Posted by kcchongnz > Jan 26, 2014 05:01 PM | Report Abuse
Is Fimacorp a good investment?
As usual, when I want to determine if a company is a good company, I look at its business and return of capitals, and cash flows. The two major income generators of Fimacorp are its manufacturing and printing of security papers (66%) and palm oil (33%). They appear to be good and durable business to last for some time.
The table below shows Fimacorp’s return of capitals for the last few years: Year 2013 2012 2011 2010 2009 2008 2007 2006 ROE 12.5% 16.5% 20.9% 19.2% 23.3% 14.8% 13.8% 17.8% ROIC 23.1% 32.5% 44.0% 31.4% 32.9% 16.5% 38.0% 34.9%
Return of equity has been all the time in double digit. Last two years ROE has retreated somewhat but it was still good. By the way, tell me which company with palm oil as a major earner has not got its profit and ROE reduced last two years? Some of them have even gone into losses. The lower ROE last year of 12.5% could also be because of its build up of excess cash in its balance sheet.
A better measure of its efficiency is hence ROIC, taking the whole firm into consideration. You can see ROIC is always very high, even up to 44% in 2011. Even the lower ROIC of last year of 23.1% is still well above the cost of capital of 10%-12%.
Yes the lower ROE and ROIC last year is because of the drop of profit. Again can you tell me which company, especially in the cyclical commodity business can grow its profit every year unabated? Fimacorp’s cash flow from operations is above its net income on average. It always has free cash flow, averaging more than 20% of revenue. What else can you ask for?
After determining that Fimacorp is a good company due to its high return of capitals and good cash flows, the next thing I look into is if the price is good. You can’t make good return if you don’t know the value and simply pay exorbitant price for it as your return is determined by the price you pay.
At the close of RM6.40 last Friday on 24th January 2014, and with earnings of 72.4 sen in year ended March 2013, the PE ratio is 8.8, not expensive in my book, especially considering its high efficiencies. But as it has a lot of excess cash and also a substantial interest in an associate company, a better metric is enterprise value. It EV is just 3.7 times its ebit, or an earnings yield of 27%, fantastic.
So with this I would conclude that Fimacorp is a great company selling at bargain price. Do I need to consider its growth? I don’t think so, but if good growth comes, it will be extra bonus. But is Fimacorp really a no-growth company as opined by some people?
From the table below, one can see that Fimacorp’s revenue and net income has been growing at a CAGR of about 10% a year from 2006 to 2013. That is a reasonable high and sustainable growth rate. I don’t know much about its future but I do read about Fimacorp has quite a lot of land in Indonesia which has not planted yet. I thought I also read that they have been buying plantation land too. And according to the article in Chinese, its FFB production has been increasing. Its margins are also much higher than many other plantations.
So Fimacorp is definitely a good stock to invest in my opinion. But as I have already invested in Kumpulan Fima which holds 60% of Fimacorp, I do not want to put in money in Fimacorp again. By the way, Kumpulan Fima has a more diversified business and it is also more undervalued in term of EV.
Year 2013 2012 2011 2010 2009 2008 2007 2006 Revenue 305145 300174 298479 279110 223465 176788 157312 157190 Net income 61899 78917 84757 64570 59481 31372 27631 32208
If you look at Fimacorp 2010 annual report, you would see that my family owned 15 million shares when I bought them at Rm 2.20 and sold all after 18 months when it went above Rm 6.40 and made Rm 60 million. I am just joking.
As I said many a time, there are many stock selection criteria such as P/E ratio, NTA, price over book value, cash rich with millions in fix deposit etc. I consider the most vitally important criterion is good profit growth prospect. This is the key to my success in share investment because any share without this quality, its price will not go up. I will never buy any share if I am not sure that the company can make more and more profit in the next few years.
Fimacorp's EPS for 2008,2009, 2010, 2011, were 38 sen, 74sen, 79sen and 99sen. From 2011 its EPS has been reducing and it has no good profit growth prospect. That is why its share price has been flat since 2011 in spite of its huge Rm 225 million cash in fix deposit equivalent to about Rm 2.80 per share as shown in its account ending Sept 2013.
You must bear in mind that keeping too much cash is a bad sign. It simply means that the company cannot find new investment to make more money than the fix deposit rate of about 3% PA.
Fimacorp is a classic example to demonstrate my investment philosophy "Never buy any share if you are not sure it has good profit growth prospect"
Regarding gohchinlim's fear of market crush, I cannot tell if market will crash or not in the near future. This is an inherent risk in share investment. However, if you look at the price chart of JT even if the market crash, I believe it will drop relatively less than many other shares.
My comment is the cash and profit margin is good and the business is monopoly (for printing). Of course this is a deeply discount counter and a rerating or privatization is justifiable. However it is lack of growth. It still can serve as a high yield defensive counter but for those seeking for huge capital gain forget about it. They are not utilizing their warchest to make acquisition for the last few years! Indonesia's land are so cheap! If the management are really ambitious they should acquire more than 100k ha of land up to date.
Listed Holding Company Kumpulan Fima (KFIMA) slated to release earnings tomorrow. We've already got a glimpse of Fima Corp (FIMACOR)'s stellar results last Friday, which is likely to have a very positive impact on KFIMA's earnings tomorrow. Share price performance of KFIMA has been lagging behind FIMACOR. Time to look at KFIMA instead?
Fimacorp a no-growth company? What does the revenue of the last few years tell you?
Year 2013 2012 2011 2010 2009 2008 2007 2006 Revenue 305145 300174 298479 279110 223465 176788 157312 157190 Net income 61899 78917 84757 64570 59481 31372 27631 32208
No growth in profit from 2011 to 2013? Yes, of course. But which company with oil palm plantation as a major business has a growth in profit for the last couple of years when the palm oil price was in doldrums? Many in fact went into losses. At least Fimacorp still made very decent profit albeit a little drop.
From the table above, one can see that Fimacorp’s revenue and net income has been growing at a CAGR of about 10% a year from 2006 to 2013. That is a reasonable high and sustainable growth rate. I don’t know much about its future but I do read about Fimacorp has quite a lot of land in Indonesia which has not planted yet. I thought I also read that they have been buying plantation land too. And according to the article in Chinese, its FFB production has been increasing. Its margins are also much higher than many other plantations.
Fimacorp's share price has increased by 28% from RM6.40 since I commented in the post above three months ago to RM8.19 now.
The table below shows the growth in NTA and dividend payment each year for Fimacorp:
Year 2013 2012 2011 2010 2009 2008 2007 2006 NTA 5.70 5.32 4.66 3.86 3.01 2.54 2.45 2.23 δBook Value 0.38 0.66 0.79 0.85 0.48 0.08 0.22 2.23 Dividend 0.40 0.35 0.30 0.20 0.17 0.16 0.15 0.15 δBook Value + Div 0.78 1.01 1.09 1.05 0.65 0.24 0.37 2.38
Imagine you bought Fimacorp about 4 years ago at less than RM5.00. You have been receiving a dividend and enjoying a growth in the book value of a total of about RM1 each year for the last 4 years. Isn’t that a fantastic investment?
Why is Fimacorp able to achieve this type of performance? Yes, it has a durable business with moat in security printing and palm oil production. It earns a lot of money each year and paid out a dividend. Whatever earnings retained was reinvested (buying more plantation land?) with a return of capital of an average of more than 30%.
Imagine if all earnings were paid out, can the shareholder invests it himself wisely to earn that kind of return?
Stock operator I agree with you but as regards to the fair value is very important due to the reason if you buy this particular stock if it is already fully valued now then the decision to buy or not will be very important. I also note that from your comments I had read you are vey wise and learned and whatever stock you pick I believe you had done your homework.
Thank you for your lengthy explaination. Anyway, it is the integrity & honesty of the people who run the company that counts at the end of the day. I have bought some at 8.50. Let's wait & see the coming quarter report. Cheer.
Disappointing quarterly result due to poor performance of security document segment. No wonder stock price heading south before result announcement. Disappointing.....
The sudden drop in profit is very unusual despite good performance from palm oil segment. Only the management knows what is actually happening. You cant simply blame it on product mix. Can the management has the clout to continue to cling onto the security document contract? We need to ponder. 10 years is probably too long. Too many things can happen.
Well. Guess I have to agree with you since u r so familiar with company. Let see what happens down the road. Hope u r right. There r so many things happened so unexpectedly in stock market.
30.06.2014 (Monday): The sharp drop in the afternoon session from 9.46 to 9.20 really scares me. Stockoperator, any idea how much more upside room does FimaCorp has?
Take profit and go for a holiday if you are scare becos health is definitely more important. Whatever goes up must come down. Sky cannot be the limit. Good luck, pal.
Stockoperator likes to talk in riddle. I would say that the stock price is going to retreat tomorrow . Stock split and bonus does not increase the value of a share.
large cash holding can be good or bad. Good being... Preparing for worst economic downturn, Preparing for big M&A, Land acquisition, Acquiring new businesses, ...etc Bad being.... Opportunity cost, FD will depreciate cash value, value lost, cash can do no good unless it's effectively utilised... Cash can be used to develop human capital, reward staff, reward shareholders, improve process, increase marketing activities/branding... etc..
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pradeep
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Posted by pradeep > 2012-09-13 18:01 | Report Abuse
Anything below RM6.00 we can collect simple reason the balance sheet is strong, management good and the company in the right direction