your last statement "It also depends on what kind of industry it is." is more like relative P/E approach. In this case I would just compare the EV/EBIT for companies in the same business and put a target EV/EBIT based on the average EV/EBIT of all the companies whereas the absolute EV/EBIT method would assess the business and financial risks to come up with the target EV/EBIT. I suppose the more practical way should be the former as any take over would be justified based on relative valuations rather than absolute.


Posted by houseofordos > Dec 11, 2013 02:25 PM | Report Abuse
Mistake... actually
Basic EV/EBIT = Basic P/E (8) x (1-0.25) x (1-0.04) = 5.7x (around 6x)
Where 25% is the tax rate
and 4% is the difference between cost of equity and cost of debt (could be subjective.. assuming 6% cost of debt)

Posted by Ooi Teik Bee > 2014-01-01 13:37 | Report Abuse

Dear Kcchongnz,
In my mind before I ask you, I also think that 8 is a nice figure. I just want to confirm with FA Sifu. Thank you for all your help to make me a good trader and investor. Happy New Year 2014.
Thank you

Posted by kcchongnz > 2014-01-01 15:31 | Report Abuse

What is the intrinsic value of Cenbond?

Posted by yfchong > Dec 31, 2013 09:41 PM | Report Abuse
Dear bro KC, I would like to Know wat is the intrinsic value of cenbond thks.


Say if a big packaging company, like Oji Paper wants to buy over Cenbond, how would they negotiate on how much to pay?

What they can do is to refer to a past transaction of similar nature, for example how much HPI was sold at what metric. Or another way is they refer to the average EV/Ebit of the seven companies on the list, and then pay the price of the average EV/Ebit. Or they may refer to four of them, or whatever, all depending on negotiations.

The average EV/Ebit of these companies is 8.09, and Cenbond’s Ebit for the last financial year is RM24,951,000. So the fair price would be an enterprise value of 8.09*24,951,000=RM210 million. This is translated to a market capitalization of RM280m, or RM2.34 per share. Whatever excess cash the buyer pocket, and whatever debts they pay.

They can also use EV/Ebitda, or even EV/Sales, especially when there is no profit yet, or whatever. Of course they can also use Price-to-book value and other metrics also.

But I think Ev/Ebit, or EV/Ebitda is very commonly used in private market transactions.

Company Cenbond Tomypak Daibochi BoxPak PPHB Muda Orna Average
Price 1.54 1.41 4.12 2.25 0.650 0.920 0.790 xxxx
EV/Ebit 4.56 6.73 13.59 6.30 3.43 13.21 8.83 8.09
EV/Ebitda 3.80 5.58 10.32 5.57 2.71 6.77 5.13 5.70

Posted by houseofordos > 2014-01-01 17:05 | Report Abuse

There was a mistake in my earlier computation of CENBOND intrinsic value using DCF method which bsnpg corrected.

Do you have any hidden gem for 2013?
Dec 23, 2013 05:43 PM | Report Abuse

bsnpng, actually your calculation is correct. I forgot to key in the FCF growth from year 5 to 10 and was assuming 0 growth in my original calculation. Thanks for checking my numbers. My new FCF/Share after correction is RM2.40.

Posted by tuniamasingh > 2014-01-01 17:39 | Report Abuse

Put aside valuation, According to market hearsay, Oji Paper very close to take over Cenbond but it somehow did not materialise due to the price disagreement. The take over price is around Rm 2.20. That's why you see the share price has dropped by 25% since then from 1.95 to 1.55 now. Are they back to the negotiation table? I think Oji Paper still has very great interest on Cenbond. Let's wait and see how the final deals will turn out.

Posted by yfchong > 2014-01-01 19:33 | Report Abuse

Thks bro KC happy new year I like your posting especially the hidden gem 2013. All the best for 2014....

Posted by gark > 2014-01-02 01:23 | Report Abuse

Kcchong... you never mention net cash per share of cenbond is almost 1/3 of market cap if i am not mistaken. Hence actual pe is very very low.....

Posted by kcchongnz > 2014-01-02 08:23 | Report Abuse

gark, yeah, Cenbond has a lot of net cash in its balance sheet. Two companies of similar business can have the same EPS, but one with plenty of excess cash, and one without, or even with high debt. Should they be accorded with the same PE ratio? Of course not. First of all the latter one is so much more riskier as an investment. Secondly, the excess cash of the earlier one can be distributed to its shareholders and they will still earn the same EPS. That is why judging the cheapness of companies with PE ratio is not a good assessment.

Hence you notice I emphasize more on enterprise value which both earnings and capitals of the equity and debt providers are considered, rather than just the equity holder in PE ratio assessment. Using the EV/Ebit, or EV/Ebitda will take care of the excess cash discrepancy as this is excluded, and debts included in EV computation.

Posted by gark > 2014-01-02 10:40 | Report Abuse

Good analysis.. you covered everything..

Also cenbond dividend is on uptrend for the past 3 years and should continue on uptrend looking at how much cash they have.

Posted by gark > 2014-01-02 10:41 | Report Abuse

Another undervalue share you might be interested in in Insas, 50% market cap in cash, another 50% market cap in shares of Inari Bhd.

You more or less buy the rest of the company for free...

Posted by heavyth > 2014-01-04 19:46 | Report Abuse

May i know what is the fair value or TP for Cenbond tq ?

Posted by JT Yeo > 2014-01-09 17:01 | Report Abuse

Hi Kcchongnz, just to clarify how did you get the ROIC of 22% for cenbond? Are you using the formula as in NOPAT/(Total assets - Cash) - (Non-interest bearing liabilities) or other formula calculation?

Posted by kcchongnz > 2014-01-09 17:30 | Report Abuse

Posted by JT Yeo > Jan 9, 2014 05:01 PM | Report Abuse
Hi Kcchongnz, just to clarify how did you get the ROIC of 22% for cenbond? Are you using the formula as in NOPAT/(Total assets - Cash) - (Non-interest bearing liabilities) or other formula calculation?

When you use any "formula" to calculate anything, you must understand the rationale of the formula.

ROIC is the return on invested capital, or NOPAT/IC. what is the invested capital in the business, the "ordinary" business? Your formula of (Total assets - Cash) - (Non-interest bearing liabilities) would normally be correct and it is often given by text books too. It is the asset used, less any excess cash and non-interest bearing liabilities. This excess cash by definition is "excess" and is not needed in the ordinary business. Non-interest bearing liabilities is "other people's money", not "invested" by you in the form of equity or debts. Hence it is excluded from "invested capital".

But text book formula is usually simplified. In really life financial statements in Malaysia, the "total assets" consist of many other stuff not concerning the "ordinary" business; for example some property investments for some non-property companies; investments in associates and joint venture companies; some "other investments" etc. These stuff are generally not consolidated into the financial statements of the company, and hence by using your formula, you nay have over-estimated the invested capital, and hence resulting in a lower actual ROIC.

Thus for most people, I would advise them to use invested capital as:

IC = PPE + net working capital
Where net working capital=receivables+ inventories - payable

The two methods generally result in the same invested capital if in your earlier method of estimation you have made the proper adjustments.

Try figuring them out.

Posted by digiuser016 > 2014-01-10 00:44 | Report Abuse

Hi Kcchong, I have a few questions.

1:If using NOPAT/IC where IC = PPE + net working capital
Where net working capital=receivables+ inventories - payable
The "total assets" consist of many other stuff not concerning the "ordinary" business; for example some property investments for some non-property companies; investments in associates and joint venture companies; some "other investments" etc. These stuff are generally not consolidated into the financial statements of the company, and hence by using your formula, you nay have over-estimated the invested capital, and hence resulting in a lower actual ROIC.


Then, do you include Share of profit of associates and Investments in associates when calculating NOPAT/IC for Kfima(sorry for a spam here)?Do you include Non-ordinary(non core) business when calculating NOPAT/IC?

2: what is your view for the below statement. How do you treat deferred tax assets and tax liabilities when calculating IC

Actually, including taxes payable is a judgment call. Many analysts let this item remain as a source of invested capital (as we did here) because most companies never pay these deferred taxes. These taxes are perpetually deferred, and for this reason, some call them "quasi equity". If the company were going to pay these taxes, we would exclude taxes payable from invested capital, but since the company - in practice - is going to hold onto the extra cash, we are going to charge them for the use of it.

If I am not mistaken, Joel encourages the investor to use EBIT when calculating ROIC because different companies have different debt and tax rates, using ebit can avoid the distortions arising from differences in tax rates and debt levels.

3: what is your valuation method for Tas offshore? its CFFO and FCF has been negative for a few years. but its price is still increasing.

Posted by kcchongnz > 2014-01-10 07:04 | Report Abuse

Posted by digiuser016 > Jan 10, 2014 12:44 AM | Report Abuse

Hi Kcchong, I have a few questions.

1:If using NOPAT/IC where IC = PPE + net working capital
Where net working capital=receivables+ inventories - payable
The "total assets" consist of many other stuff not concerning the "ordinary" business; for example some property investments for some non-property companies; investments in associates and joint venture companies; some "other investments" etc. These stuff are generally not consolidated into the financial statements of the company, and hence by using your formula, you nay have over-estimated the invested capital, and hence resulting in a lower actual ROIC.

Then, do you include Share of profit of associates and Investments in associates when calculating NOPAT/IC for Kfima(sorry for a spam here)?Do you include Non-ordinary(non core) business when calculating NOPAT/IC?


Me: This is my views as a non-accountant and a non-finance professional
1) NOPAT/IC
both the numbers used for the numerator and denominator have to be consistent with each other; NOPAT, or net operating profit after tax takes on the "operating profit" which does not include other profit sources such as from associates, JV, one-time off items etc. Likewise IC excludes investments in associates, jv and other non-ordinary business.


2: what is your view for the below statement. How do you treat deferred tax assets and tax liabilities when calculating IC

Actually, including taxes payable is a judgment call. Many analysts let this item remain as a source of invested capital (as we did here) because most companies never pay these deferred taxes. These taxes are perpetually deferred, and for this reason, some call them "quasi equity". If the company were going to pay these taxes, we would exclude taxes payable from invested capital, but since the company - in practice - is going to hold onto the extra cash, we are going to charge them for the use of it.

Me: Yes, a judgement call remains as a judgement. If you use the formula below without any adjustment, you would have included the deferred tax credits or liabilities in the calculation of IC.

IC= (Total assets - Cash) - (Non-interest bearing liabilities)

If you use the other formula, IC = PPE + net working capital

Then you would have ignored them. My judgement is to ignore them. But seriously generally how much are there deferred tax credits/liabilities for companies which could affect your calculation of ROIC?


If I am not mistaken, Joel encourages the investor to use EBIT when calculating ROIC because different companies have different debt and tax rates, using ebit can avoid the distortions arising from differences in tax rates and debt levels.

Me: When you talked about ROIC, the R or return straightly has to be an after-tax return which is NOPAT, and not Ebit. For the Magic Formula used by Greenblatt, he ranked those stocks with Ebit/EV, and ROIC. There won't be any significant difference if he ranked them by NOPAT/EV, except a little more work in computing NOPAT.

3: what is your valuation method for Tas offshore? its CFFO and FCF has been negative for a few years. but its price is still increasing.

Me: Does the share price increase has anything to do with valuation?

You can't value TAS with free cash flow as there is none. But that doesn't mean TAS is a hopeless company. It just means that for the present moment because of its expansionary business, a lot of cash is tied up in inventories and receivables. It also doesn't mean that the customers don't pay them, or the tugboats, AHTS cannot be sold. It could also mean that too. I don't know unless one knows about its business well.

It doesn't mean without FCF you can't value TAS. There are many other valuation methods, such as using its present or average Ebit instead of FCF.

Posted by JT Yeo > 2014-01-10 21:33 | Report Abuse

Kcchongnz, thanks for the answer. Greatly appreciate it.

I just have a general question that I wish to get your opinion. I have been searching for small cap companies which has high ranking on magic formula and ROIC. However when I look into these companies ,although they have high ROIC but their profit has been growing extremely slow or stagnant for a few years. Perhaps these companies only invest in maintenance capex but not growth capex I am not sure, and Buffett also seems to love these kind of companies that doesn't really grow but generate plenty of FCF. And indeed all these companies are piling up on cash and have strong FCF. My question is that from your view point, if these companies does not pay out dividend and with little to no growth, do you think consistent high ROIC with ultimately have a positive effect on the share price itself? Thanks a lot.

Posted by kcchongnz > 2014-01-11 11:47 | Report Abuse

JT Yeo,

First of all, if you find any company fitting the Magic formula, i.e. high ROIC and high earnings yield (Ebit/EV), can you please let me know?

30 years ago my boss was at 40 years old and he was still single then. He couldn’t find a life partner because as the first criterion he wanted a wife who would love him very much. Secondly he wanted the wife to be a very 溫柔賢淑, a good wife. Thirdly he wanted her take care of him very well. Fourthly she must be well educated. Fifthly she must young and pretty. And she must not simply spend his money which he had saved up quite a lot because of his stingy behaviour, etc.

Is it easy to find one? I would be happy if the first two criteria; loving me and a good wife were met. Of course if more criteria are met, that would be wonderful. But is this place Heaven?

“If I had to identify a single key to consistently successful investing, I’d say it’s “cheapness.” Buying at low price relative to intrinsic value (rigorously and conservatively derived) holds the key to earning dependably high returns, limiting risk and minimizing losses.” Howard Marks

The above can be achieved buying Cenbond at RM1.54 when I first wrote this article on packaging companies. The earnings yield (Ebit/EV) was at a high of 23%. Even at RM1.72 now, earnings yield is still very high at 19%, much higher than my requirement of 12%.

Some more this Cenbond is also a “good wife” who is 溫柔賢淑. Its ROIC is very high at 22%, much higher than my 12% requirement. What else do you want?

Ok I know you want your wife also takes care of you very well. You want Cenbond to be a growth stock. Cenbond net profit grew at a compounded annual growth rate of 12% for the last 7 years. And as one of the leading paper packaging companies, its future also looks bright. What else you want?

Cenbond also has good cash flows, very healthy balance sheet etc. So this potential wife meets a lot of other criteria too.

For your question of “do you think consistent high ROIC with ultimately have a positive effect on the share price itself?”, I cannot answer you as I don’t have a crystal ball in front of me and I won’t know the behaviour of the investors. But I do believe in what Warren Buffet says:

In the short term, the market acts like a voting machine; but in the long term, it is a weighing machine.

Don’t forget to tell me when you find any stock which meets just the two criteria of the Magic Formula, ok?

Posted by Firebird2 > 2014-01-11 12:28 | Report Abuse

Wonder if Johotin fits in

Posted by houseofordos > 2014-01-11 12:44 | Report Abuse

What an interesting analogy... haha.. good one KC

Posted by sense maker > 2014-01-11 15:04 | Report Abuse

Deferred tax assets and liabilities would crystalise in future and need to be considered if the enterprise is valued as a going-concern for the foreseeable future using income approach.

The only reason why deferred tax assets may not be realisable is when the enterprise is unable to generate future profits.

Whereas, Deferred tax liabilities will decline when the enterprise reaches post-expansion and towards stability period in the future. When it makes good profits in the future, it will pay income taxes at an effective rate higher than what it is currently paying. Deferred tax liabilities arise due to common tax incentive (via faster tax depreciation in tax computation)given to encourage capital investment by enterprises to allow them to pay less tax while investing in more fixed assets.

Personally speaking, I browsed through KFIMA and CENBOND briefly and decided not to buy them.

Posted by kcchongnz > 2014-01-11 18:45 | Report Abuse

Earnings Power Valuation for Cenbond

Valuation is really a very tough task to carry out. It has to be a forward looking exercise. That means we have to make some forecast of a company’s future cash flows. However forecasting is a very hazardous endeavour and it has been proven again and again that forecasting of future cash flows, especially the optimistic ones often run out by huge errors.

Earnings Power Value (EPV) was postulated by a Columbia University Professor and proven successful investor Bruce Greenwald. It is an estimate of the value of a company from its ongoing operations only.

First we would assume that current revenue is sustainable. We then normalize the earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average % operating profit over 5-8 years. This average would then be applied to current sales. The beauty of EPV, for value investors, is that the numbers used to calculate it are no growth free cash flows. By using no growth free cash flows we eliminate the predictions of future growth and as such arrive at a number which we can be fairly certain of. This isn't to say that some companies can't expect significant growth, but as value investors we refuse to pay for it. The next step is to subtract interest bearing debts and any minority interest and add the cash not required to run the business; and any other investment which has not been consolidated into its results,. The final step in calculating Earnings Power Value is to divide the final cash flow number by the cost of capital. This gives us the present value of a perpetuity without any estimation of growth. That is the Earnings Power Value. Anybody interested in this method can read from the appended link below:

http://www.stockopedia.com/content/how-does-the-earnings-power-valuation-technique-epv-work-60553/

Lets carry out a valuation exercise of Cenbond here using its latest revenue for its ordinary business for year ended March 2013. The average Ebit margin used for the last eight years is 11% as compared to 14% last year. The EPV is shown below:

Revenue for 2013 186841
Ebit (margin at 11%) 25941
less income tax (23%) -6093
EBIT after tax 19848
Add average D&A 2611
Less average capex -5221
Normalized Ebit 17237
Cost of capital, R 10.0%
Capitalized earnings=Nor Ebit/R 172373
Add cash 76865
Other investments 0
Less debts -4599
EPV 244639
Less minority interest (7%) -16719
EPV to common shareholders 227920
Number of shares 120000
EPV/share 1.90

Using the conservative EPV method which can be considered as a bad-case scenario, the intrinsic value of Cenbond is RM1.90. As this is still above its present share price of RM1.72, it appears that Cenbond is a good investment for long term.

Posted by houseofordos > 2014-01-11 20:01 | Report Abuse

KC, I got about same number as you for EPV method. Just wondering how would you adjust the valuation if a company has issued warrants or convertible stock which could dilute shareholder EPV ?

Posted by digiuser016 > 2014-01-11 23:37 | Report Abuse

Kcchong, Thank you for your sharing. Greatly appreciate it.

Hi Sensemaker, thank you for your sharing as well.
Mind to explain why you have decided not to invest in Kfima and Cenbond?

Posted by digiuser016 > 2014-01-12 00:14 | Report Abuse

Hi JyYeo, I have same thought as Kcchong, could you share the companies that have high EBIT/EV>Earning yields and EBIT/(NET fixed assets+ net working capital>ROC.

As explained by Joel GreenBlatt in the book,

Using EBIT/EV is to find a cheap stock
Using EBIT/(Net fixed assets+ Net working capital) is to evaluate whether the company can generate good profits using capital.

In short,the investors can find a cheap stock with good quality business(fundamentals) using the magic formula.

I would also like the companies that can generate high FCF or High CFFO with little spending on Capex? I dont mind even though its profit is growing slowly.hahaha.

Posted by Joshua Lee > 2014-01-12 05:52 | Report Abuse

Hi. Anyone has views on DKSH? Have seen its price rise from RM2+ slightly over a year ago to present level. Maybe a good and cheaper proxy to the consumer products sector?

Posted by kcchongnz > 2014-01-12 09:01 | Report Abuse

An investment approach based on solid value is the most dependable.

Posted by houseofordos > Jan 11, 2014 08:01 PM | Report Abuse
KC, I got about same number as you for EPV method. Just wondering how would you adjust the valuation if a company has issued warrants or convertible stock which could dilute shareholder EPV ?

A very good question. Let’s discuss here.

For simplicity, I would think you just consider the enlarged number of shares as if the warrants are converted to the underlying share. Don’t forget to add the amount of cash used for conversion to the balance sheet. This may be quite close if the warrants are deep in-the-money and expiry is not too long in the future.

However, for warrants which are out-of-the-money, we don’t really know if conversion will take place. I would use the Black-Scholes Option Pricing to determine the price of the warrants, then multiply by the number of warrants outstanding to get the amount due to warrant holders. This amount is subtracted from the EPV value of the underlying.

Hope to get input from others.

Posted by JT Yeo > 2014-01-12 11:26 | Report Abuse

Hi Kcchongnz & digiuser016, I think currently the co im looking at most have been covered by kcchongnz, such as cenbond, kfima, mfcb or homeriz. Some others high on ROC are Magni-Tech which I kinda like at the moment; Fibon, Pestech & Mudajaya looks attractive although I haven't look at the ROC consistency, only the most recent year. SKPRes is the gorilla.

Posted by sense maker > 2014-01-12 13:18 | Report Abuse

Digiuser016:

My personal evaluation:

I think I first considered kfima 2 years ago when kcchongnz first wrote about it. I do not particularly like the government-handed part of the biz of kfima.

Cenbond's results had been meodiocre till last year or so, and 70% of its biz is derived in Malaysia (which should be tough in coming years)- as opposed to overseas market.

Both companies sit on good cash pile, but its dividend is small. The current valuatioin is fair for both companies, not cheap. Hence, little upside.

Posted by houseofordos > 2014-01-12 15:01 | Report Abuse

thanks KC

Posted by kcchongnz > 2014-01-12 16:34 | Report Abuse

Katsenelson’s absolute PE for CENBOND (12/1/14)

Instead of using the relative PE valuation method for different industry, Vitaliy created an absolute and more robust method that can be used for any company. The absolute P/E model makes adjustment according to the following:

• An average company that does not grow earnings and pays no dividend, use PE=8
• For every unit of earnings growth from 0-16%, P/E increases 0.65 points, above 16% growth, use 0.5 points. Earnings growth is based on 5 years projection.
• Every percent increase in dividend yield, P/E increase by 1 point
• Adjust P/E according to business , financial risks and earnings visibility

For those who are interested in this method can refer to the following link:

http://klse.i3investor.com/blogs/kianweiaritcles/36512.jsp

Last year, net income of Cenbond grew by 32% from 15.5m to 20.6m. For the last 7 years the compounded annual growth rate has been 12.4%. For adjusting the absolute PE, we take half the rate as a conservative assumption, or a growth of earnings of 6.2%.

Basic PE for CENBOND with a growth of 6.2% and a dividend yield for last year of 2.6% is adjusted by the formula;

Basic PE = 8 + 0.65*6.2 + 2.6 = 12.8

Business risk: CENBOND’s business has high efficiencies with return of assets of 9.7% (>7%) and return of equity of 12.7%. Last year cash return (FCF/IC) is at 37% and average of last 7 years is 16%. Hence an arbitrary 10% discount is applied to its business risk.

Financial risk: CENBOND has a very healthy balance sheet with an excess cash of 64 sen per share. It has very little debt. Current ratio is very high at 4.3. Free cash flow is abundant at 7 times total debt. Hence a discount of 10% is applied to the financial risk.

Earnings visibility: CENBOND has stable and reasonable gross and net profit margin of 20% and 10% respectively. Its cash flow from operations averages about 140% of its net income. It has average free cash flow of about 8% of revenue. No premium or discount is applied to earnings visibility.

Hence the absolute PE for CENBOND is:

Abs PE = 12.8* [1+(1-90%)] *[1+(1-90%)] * [1+(1-100%)] = 15.5

Fair value of CENBOND= 15.5*0.16 = RM2.48

There is hence a 44% upside to its present share price of 1.72 on 12 January 2014.

Posted by heavyth > 2014-01-14 19:44 | Report Abuse

Acquisition of shares by Director - off market transaction 09/01/2014 - 411,500 @ 1.430 !! What does it mean ???

Posted by vaentec > 2014-05-08 17:56 | Report Abuse

Wow. I thought I knew a lot about stocks until I stumble upon your article. I should retreat to my humble cave and study more.