At a glance, the acquisition of daiboci seems to be expensive given that scientex valuation currently is lower than daiboci (15.5x PE vs 21.2x) .
But having seen the management capabilities of increasing the revenue and profit with this company, you will be expecting they will do the same for daiboci.
Either way, rev and patami of scientex will automatically increased after taking into account daiboci's contribution starting 1Q19. Just that the valuation will be higher than the current PE after taking acct the new shares paid for the acquisition of daiboci.
Last 5 years EPS show significant fluctuation, range from 55 to 90sen per share, the PE ratio is high at 15, the ROE at 14%, and dividend yield at 2.27%.
KUALA LUMPUR (March 19): Scientex Bhd's net profit in the second quarter ended Jan 31, 2019 (2QFY19) grew 8.5% to RM73.75 million from RM67.98 million a year ago, on higher revenue from better sales performance.
It is normal for manufacturing division to have lower profit margin than property division. But the asset turnover for manufacturing side is higher than property, hence results in a decent ROIC. But ROIC on property will still be higher nonetheless.
There is a good possibility for manufacturing's profit margin continue to improve slightly in the future as more of their sales shifted from industrial stretch films to food packaging, which is what they have been heading over the past 5 years.
Manufacturing is going to drive bulk of Scientex growth in the future. Property division will keep growing as they purchase more landbank to build affordable homes, but manufacturing will be the main driver through acquisition (whole flexible packaging industry around the world is consolidating), so company profit margin should track closer to manufacturing's profit margin down the line.
Another less talk about thing of Scientex is its efficiency. Without its ability to generate current level of cash flow, they won't be able to keep acquiring other companies, and without that, the growth would slow down dramatically.
Scientex isn't a company with massive moat, perhaps narrow moat based on economic of scale and a low cost producer by being as efficient in both property and manufacturing. Hence the reason to acquire companies to achieve EoS. On property end, Scientex embrace IBS because it save cost and can complete a property in less time. A typical landed house takes 24 months from start to completion and hand over, they do it in 16-18 months. Faster completion = better cash flow generation.
My suggestion is this: Try to see things as it is, reduce categorisation. Why do human categories things? To reduce complexity and ambiguity. To make faster decision 'property company, worth PE XX; O&G: Cyclical etc". We do that to companies. We do that to ourselves. "I am a Value Investor", or "I am a growth investors". You put yourself in a box. Sometimes that works, but there is a great cost when things go wrong.
So see a company as it is. Without throwing them into buckets like property, O&G, tech etc. See it as it is by understanding the structure of the business and how much future cash flow can it can generate.
Fast growing company for manufacturing n property . Acquired property via allotment of shares or cash generated . In this way the debt ratio is kept in check . This counter will perform in good n bad times n thus holding the co for long term will save u the agony of fluctuation of stock prices daily .
This sounds like a wise statement until you realize it is means exactly nothing and is a roundabout answer from someone who is more academically inclined than practical experience.
Investing is a concise, analytical activity. Why make it sound so mysterious and vaguely religious?
If you understand business, you will understand that there is no business on earth that has no competitors, peers or similar companies doing the same thing. In short, all business falls under a category or industry.
The challenge is to analyze a business and compare it to peers in the same category/industry/specialization and find out it's moat or competitive advantage versus it's competitors.
Simplified, how does it increase its profit and revenue and grow its market share. By taking it from other people in similar business.
Therefore: categorize.
For scientex you take all the film manufacturers in its industry and compare the costs to produce, the volume they produce versus the price to sell. Then you compare it with peers to understand how efficient they are as buyers will always buy based on a price/quality curve.
Then you take the properties they develop, find out the selling price, the average selling prices of housing in the area, then look at their location/average price and compare that with their profit margins vs that of other competing property developers. Then you will know exactly how efficient their property development eye, marketing and selling strength overall.
After you have dissected each of their business units and categorised each growth pattern Vs peers, they you can understand the entire company as a whole.
Reduce categorization? This is a very Buddha remark which I can't grasp. Investing is literally about picking up the best potential business based on current price/ future growth risk and comparing to every similar company in the category. I don't know any other way to value a business.
Can you elaborate on " understanding structure of the business?" And "seeing a company as it is?" Really interested to learn more.
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Posted by Ricky Yeo > Jun 27, 2019 12:55 PM | Report Abuse
My suggestion is this: Try to see things as it is, reduce categorisation. Why do human categories things? To reduce complexity and ambiguity. To make faster decision 'property company, worth PE XX; O&G: Cyclical etc". We do that to companies. We do that to ourselves. "I am a Value Investor", or "I am a growth investors". You put yourself in a box. Sometimes that works, but there is a great cost when things go wrong.
So see a company as it is. Without throwing them into buckets like property, O&G, tech etc. See it as it is by understanding the structure of the business and how much future cash flow can it can generate.
Why does investing has to be "comparing to every similar company in the category"? A dollar of investment is a dollar of investment regardless of whether that dollar is invested in a property stock or a packaging stock, so why do you want to compare [similar] company in the category?
Comparing similar companies in an industry is useful to create contrast, to find out what things a company is doing differently from others, but investing is not bounded by industry categorisation, but circle of competence.
1. Insufficient own capital to fund the project. 2. Over-leverage and excessive borrowings. 3. Poor sales for various reasons - poor location, industry related reasons. 4. Cyclical downturn.
Many property projects are launched in the cyclical upturn of the industry. Soon many more jumped in the game.
When the cyclical downturn comes, the weaker developers suffer.
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OTOH Scientex has done very well in the property development sector. It builds affordable houses which are in demand. Tremendous stewardship offered by the major shareholder in finding its own niche in this sector.
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....
bullbullbully
384 posts
Posted by bullbullbully > 2018-11-15 16:55 | Report Abuse
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