Posted by observatory > 2021-10-02 11:48 | Report Abuse

Now a discourse. For pessimists who believe future earning will be just the same as the past two pandemic years, and that the RM100m capacity installed is simply a waste, they can assume future EPS at RM0.145 (i.e. average of past 2 years).

The same valuation method produces 18.6 x RM0.145 = RM2.69.

Applying these worst case scenario give you the Scientex's offer price!

If those in charge truly believe in this worst case scenario, they should have stopped the RM100m capacity expansion long ago.

I welcome anyone to criticize the above workings. Better still come forward with an alternative valuation case showing why RM2.70 is fair despite me showing otherwise.

Posted by iknownuts > 2021-10-02 11:49 | Report Abuse

@observatory

Nope my view point has not changed. Also, i did not advise anyone to do anything. I am not a licensed person anyway to advise anybody. What i said in my earlier postings is for investors to think about all possibilities instead of just seeing the mainly rosy points painted here. Whilst we post here anonymously, we still need to post responsibily (Well, for me anyway)

I have a position in daibochi, and i do intend to accept the offer from scientex, but if the price keeps going up, i will continue to sell in the open market. I have already started offloading some on friday.

Now why do i offload now instead of waiting? If scientex ups their offer, i can also enjoy the upside, right?
Ok, my cost basis is very low, i am already contented with the roi. Instead of waiting/praying for a higher offer, the question i asked myself was, what if scientex does not up their offer? Now we are stuck with a floor price of 2.7/0.32. But when the offer lapses and no increased offer is forthcoming, what happens if i keep the shares/warrants? the liquidity will be much lower than before. Scientex will mop up to around 70-80% (they are already at 66%+ now), existing shareholders samarang 5%+, apollo 10%+, pbb funds 5%+, which leaves retails to anything <10%. I can tell you for sure the privatisation will fail. But why would i want to be stuck with an illiquid counter with only <10% of the shares being traded? On the issue of delisting, i think someone mentioned earlier that will take a long time, so i guess thats not really a factor for now. Why i brought up CCB and yeelee in my comments earlier, was to show those companies price action after a failed privatisation (i wasn’t ref to their business). Jardine is now moping up CCB shares below 2.2 when their offer price was 2.4.

Ok some will say but what about the intrinsic value of rm3+, analyst price Rm4+ or etc etc with higher valuation? justified with whatever growth/projections/fwd PE. I definitely agree with you. But the most important factor is PRICE. mr market had priced daibochi at rm2.30 (vwap for 3 month) before scientex’s offer. If investing is that easy and price follows valuation/analyst reports, everyone will be mega millionaires by now lol. I wished there was this much discussion on the potential of this counter when daibochi was hovering around the 2.20s/0.10s.

Nothing has changed 1 month ago before the offer came in, except we have a floor price now. Opportunist will ask hey scientex, show you are a man and up the damn offer! Don’t waste anybody’s time. But what if they don’t? They don’t owe the minority daibochi shareholders anything anyway. Their responsibility is to their own shareholders.

At the end of the day, be true to yourselves. I wish you the very best to whichever route you choose.

Posted by observatory > Oct 1, 2021 5:23 PM | Report Abuse

@iknownuts, you're back?

No, I don't hate anyone or any company. Hate is the biggest enemy to investment success.

I recalled your first comments here. You advised not to go against the big bro less get stuck in a counter not meeting market spread requirement. Instead can swap Daibochi with Scientex. But now cheering the price up?

No offense here. Just wonder if you've changed your position?

Posted by dragon328 > 2021-10-02 12:08 | Report Abuse

@anticolonialists, I think your logic is fraud and you are the one making false claims here. If funds like Apollo or Samarang had exercised their mucles on analysts, then we would have seen analysts' reports calling for a fair value of RM3.85 or higher for Daibochi. But what we saw was just a report from CIMB lowering his valuation immediately from RM3.85 to RM2.75 after the offer.

It was my personal view that it is common trick for an acquiror to work on analysts or journalists to put out a report favourable to them in a M&A exercise. And my view may be biased because I have declared my interests in Daibochi and I strongly felt that the offer price by Scientex is inadequate.

You appear to be strongly against any view that the offer price is unfair and you think Scientex is all good. That is your view and it is ok for me.

If you are just an observor who "enjoy good arguments", then put up hard facts and figures to support your view, and not launch personal attacks on those with a different view.

Stop this nonsense. We just want to invest and make some returns from the stock market. You too stop wasting time here and grab a good coffee and have a good weekend!!

Daibochi to RM3.00 and Daibochi-WB to RM0.60 next week, cheers!!



@dragon328 good job contradicting your own arguments, once again reveal your consistent false claims, raising worrying question about your intention.

I have already responded you that analyst job is to answer big investor like Apollo, in other words licensed investment companies with billions dollars to play. You ignore that to create new false claims.

If you want to stick your claim that someone can "exercise its muscles onto analyst", then it is more likely other customers of the analyst, big investors like Apollo, are "exercising their muscles".

Companies like Scientex are not licensed investment company that have billions dollars and analysts begging to service them.

There can be many reason for analyst to think that Scientex offer is fair. If I use your argument style, one possible reason is other big investors with share in Scientex and are Apollo competitor, are "exercising their muscles on analysts" that need their business.

If true then possible competition between foreigner Apollo/Samarang (Daibochi) and Vanguard/Norges (Scientex) or local big investors like EPF/Affin (Scientex). It is normal for them to play hundreds of millions to billions in market and have many analysts begging for their business.

Level headed investors may think that sound unlikely. If sound unlikely, other possible view is the analyst is independent, and think the offer price is fair for Daibochi shareholders due to own professional opinion.

If you really believe they are pressured and their integrity compromise, what stop you from reporting to regulators and let them investigate? Clearly they will know better than us if any malpractice.

But you seem happy to destroy other people lives and rice bowl by your perverted sense of justice and slander and trial in court of public (collusion) opinion.

This is clearly because you want to sway public that Scientex is unfair, and you even make slanderous claims that they "exercise their muscle onto analysts and journalists and using them to do tricks".

I said earlier, are you joking or think everyone has 0 integrity and can be paid or pushed by Scientex? That is big insult to all hard working analysts and journalists implying they are bought. No different from anti vaxxers insane claims on big pharma.

You are clearly doing this to support your evil agenda to smear Scientex name and integrity with fake story and slanderous claims and you are happy to harm other innocent parties to support your agenda.

Do you think it is fun if their professional career and integrity discredited and smeared on a public website by unknown people? Only conclusion why you are acting this way is because you are evil.

Unsurprising from same people masquerading as victims and champions of greater good, while ironically camouflaging attack to smear name and integrity of genuine professionals and companies.

Shareholders that are reading here beware and do not be swayed by master puppeteers acting behind the scene.

Posted by iknownuts > 2021-10-02 12:10 | Report Abuse

https://www.theedgemarkets.com/article/david-vs-goliath-ccb-privatisation-stalemate

I respect david for putting money where his mouth is. He valued ccb at 4.65 and fought all the way!

Posted by observatory > 2021-10-02 12:17 | Report Abuse

@iknownuts,
Thanks for clarifying your position.

I see that we agree that
(1) privatization will fail
(2) delisting, if ever happen, will take a long time

You also seem to agree with me that intrinsic value of Diadochi is higher than RM2.70, but you believe “the most important factor is PRICE”

As a long term investor, I’ve never shunned low liquidity stock as I don’t buy and sell in tens of thousands let alone millions of shares.

As a long term value investor, I believe in fundamentals rather than the Mr. Market. If the company fundamentals continue to be strong and management performs, earnings will grow. As earning grows share price will follow.

But I’ve mentioned before, taking profit now is also a viable option. It all depends on individual investor’s risk profile, holding period, and understanding and conviction on Daibochi’s long term prospect.

BTW congratulate for realizing your profit.

Posted by Investmon > 2021-10-02 12:17 | Report Abuse

@obsevatory, very good analysis on why Daibochi should be higher priced.

I wonder what Scientex's mean PE is. I think it is lower since it has a high component of property business, the sector of which has a lower PE range currently. So if Scientex's mean PE is lower, then it does not make sense to privatize Daibochi - it will destroy shareholder value for shareholders of Scientex more than create. So if the PE gap of Scientex and Daibochi is a difference of 5 multiple, then by including Daibochi's profit fully into Scientex, it will take away the extra earnings multiple that holding Daibochi will give. Am I making sense here @observatory?

Posted by dragon328 > 2021-10-02 14:15 | Report Abuse

@iknownuts, I understand your points. In fact, I shared some of your views and offloaded some daibochi-WB at 0.345 yesterday.

I have declared my interests in Daibochi and would share my rationale of betting more on its warrants Daibochi-wb. I was fortunate to have grabbed plenty of daibochi-wb at 0.13-0.15 weeks before the privatisation offer from Scientex appeared. Investment is an art rather than pure logic. It is a game of probability of winning vs losing. Often you need to take on high risks to get higher returns in order to beat the market.

Daibochi-wb exercise price is RM2.50 and expires in June 2022. Daiabochi was trading at RM2.20-2.30 and wb was at 0.13-0.15 then, meaning the warrant was out of money. Why bet on it? What was the downside? I told myself that I would cut loss on wb at RM0.10 for a max 30% loss by year end if daibochi still languished below RM2.50. The upside could be handsome if Daibochi goes towards RM3.00 for a 300% upside gain. I was betting to see earnings growth of Daibochi in its July quarterly result or latest in its Oct quarterly result, from its expansion plan. So it was a no brainer.

Now Scientex's offer is on the table and Daibochi share price is kind of stuck at RM2.70s and wb at RM0.30s at least for next 2 weeks. Where is the upside and the risk?

Lets look at the potential upside first. What is the chance of Scientex raising its offer price? We need to examine the reason behind Scientex offer in the first place. Why would Scientex still want to increase its stakes in Daibochi though already holding a controlling stakes of 62%? I would evaluate this in terms of cash flows which is the most important factor to businesses.

In Daibochi's Q4 quarterly result, it achieved operating cash flows of about RM70 million after tax payments before working capital changes for FY2021. It spent close to RM64m for its expansion capex, funded entirely from its operating cash flows, not requiring to raise any new debts nor equity injection from Scientex. If Daibochi pulls off its expansion plan well to increase capacity by 60% and its management is able to secure additional revenue for 80% of the additional capacity over the course of next 10 months or so, then it is reasonable to project that Daibochi revenue and earnings will expand by 50% by FY2023. Its annual operating cash flows may expand to RM105 million then. Given its nett debt of RM50m only and normal capex of RM5.0m, its free cash flows may top RM100m or 32 sen a share by FY2023. If Scientex is able to acquire the remaining 38% stakes in Daibochi at RM2.70 per share, it will have to fork out cash of RM336m. Scientex would be able to get back this money in just 3 years by owning 100% stakes in Daibochi and extracting out the annual free cash flows as dividends. So it makes good business sense for Scientex to privatise Daibochi. For Scientex to raise the offer price to RM3.00, it will set it back with RM37m of additional privatisation costs which it would get back with 3 months of cash flows from Daibochi. For offer price to be raised to RM3.30, it will need additional costs of RM75m which would face strong resistance from Scientex shareholders. In short, I would put the probability at 50% for the offer price to be raised to RM3.00 and at 30% for offer price to be raised to RM3.30.

Where is the downside? If Scientex walks away with the offer, I expect Daibochi share price to drop back to RM2.30-2.50 level and wb to RM0.15-0.20 level at initial responses. I would put this probability at 20%. Even for a low probability, the potential downside to daibochi-wb is huge at 30%-50%. That is why I chose to offload some holdings of daibochi-wb at 0.345 yesterday. The risk is real. Investors beware.


Posted by iknownuts > Oct 2, 2021 11:49 AM | Report Abuse

@observatory

Nope my view point has not changed. Also, i did not advise anyone to do anything. I am not a licensed person anyway to advise anybody. What i said in my earlier postings is for investors to think about all possibilities instead of just seeing the mainly rosy points painted here. Whilst we post here anonymously, we still need to post responsibily (Well, for me anyway)

I have a position in daibochi, and i do intend to accept the offer from scientex, but if the price keeps going up, i will continue to sell in the open market. I have already started offloading some on friday.

Now why do i offload now instead of waiting? If scientex ups their offer, i can also enjoy the upside, right?

Posted by dragon328 > 2021-10-02 15:04 | Report Abuse

I think the assumed nett profit of RM65.7m for FY2022 may be reasonable as it has factored in a 39.5% increase of profits from actual FY2021 net profit of RM47.1m. It takes time for the company to realise higher revenue and earnings from its planned expansion.

The PER ratio of 18.6x may be questionable as it was the mean PER for past 10 years of Daibochi which was considered a high growth company who expanded its market cap by 20x in 20 years. Even if I pitch it 20% lower at 15x PER, Daibochi would still be worth RM3.00 per share.

But the key point is that Daibochi is one-of-its-kind in Bursa, that enjoys consumer monopoly with big F&B MNCs through its long standing good track records and relationship with the customers. It is really hard to find another company listed in Bursa that has such an enviable position in consumer business. If Scientex wants to privatise it, it will take away the rights of investors to ride on the long term success of Daibochi. This is a great company that may continue to expand organically or via M&A for the next 10-20 years.

The other plastic flexible packaging companies like BP Plastic, Thong Guan or even Scientex make commodity-like products like stretchable films which compete mainly on pricing. When other low cost producers come along from China or Vietnam, their profit margin will suffer just like what we are seeing now in glove makers here.

Even if Scientex walks away from the offer, Daibochi share price may drop momentarily to RM2.30-2.50 level but it will eventually rise beyond RM2.70 when more investors see its potential. That's why I have not sold a single lot of Daibochi mother share which I think may fetch a valuation of over RM4.00 in medium term.

Why so bullish? Again I will resort to cash flow valuation. In my earlier post above, I estimate that Daibochi may see annual free cash flows of 32 sen per share by FY2023. If there is not further major expansion, the capex requirement will be minimum and Daibochi would be able to declare up to 80% to 90% of net profits as dividends just like what Bermaz Auto and Uchitec have been doing for years. So Daibochi dividends may go as high as 25 sen a share from FY2023. For a 7.0% yield, Daibochi may trade up to RM3.57 and for 5.0% yields, it may go close to RM5.00. For comparison, other consumer stocks like Nestle, DIGI or Dutch Lady trade at 3%-5% yields.




Posted by observatory > Oct 2, 2021 11:40 AM | Report Abuse

Meanwhile I want to return to the valuation. This is what have brought me to Daibochi forum in the first place.

I've earlier put forward my own valuation case based on a simple 10 year historical forward PE. Some analysts have used this approach to value Daibochi. Forward earning helps to look past the recent pandemic impacts.

(1) Just before the offer announcement, before analysts' forecast have been affected by the offer, the Bloomberg consensus FY22E net profit is RM65.7m (source: Kenanga)
(2) The share base is 327.372m. FY22E EPS = RM65.7m/ 327.372m = RM0.201 per share.
(3) 10 year mean PE is 18.6X (source: CIMB)
(4) Fair market per share = RM0.201 x 18.6 = RM3.73

The estimated fair value at RM3.73 is much higher than RM2.70.

Granted valuation is an inexact exercise. But even with margin of safety applied, it's still much higher than RM2.70.

Besides acquirer should pay for premium rather than mean valuation.

Posted by anti_colonialists7 > 2021-10-02 15:43 | Report Abuse

@dragon328 was gloomy morning here you bring good laugh.

You refuse accept own flaw, after I destroyed your logic and invalidate your argument.

Also proven by reason you are evil due to continued new false claims, to support your view, that reasonable to smear name and integrity of innocent parties like hard working analyst and journalist, using made up flawed logic to support your bigger agenda to smear Scientex as bad guy.

After I invalidate logic of your argument, now you try to hide your track again, change tune softer to "just personal view" that it is "common trick" in "M&A" and "stop waste time with nonsense".

But are you genuine?

A few posts earlier you imply that "sudden" new tp (that you do not like) is due to "big boys exercise muscles onto analysts". You go further imply that, only if there is another tp same or higher than original tp (before take over announcement), then only will make sense that other investors or funds are exercising muscle, and not Scientex.

In other words you merely supporting your original claim, to sway public opinion that analysts from CIMB and Kenanga and journalist from The Edge and other news are colluding with Scientex. And your proof is merely because they change tp after take over announcement?

Level headed observers should able to see the totally corrupted logic and you might need to sign up for critical thinking course. Want to borrow some words from @observatory, this is case of conclusion first logic later.

Do you know how serious the accusation? You are smearing name of hard working people with families to feed, writing publicly that they are not independent, reports are biased, and paid by Scientex.

There is reason they are licensed, so they can have fair chance to defend their reputation from insane claims like yours by formal investigation. You can report to the regulators if you really believe so, and then we can see proper justice if your claim is true.

But you are coward that willing to harm many other innocent parties, to support your bigger agenda of smearing Scientex by trial in the court of public opinion based on your perverted claims.

As your way out, now you twist my reply, write new completely false interpretation of my simple post to create confusion, and new claims that I am fraud. That bring even more suspicion that you are desperate to hide the evil trail.

Anyway give you last benefit of doubt, if you really believe you innocent, then you might have difficulty understanding my post, and I will genuinely explain again why your logic is flawed and your action evil. Suggest you repent.

1. Analyst job is to answer licensed big investors like Apollo/Samarang (investor of Daibochi), Vanguard/Norges/EPF/Affin (investor of Scientex) that have billions dollars.

2. In other words customers of analysts are giant licensed companies with billions dollars parked everywhere in world, not some little company that make plastic and low cost house.

3. If you want to stick to your claim that analysts can be paid and influenced by third party, it is naturally more likely that other giant customers of the analysts (not Apollo/Samarang) are doing so.

4. If you really think just because tp is lower after Scientex announce take over, is "proof" analysts are swayed by third party, naturally it must be giant competitors of Apollo that are current investor in Scientex, like Vanguard/Norges/EPF, that are "exercising muscle onto analysts" to get lower tp and block Apollo so they can get Daibochi at good price.

5. If that sound crazy, imagine how insane your own claims sound, and your public accusation and evil smearing of innocent hard working people like analysts and journalist with families to feed, it should be you that is brought to justice in a real court.

Posted by anti_colonialists8 > 2021-10-02 16:05 | Report Abuse

@observatory, read your new comments and invitation to discussion, interesting views, I do not entirely disagree, but for discussion sake will post contrarian view, after replying some your earlier comments.

@observatory, do not see need to confirm my position to you again, as not verifiable even if I confirmed or denied your question, it achieves nothing.

I clearly state in first post that I am observer, that implies own belief of independence and level head to have discussions, without serving anyone interest as claimed by some proven fraudster or liar here.

Will not claim to be unbiased. You also announced your bias, and I agree without some bias there is no discussion.

Note my posts that seem "attacking" are actually for specific claims that I think are distorted, promote fake news, or based on false info. You can verify. I do not think they were driven by emotions.

Anyway nice to see some level headed discussion returning.

@observatory, better disclosure of my position, is I agree more with @iknownuts, it considers risk management, instead of your posts that feel more bias to best scenario projection and application of fairness which is flimsy and subjective. Discuss our reasoning in next posts? Much later.

Posted by observatory > 2021-10-02 16:32 | Report Abuse

@Investmon,
Scientex business consists of property, upstream stretchable film (volume commodity business) and downstream converters like Daibochi.

They have different characteristics and different valuation. PE is not even a good method to value property business, where discounted RNAV is a better tool. Therefore I believe PE valuation of both firms are not comparable.

As I’m not familiar with Scientex, I’ll refrain from commenting on its valuation. It is better to post that question in Scientex forum for the benefits of all Scientex investors.

Posted by observatory > 2021-10-02 16:40 | Report Abuse

@dragon328,

You've brought up a valid point that Daibochi mean PE may be lower than the past 10 year mean at 18.6X given it was a higher growth company in the past.

I checked out the forward PE of last 5 years using Bursa Alpha Indicator Report. It was based on Refinitiv data. You can find in page 7 of the report in the link below. The past 5 year average forward PE is even higher at 20.5X (it shows average instead of mean). The average forward PE was only dragged down in the last two pandemic years, a temporary situation.

https://www.bursamarketplace.com/mkt/tools/research/ch=research&pg=research&ac=1517729&bb=1540820

Applying the 5 year average PE approach
(1) pre-announcement consensus FY22E EPS = RM0.201
(2) Fair value per share = RM0.201 x 20.5 or about RM4.1

Even apply a 20% margin of safety it still yields RM3.3

Why did the forward PE stay above 20X, even up to 27X for most of the 2017 to 19 period? I believe one of the reasons is during that period the market has rerated branded consumer companies like Calrsberg, Heineken and Nestle. The forward PE of Nestle was raised from 30+ times to an eye watering 50X times. As an indispensable business partner to Nestle and the like, Daibochi should benefit.

Yes, I forgot to mention on Diabochi’s unique position with its MNC clientele that include Nestle, Mondelez International, Pepsico, Hershey's, Dutch Lady and Ajinomoto. Once the products are selling well, these MNC clients do not easily change their packaging which risk affecting product appeals to their consumers, either due to shift in packaging color tones, or degradation in permeability that may affect food quality.

This is the business moat or competitive advantage of Daibochi. as compare to other commoditized flexible plastic packaging companies.

Besides, with its recent inroads into the mono-material laminate structure in collaboration with its MNC client, Daibochi is helping MNCs to develop a sustainable packaging solution to address the growing ESG concerns.

This potential ESG play is another potential catalyst for future rerating. Any acquirer should pay a premium rather than below mean valuation to privatize this company.

Posted by dragon328 > 2021-10-03 11:31 | Report Abuse

@anti_colonialists, oh you come back again with even hotter temper!!

Your heated tempo has blurred your own logic, sadly to say.

I have stated many times that I am just a small investor in Daibochi and my view is naturally biased for my investment interests in Daibochi.

Do I have a bigger agenda? To smear Scientex as bad guy? What for?

I already said I do not dispute the remarkable achievement by Scientex in the past 10-20 years and Mr. Lim has good business acumen.

The topic of this forum is on Daibochi and the recent hot topic is obviously on the proposed privatisation offer from Scientex.

As a long term investor in Daibochi, I believe the take-over offer price from Scientex of RM2.70 is inadequate and I think its privatisation offer will fail this round. I hope for a higher offer price from Scientex or for continued listing of Daibochi to allow us to ride on its long term expansion plans. Full stop. No other agenda.

It appears that it is you who try to attack forumers here who do not support the offer from Scientex. What is your agenda?

Are you speaking for any analyst or journalist or Scientex or other "giant competitors of Apollo"?

I do have difficulty understanding your posts to which sometimes I have difficulties writing any response. But I try my best to put some response to your "genuinely explanation" below in BLOCKs.


Posted by anti_colonialists7 > Oct 2, 2021 3:43 PM | Report Abuse

@dragon328 was gloomy morning here you bring good laugh.

You refuse accept own flaw, after I destroyed your logic and invalidate your argument.

Also proven by reason you are evil due to continued new false claims, to support your view, that reasonable to smear name and integrity of innocent parties like hard working analyst and journalist, using made up flawed logic to support your bigger agenda to smear Scientex as bad guy.

After I invalidate logic of your argument, now you try to hide your track again, change tune softer to "just personal view" that it is "common trick" in "M&A" and "stop waste time with nonsense".




Anyway give you last benefit of doubt, if you really believe you innocent, then you might have difficulty understanding my post, and I will genuinely explain again why your logic is flawed and your action evil. Suggest you repent.

1. Analyst job is to answer licensed big investors like Apollo/Samarang (investor of Daibochi), Vanguard/Norges/EPF/Affin (investor of Scientex) that have billions dollars. [WOW THIS IS A EVEN BIGGER PUBLIC SMEAR ON ALL THE ANALYSTS WHO HAVE FAMILIES TO FEED LEH]

2. In other words customers of analysts are giant licensed companies with billions dollars parked everywhere in world, not some little company that make plastic and low cost house. [THIS IS YOUR OWN SMEAR AND UNDERSTATEMENT ON SCIENTEX ACHIEVEMENT]

3. If you want to stick to your claim that analysts can be paid and influenced by third party, it is naturally more likely that other giant customers of the analysts (not Apollo/Samarang) are doing so. [DO NOT UNDERSTAND THE LOGIC BEHIND YOUR ACCUSATION ON OTHER "GIANT CUSTOMERS" OF THE ANALYSTS, WHAT FOR THEY WOULD DO IT?]

4. If you really think just because tp is lower after Scientex announce take over, is "proof" analysts are swayed by third party, naturally it must be giant competitors of Apollo that are current investor in Scientex, like Vanguard/Norges/EPF, that are "exercising muscle onto analysts" to get lower tp and block Apollo so they can get Daibochi at good price. [YOU SEEM TO BE SLAPPING ON YOUR OWN FACE HERE. WHETHER IT WAS SCIENTEX OR "GIANT COMPETITORS OF APOLLO THAT ARE CURRENT INVESTOR IN SCIENTEX" WHO EXERCISED MUSCLE ONTO ANALYSTS TO GET LOWER TP, WHAT DIFFERENCE DOES IT MAKE? YOU SEEM TO BE HAVING INSIDER KNOWLEDGE ON THIS. PLEASE REPORT IT TO SC FOR THE GOOD OF THE PUBLIC.]

5. If that sound crazy, imagine how insane your own claims sound, and your public accusation and evil smearing of innocent hard working people like analysts and journalist with families to feed, it should be you that is brought to justice in a real court [THAT REALLY SOUNDS CRAZY TO ME, HAHA. IF THESE ANALYSTS AND JOURNALIST DO NOT WANT THE PUBLIC TO CRITICISE THEM, THEN THEY'D BETTER BE MORE PROFESSIONAL AND RESPONSIBLE TO THE TARGET READERS AND HENCE TO THEIR OWN FAIMILIES. HAD SOMEONE REPORTED THEM TO THE SC OR MACC, THEN THEIR CAREER WOULD BE DOOMED AND FAMILIES NOT FED. IT ALREADY HAPPENED BEFORE. THEY ARE NOT SUPPOSED TO ANSWER TO ANY OF THESE SO-CALLED "GIANT CUSTOMER" NOR "GIANT COMPETITORS OF APOLLO AND CURRENT INVESTOR IN SCIENTEX".]

Posted by dragon328 > 2021-10-03 12:13 | Report Abuse

@observatory,

Hmmm... this PE matrix is even trickier. This Forward PE ratio in page 7 was calculated using the most recent weekly share price of Daibochi divided by the four upcoming quarterly consensus EPS.

My view:
1) This PE was distorted by a few bad quarterly results, eg. 4QFY2018 that recorded a small loss.
2) This PE figure was brought down substantially by consensus forecase earnings that were higher from 4Q2019 after the completion of MPP acquisition
3) Not sure if the consensus forward earnings estimates have taken into account the planned expansion

Anyway the chart also shows that the Forward PE for past 5 years for other Container & Packaging Group Average was also around 20.0x. Therefore, it shows the generally bullish view of consensus on comparable packaging companies.

As you mentioned, Daibochi is a long term indispensable business partner to big consumer giants like Nestle and Heineken who are trading up to 27x PE. Ones would argue that Daibochi should be trading at PE range higher than that of packaging companies but below that of big consumer giants. In short, it is reasonable to peg a PE range of 20x to 27x to Daibochi.

Applying it to Daibochi actual FY2021 earnings of 14.4 sen per share:

1a) 20 x RM0.144 = RM2.88
1b) 27 x RM0.144 = RM3.89

Applying it to Daibochi forward FY2022 earning estimate of 20.1 sen:

2a) 20 x RM0.201 = RM4.02
2b) 27 x RM0.201 = RM5.43

My view is that since this is a Forward PE, so it should be applied on forward FY2022 earnings estimate rather than past actual FY2021 earnings. So we are looking at a valuation of RM4.02 to RM5.43 for Daibochi.

Analysts may apply certain discount to factor in the low liquidity of Daibochi. How much this discount factor should be again is arguable.


Posted by observatory > Oct 2, 2021 4:40 PM | Report Abuse

@dragon328,

You've brought up a valid point that Daibochi mean PE may be lower than the past 10 year mean at 18.6X given it was a higher growth company in the past.

I checked out the forward PE of last 5 years using Bursa Alpha Indicator Report. It was based on Refinitiv data. You can find in page 7 of the report in the link below. The past 5 year average forward PE is even higher at 20.5X (it shows average instead of mean). The average forward PE was only dragged down in the last two pandemic years, a temporary situation.

https://www.bursamarketplace.com/mkt/tools/research/ch=research&pg...

Applying the 5 year average PE approach
(1) pre-announcement consensus FY22E EPS = RM0.201
(2) Fair value per share = RM0.201 x 20.5 or about RM4.1

Even apply a 20% margin of safety it still yields RM3.3

Why did the forward PE stay above 20X, even up to 27X for most of the 2017 to 19 period? I believe one of the reasons is during that period the market has rerated branded consumer companies like Calrsberg, Heineken and Nestle. The forward PE of Nestle was raised from 30+ times to an eye watering 50X times. As an indispensable business partner to Nestle and the like, Daibochi should benefit.

Posted by anti_colonialists9 > 2021-10-03 16:21 | Report Abuse

@dragon328, I rest my case.

You do not know licensed analysts job is give professional opinion to their giant licensed investors customers. Suggest you do basic google. You tried to SMEAR SCIENTEX AND ANALYSTS REPUTATION with FAKE STORY that they PRESSURED TO REDUCE TP. Make no sense because their income is from their giant licensed customers, not little plastic company. REPORT TO SC MACC if you believe so, then will believe you are not EVIL.

@dragon328, you claim "Looking at the declining EBITDA margin of Daibochi in its quarterly results from Q1FY2020 to Q4FY2021, I do not see much cost saving in raw material procurement with Scientex, nor improved efficiency at its factories."

Beg to differ. Think your view is base on selective reasoning that exclude other factor.

Q1FY2020 to Q4FY2021, many factor can affect profit, Daibochi kitchen sink, Mega acquisition/integration, pandemic start Q2FY2020, Myanmar crisis, other material of Daibochi/Mega/Myanmar not currently supply by Scientex, 3 company foreign exchange, Daibochi/Mega capacity expansions, cost of pandemic and lock down and slow down etc etc

Since many factor distort info, disagree that track "EBITDA margin" for 8 quarters (7 are pandemic quarter) can justify your claim Scietex bring no improvement in "cost saving or efficiency".

How you know no improvement after Daibochi buy material from Scientex? Did the early switch to Scientex save Daibochi performance for 8 quarters? Material price increasing, Daibochi small at mercy if buy external. And did other material price not buy from Scientex increase?

Same distortion on efficiency improvement. Maybe double impact from pandemic and Myanmar crisis, Daibochi not melt down because of Scientex? (APOLLO: "Scientex appears to have done a good job with operational improvements"). Also Mega acquisition and more capacity expansion, all this distort number.

If I am Daibochi/Scientex small investor, prefer simple track PAT/EPS. Will be happy to see after 1 year Scientex control, Daibochi PAT grow from RM27m to RM47m, and pandemic repeat another RM47m PAT. Impressive. (APOLLO: "We salute the Daibochi team for this performance"). Do not forget Daibochi team also mean Scientex team. I will feel lucky my investment safe. Do not think old management of Daibochi can do the same for me.

But can I sleep? Not yet.

Concern what next, profit grow or fall? Seem they are fighting crisis (Scientex offer document: restructure, rationalise, enhance operations because challenging pandemic). If big boy not confident, that scares me and hint about Daibochi future. But seem bigger boy Apollo see differently (APOLLO: "we hope that it would not risk losing its most vital asset, the trust of its long-term customers."). Both party opinion contradictory and it is unclear what future is. If Apollo correct, Daibochi might lose all, and if Scientex correct, means Daibochi also at risk.

Next question offer price and portfolio strategy, whether keep in Daibochi (follow Apollo philosophy avoid property, chase own forecast high intrinsic value), or switch to Scientex proven big boy that grow and stabilise Daibochi until Q4FY2021 and want more M&A.

Will also consider if Daibochi need to grow by M&A or capacity expansion they can not, and could not, do it them self, was always Scientex. But those are portfolio allocation strategy and different for every one. No need to SMEAR names with your little tricks and HARM other innocent people.

Posted by observatory > 2021-10-03 16:40 | Report Abuse

@dragon328,
Thanks for your response on the forward PE.

<Let me share below early message in response to some unnecessary comments which were retracted but reappeared now after edit. >

A few words on the ongoing distractions.

Even though @anti_colonialists doesn’t confirm any strong tie to Scientex, IMO by calling other evil and liar is actually doing a disservice to Scientex which he seems to defend passionately.

Earlier he complained he was censored, presumably by the i3 Forum people, and claimed there was a collusion. But his posts are flowing in now without problem. His earlier problems could well be due to i3 system auto function imposed on newly created user accounts. Jumping to conclusion doesn’t serve his cause, whatever it might be.

I’m also intrigued by his remarks that “I agree more with @iknownuts, it considers risk management, instead of your posts that feel more bias to best scenario projection and application of fairness which is flimsy and subjective. Discuss our reasoning in next posts? Much later.”

Note that “our” is a peculiar choice of word.

I actually feel sorry for Scientex. Even though he may just be a passionate volunteer “observer”, the method used is clearly counterproductive.

Those remarks are mere distractions from the main topic here, which is to analyze the Scientex offer and how minority investors could respond. As I said many times, the best defense for Scientex is to present an alternative valuation case to justify the RM2.70 offer.

A more persuasive argument should start from the viewpoint of Daibochi minority shareholders’ interest, not Scientex!

Posted by anti_colonialists10 > 2021-10-04 02:31 | Report Abuse

@observatory,
Hmmmm I admired you. Suspect you might be good teacher, telling me I make "unnecessary comment". Thank you in advance. Believe good student listen well to good teacher vice versa.

I hope just like you are "passionate about fairness", you can accept my passion for basic justice and decency as humans not animals. Your post about many other company, seem like wise person. Why no comment on @dragon328 slanderous claim about innocent analysts and journalists name from CIMB, Kenanga, The Edge by creating fake story?

If slander only big company, I might not be so "hot temper" (borrow word from @dragon328).

But becoming clearer agenda, because repeated false claims even after I explain where wrong. No longer slandering big company, now go further harm reputation of few small innocent analysts and journalists. And now go further say they should be the one RESPONSIBLE enough?

You claim passionate about fairness, but your posts only respond cheer about all of @dragon328 posts, and continuously silent about the slanderous parts and selective attempt to discredit my posts, raises question on your intent and collusion again.

Hmmmm I slow but just start answering @dragon328 questions after seriously studying each point and numbers, to give contrarian opinion, and cover what what might be missed, so we can have good discussion and more views. I took both of you seriously, add points from big professional investor Apollo blog that you like, so we can discuss and tell me where wrong.

@observatory, immediately after I write serious post with number and supporting information from Apollo, why do you create new post to say I am an "ongoing distraction"?

I earlier also try to give you better proof, than merely confirming yes/no for your insensitive question of whether I have strong tie with Scientex, it raises big question on your intent. I told you yes/no is useless because not verifiable, and I go further to share my direct opinion with you. Now I see your real reason to ask. If I pick yes, it will used against me, if no, also used against me.

Hope you do not find offense. Why you pick offense with one strange word "our", and selectively remove big part of my sentence to support your claim, implying to public I am defending Scientex passionately, immediately after I start discuss reasonings and numbers with @dragon328?

Is it because of face? Or create perception that I am very "sensitive to" (borrow your own words) any suggestion about "defending Scientex"? Hmmm are you working for someone, panick after I really started serious discussion, and make mistake while trying to frame me?

My original comment (the part that you removed inserted in CAP):

---------
@anti_colonialists9: @OBSERVATORY, BETTER DISCLOSURE OF MY POSITION, IS I agree more with @iknownuts, it considers risk management, instead of your posts that feel more bias to best scenario projection and application of fairness which is flimsy and subjective. Discuss our reasoning in next posts? Much later.
---------

Clearly accepting your earlier invitation to discussion, tell you that "our" opinion differ and will discuss the difference in "our" reasoning later. This is not what you ask me for earlier?

@observatory, I mean no offense and I ask again, what is your agenda? Did you try frame me? Just surprise what I bump into, seem like game and trickery agenda by 2 cyber troopers to make sure only one single voice here.

If you @dragon328 are genuine but have some agenda, you can confide to me privately. If both of you are "cyber trooper", I am opportunist too, willing to be silent and not interfere with your effort to create unchallenged single view here for your successful strategy.

@dragon328 said I have "hot temper". Maybe weather hot, I was wrong assume both of you playing tricks on me and to public with bad agenda? Should I apologise? Or are you both wrong? Note I am not first one to question, even old user @iknownuts also share concern about both of your intent (@iknownuts: "do you guys hate scientex and PJ Lim so much?")

Is @dragon328 just assuming? I also realise it might be a mirror to @dragon328 feeling hot temper after reading my post. Apologise in advance. @observatory, if learn from white people, can I call you assumptious sexist bias and how dare assume my gender in all your posts? Can I call @dragon328 $%^%# for implying I mood swing? See how assumption work? No offense my intent to show how weird this can be if we are not civilised.

On light note. I no longer admire your i3 posts because your latest attempt to sway public opinion and frame me, give doubt on your character. Where is the fairness. Pfft. Should we return to discussing "our" reasoning?

Posted by observatory > 2021-10-04 06:46 | Report Abuse

We’re coming to the end of the three week offer period now (if not extended).

The latest status with Daibochi mother share:

Total shares: 327.372m
Scientex: 217.546m or 66.45% (before 61:88%)
Apollo: 32.233m or 9.54% (before 9.38%)
Samarang: 17.040m or 5.20% (before 5.06%)

The latest status with WB:

Total warrant: 27.297m
Scientex: 3.163m or 11.59% (before 4.25%)
Apollo: 4.894m or 17.93% (before 9.37%)
Samarang: 1.608m or 5.89% (before 5.89%)

As defense against Scientex’s privatization, the warrants can be converted. Assume all warrants are converted to mother shares, the latest status is:

Total share + warrant: 354.669m
Scientex: 220.709m or 62.23% (before 57.45%)
Apollo: 36.127m or 10.19% (before 9.38%)
Samarang: 18.648m or 5.26% (before 5.12%)

Scientex is far from reaching 75%, let alone the 90% necessary to secure its privatization.


If Scientex is unwilling or unable to come up with a fair offer, and let the offer lapses, share price is likely to go under RM2.70. A small risk where short term investors need to consider.

The price is likely to settle higher than the RM2.3-RM2.4 pre-announcement level given Daibochi’s hidden value gets wider recognition now.

However, any attempt by Scientex and/or other players to buy on bargain, even for a small quantity, will lift the share price again.

As a long term investor, this is actually my preferred scenario rather than cashing out even at a revised but still inadequate offer.

Posted by dragon328 > 2021-10-04 11:36 | Report Abuse

Today 4th Oct 2021 is the last day to accept the take over offer from Scientex. Given that Scientex did not announce any extension of the offer by 2nd Oct, the current privatisation offer will not be extended so today is the last day to submit your acceptance form to Scientex. I do not know the exact procedure of submission as I do not have any intention to accept the offer, hence do not bother reading the procedure.

Posted by dragon328 > 2021-10-04 11:44 | Report Abuse

In the next few days, Scientex will need to make announcements on how much acceptance it has received for the privatisation offer, including any from the institutional funds.

It is anybody's guess now as to whether Scientex would raise the offer price. Scientex could well walk away with 66%+ stakes and get on with life, and hence there is a real risk for Daibochi share price to fall to RM2.30-2.50 level in short term.

Investors need to consider the potential risk of losing +/-10% capital if not accepting the offer, and balance the risk with potential rewards of holding it for long term.

Posted by iknownuts > 2021-10-04 13:02 | Report Abuse

Adoi pls, dont simply spew misleading info again. Today is the day the offer document goes out la. Means today is also the day scientex first accepts offer from the public

Again, pls post responsibily…

Posted by dragon328 > Oct 4, 2021 11:36 AM | Report Abuse

Today 4th Oct 2021 is the last day to accept the take over offer from Scientex. Given that Scientex did not announce any extension of the offer by 2nd Oct, the current privatisation offer will not be extended so today is the last day to submit your acceptance form to Scientex. I do not know the exact procedure of submission as I do not have any intention to accept the offer, hence do not bother reading the procedure.

Posted by dragon328 > 2021-10-04 13:04 | Report Abuse

As @observatory pointed out, Daibochi share price is likely to settle higher than the RM2.3-RM2.4 pre-announcement level given Daibochi’s hidden value gets wider recognition now.

As liquidity will be thin after a few more percentage of Daibochi shares have been mopped up by Scientex and funds from the open market, share price volatility will only increase. A bad news would move the share price by 5%-10% easily and a good news would make it surge over 10%-30% in a single day of tradings.

As long as fundamentals have not changed, lower share trading liquidity is not an issue to me as I do not buy in millions. I had success in picking up DKSH below RM3.00 though its free floats are lower than 20% with DKSH parent holding over 75% of this listed entity in Bursa. Patience pays off handsomely by riding on its expansion plan from two years ago by M&A and investments in internal cost optimisation projects.

DKSH announced a good set of results for quarter ended June 2021 and investors chased it high by over 80% in few weeks. Why are funds and investors so upbeat on DKSH? Again, I will resort to cash flows analysis to explain why this is a real gem. DKSH operational cash flows are so strong that it managed to pare down RM100 million of debts with just 6 months of operational cash flows and declare a 10 sen dividend. Its paid-up capital is low at 168 million shares, so its annual operational cash flows could top RM200 million. With minimal ongoing capex, it would be able to declare high dividends once its debts are pared down to manageable levels. With projected EPS of 60 sen and free cash flows above RM1.00 per share, DKSH may declare dividends up to 60 sen a year. For a dividend yield of 7.0%, DKSH may be worth RM8.57. For a dividend yield of 5.0%, DKSH may be worth RM12.00.

Now look back at Daibochi. It has quite similar situation as DKSH:
1) a strong parent with over 60% stakes
2) involved in consumer food & beverage product chain
3) long term business partner to consumer F&B giants like Nestle
4) embarking on expansion plan though organically and potential benefits to be realised in next 2 years
5) has potential to embark on internal cost optimisation projects to improve EBITDA margin with synergy support from Scientex in areas like raw material procurement, factory operational efficiency, inventory optimisation, stronger negotiation power with customers & suppliers
6) strong operating cash flows of 32 sen per share potentially when the 60% capacity expansion plan is successful, and hence potential high dividend payouts for many years to come
7) low liquidity
8) wider recognition of its potential among investment community

Posted by iknownuts > 2021-10-04 13:07 | Report Abuse

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3197862

If you accept the offer from scientex via this method, if there are any subsequent increased scientex offer, you will also get the increased price

Posted by observatory > 2021-10-04 13:18 | Report Abuse

Yes. Posting Date is considered today. The First Closing Date is 5pm Oct 25, 2021. The formal the three-week offer period has just started.

This info has just been posted on the Bursa Company Announcement.

@iknownuts, salute you for reading faster than I do!

Posted by dragon328 > 2021-10-04 13:20 | Report Abuse

@iknownuts, are you sure today is the day Scientex first accepts offer from the public?

I reproduce the wordings from CIMB analyst's report dated 14 Sept for reference:

[ Other salient details of Scientex’s takeover offer
Takeover offer lapses in three weeks if no extension granted
 Scientex will get to compulsorily acquire the remaining Daibochi shares it does not have when its ownership in Daibochi reaches 97.2%. Section 222(1) of the Capital Markets and Services Act 2007 (CMSA) permits the offeror to compulsorily buy the target company’s shares it still does not hold once it already has 90% of the shares it did not own prior to the takeover offer.
 The first expiration date to accept Scientex’s offer is 4 Oct 2021, being the 21st day after the notice of the unconditional voluntary takeover offer was first tabled.
 If Scientex wants to extend the offer’s expiration date, it will have to inform Bursa Malaysia by 2 Oct 2021 – or two days before the first expiration date.
However, the takeover offer cannot go past 60 days of the offer date (Friday,
12 Nov 2021).]

However, when I cross check on the Notification from UOB dated 20 Sept, clause 4.5 (a) says that "..the Offer will remain open for acceptance from the Posting Date for a period of not less than 21 days ...".
Clause 4.3 says ".. the Offer will be made in conjunction with the posting of the Offer Document ("Posting Date"), which will not be later than 21 days from the date of this Notice.

Now, I do not know exactly when the Posting Date is set to be. If UOB posted out the Offer Document on 20 Sept, then the Offer shall expire on 11th Oct the earliest. If the Posting Date was set at the 21st day from the Notice, then the Posting Date shall be 11th Oct and the Offer shall expire latest by 25th Oct. Right?


Posted by iknownuts > Oct 4, 2021 1:02 PM | Report Abuse

Adoi pls, dont simply spew misleading info again. Today is the day the offer document goes out la. Means today is also the day scientex first accepts offer from the public

Again, pls post responsibily…

Posted by dragon328 > 2021-10-04 13:24 | Report Abuse

Ok got it, thanks.

I was misled by the timeline in the CIMB report.


Posted by iknownuts > Oct 4, 2021 1:07 PM | Report Abuse

https://www.bursamalaysia.com/market_information/announcements/company...

If you accept the offer from scientex via this method, if there are any subsequent increased scientex offer, you will also get the increased price

Posted by dragon328 > 2021-10-04 13:26 | Report Abuse

aiyo this has to drag on for another 3 weeks to 25th Oct.

No need to waste time on this and better focus on other counters.

Posted by observatory > 2021-10-04 14:06 | Report Abuse

@iknownuts’s is right to say that "If you accept the offer from scientex via this method, if there are any subsequent increased scientex offer, you will also get the increased price"

However, I want to highlight another point not mentioned.

For shareholders who choose not to sell at RM2.70/RM0.32, but are willing to sell at a higher price if Scientex revises the offer, they have the OPTION TO WAIT.

Refer to Appendix 1 (Terms and Condition of the Offer). Clause 4b (iii) reads

“If the Offer is revised after the Posting Date, the Offeror will …. keep the Offer open for acceptance for a period of at least 14 days from the date of posting …”

So, if price is revised, shareholders will have at least 14 more days to decide.

Shareholders who want flexibility can just wait and see how events develop in the coming weeks.

Posted by iknownuts > 2021-10-04 16:10 | Report Abuse

Just a note of caution to those who is betting/planning to bet on the warrant. Caveat Emptor!

IF there is an increased offer by scientex:

Page 26 of the offer doc says:

“Please note that each Daibochi Warrant is exercisable into 1 new Daibochi Share at an exercise price of RM2.50 per Daibochi Share payable in cash during a tenure of 5-year exercise period of up to 19 June 2022. As such, strictly for illustrative purpose, any revision to the Share Offer Price to RM2.83 or more will result in the corresponding increase to the Warrant Offer Price to RM0.33 or more after applying the "see-through" pricing set out in (a) above (for example, RM0.33 represents the excess of the illustrative revised offer price of RM2.83 over the exercise price of RM2.50 per Warrant). On the other hand, any revision to the Share Offer Price to the range of RM2.71 - RM2.82 will not result in the revision to the Warrant Offer Price of RM0.32.”

This means you need scientex to increased the offer to a price above 2.82 (for the mother share) for you to enjoy any subsequent offer increase in the warrant price.

Also, note that it is highly likely scientex offered 0.32 for the warrant in the first place because chua lay peng, a PAC (see pg 45) bought 5000 warrants at 0.315 in 14/4/21 (within 6 months from the offer), so scientex is obligated to offer to buy the remaining warrants at a higher price.

Posted by dragon328 > 2021-10-04 17:26 | Report Abuse

@iknownuts, thanks for the note on warrant.

I do not have much daibochi wb left in my portfolio but more mother shares for long term holding.

Posted by observatory > 2021-10-04 19:59 | Report Abuse

I stay away from warrants.

However, just for the sake of discussion, we can try to understand the rationale or motives behind investors/ speculators who chase after them.

The main objective is to bet that Scientex will revise its offer price sufficiently so that the gamble pays off. That means mother share offer price has to be revised to above RM2.82 for the warrant bet to work, such that the “see-though” price is greater than RM2.82 – RM2.50 = RM0.32.

However, a revised offer of RM2.82 (if happens) is only 4.4% above current offer at RM2.70. If Scientex couldn’t acquire sufficient shares at RM2.70, it’s quite unlikely that an increment by less than 5% could entice enough holdouts to push acceptance above needed threshold.

Therefore, it’s more likely to be a binary outcome. Either revised offer > RM2.82, or no revised offer at all. If we focus on the revised offer scenario, excluding transaction and interest cost, the return for a warrant bought at RM0.32 will start to outperform a mother share bought at RM2.70 when the mother offer price is revised to RM2.84 or above.

At an assumed revised mother share offer of RM2.84, new offer price for warrant = RM2.84 – RM2.50 = RM0.34.
Mother share return = 2.84/2.70 -1 = 5.19%
Warrant return = 0.34/0.32 – 1 = 6.25%

In the scenario (not saying it will happen) the revised share offer price is RM3.00, revised warrant offer price will be RM3.00 – RM2.50 = RM0.50
Mother share return = 3.00/2.70 -1 = 11.11%
Warrant return = 0.50/0.32 – 1 = 56.25%

I believe this is motive behind warrant price being bid up much higher than the mother share price.

Of course there is no free lunch. The downside is capital loss when nothing happens and warrant approaches expiry of Jun 2022 (of course one may still hope share price moving up during the interim period). May be a way to minimize the risk is to accept Scientex offer on the last day. However, warrant price is currently trading above offer price. Some capital loss seems to be unavoidable. Besides, I wouldn’t want to buy high in the market and sell lower back to Scientex in the hope of a revised offer, purely on the reason of principle.

There could be a different objective for Apollo when it accumulated warrants. As mentioned before Apollo’s current shareholding is already close to 10%. Perhaps they are constrained by internal guideline not to hold a position beyond 10%. Buying warrants may help them to get around it (just my guess).

The warrants strengthen their bargaining power as they now have the veto over compulsory acquisition by having the 10% blocking shares (if they convert). It serves like an insurance policy, At the same time they can still participate in any upside should there be a mutually agreed new offer.

Anyway, this is just pure deduction. Feel free to point out if there is any mistake in my reasoning.

Note I’m not here to promote buying or even holding on to warrants. As said before, while I hold tight to my shares, I stay clear from warrants as I am a risk adverse person. Any investor/ speculator should be responsible for own decision.

Posted by observatory > 2021-10-04 21:34 | Report Abuse

@dragon328, I forgot to congratulate you on your WB profit. You mentioned that you picked up a lot at 0.1X just a few months ago and now sold at 0.3X. That is huge in percentage term, and even larger if annualized. Your overall holding cost will be super low now!

Posted by dragon328 > 2021-10-05 11:50 | Report Abuse

Thanks @observatory.

I was just lucky enough to grab wb weeks before the Scientex takeover offer came and managed to realise >100% profit gains in one month.

But that was not my original intention of buying daibochi-wb. I was prepared to hold it until year end to see if daibochi would reach RM3.00 and wb to RM0.50-0.60.

Anyway all is not wasted. Thanks to Scientex offer for me to take some quick profit first and get back some capital money to buy other under-valued stocks.

In fact, this daibochi-wb was not my biggest gain this year. I had bigger gains in Media Prima when I spotted this hugely undervalued stock at RM0.19 in late Nov last year. Media reported a turnaround in its quarterly result ended Sep 2021 and I found out that its operational cash flows might exceed 10 sen per share after the turnaround. With nett cash of 18 sen per share then and projected free cash flows of 10-11 sen per share every year forward, it was a no brainer to grab as much as possible at RM0.190. I managed to sell progressively as it surged up due to aggressive buying by Johari in the open market and disposed all my holdings by RM0.745.

Another quick gain was made when Maybank raised its target price for MHB to RM0.85 on 4th March 2021 when it was trading at RM0.44. I checked that MHB had nett cash of RM0.25 per share then and projected free cash flows of almost 6.0 sen per share, it was a damned good buy at 44 sen a piece. I grabbed plenty and manged to sell all by 80 sen within 2 months.

Latest one is DKSH that I mentioned before. It is giving me almost 90% gain now within 2 months.

My point is that you will never go wrong by picking stocks with strong cash flows. Just need to be patient. Sometimes luck plays a key factor in determining how fast you may make the desired gains.

Posted by observatory > 2021-10-05 13:14 | Report Abuse

@dragon328, I’ve read your comment history earlier. You pay good attention on cashflow analysis, which I should do more.

We share a few interests. Also briefly looked at DKSH and Samchem before but I missed out as I was deterred by the low margin of their distributorship business. Your point that DKSH crossing RM800m market cap is a good one as I’ve noticed in the past how funds start piling into previously illiquid stocks when their values are discovered and MC approaching RM1 billion mark. Latest example in SAM. May be more exchange with you on other stocks in their respective forums in the future.

Posted by dragon328 > 2021-10-05 13:55 | Report Abuse

Ya I pay more attention on a company cash flows rather than its accounting profits. How much cash a company has and how much cash it can generate sustainably will determine how much this company is worth. As we are just minority investors in the listed company, our tangible returns are in the form of dividend distributions or capital repayment by the company we invest in.

On the other hand, the accounting profit of a company can be easily distorted by many non-cash items like depreciation, amortisation, deferred taxation etc. A company may have very high accounting profits and low PE ratio but no cash, just like in the case of Serba Dinamik. What was the point of investing in such a company with increasing debts though reporting record profits in past few years? Same for other companies that report extraordinary profits by having mark-to-market adjustment gains from revaluing its assets. Minority shareholders get nothing benefit until the company can monetise the assets or convert the accounting profits into real cash and reward shareholders with handsome dividends.

What we should be looking for is a company with good management and an enviable business that can generate sustainable cash flows over years. A good management can innovate and create higher shareholders' value for the company. An enviable business typically has certain consumer monopoly that can withstand competition and does not require heavy capital expenditure every year to sustain its operations.

In particular, I am always on the look out for companies with sustainable annual free cash flows of at least 15% of its market capitalisation. For instance, Media Prima trading at RM0.190 had a FCF/Price ratio of over 50% with projected annual cash flows of at least 10 sen. MHB at RM0.44 had a FCF/Price ratio of 15% with projected free cash flows of 6.0 sen per share. DKSH was good at RM3.00 with FCF of RM1.00 per share.

I am looking at BJFood now. Based on its latest quarterly results, its free cash flows may top RM100 million for this FY or over 30 sen per share. At RM2.02, it fits into my investment criteria. The only issue with this company is how much capex it would spend to expand its retail Starbucks or Kenny Rogers outlets and whether it would be well spent. If it plans to open 25 new outlets, it may set it back with at least RM50m of capex and free cash flows may drop by half.

Posted by iknownuts > 2021-10-05 16:06 | Report Abuse

So fast sold most of your wb already? At 40c i presume?



Posted by dragon328 > Oct 4, 2021 5:26 PM | Report Abuse

@iknownuts, thanks for the note on warrant.

I do not have much daibochi wb left in my portfolio but more mother shares for long term holding.

Posted by dragon328 > 2021-10-05 17:36 | Report Abuse

I did not manage to sell any daibochi-wb at 40 sen lah, that was only 100 shares traded at 40 sen last week. I sold most at 0.34-0.365 but still keep some till year end. This balance wb is considered free already.

Posted by BeatySwalls > 2021-10-08 19:31 | Report Abuse

My oh my, observatory. Apollo's articles https://www.apolloinvestment.com/whatsnew.htm were superb. chuckles. A first reading a raging diatribe by an activist investor who knows her stuff. (Pirates of the Dai-bo-chi?? lol)

iknownuts twas refreshing reading the suaveness of Datuk David Goh https://www.theedgemarkets.com/article/david-vs-goliath-ccb-privatisation-stalemate

Swooning at the smoothness. "I don’t want to portray myself as a kingmaker or anything" "I am not here to make enemies, and I am not here to scuttle somebody’s deal" "If you offer me a good price, I will sell it to you" "But even if you don’t, that’s fine with me too" "We are all businessmen who look at the bottom line, not to make foes"

An exciting contrast, Crazy Rich Asian-esque businessman meets Angry Rich Brit's nasty condemnations. Most thrilling both are old time Asian specialists. One chose the path of Asian humility and diplomacy. The other, the path of raging activism in developing EMs. Both must have amazing NAV to show.

Posted by observatory > 2021-10-08 20:40 | Report Abuse

Welcome to i3 @BeatySwalls.

I don’t know anything about the Apollo’s Claire Barnes beyond her blog so will refrain from making comment on her personality.

Unfortunately the manager at Samarang doesn't seem to blog as there is limited info on their website. Otherwise I'll share their view too.

I can imagine Claire's words could have irritated Scientex. I also wonder if Scientex is negotiating with those funds now. Perhaps not going well? As a small little minority shareholder of Daibochi, my interest is aligned with Apollo, Samarang and other funds. If they drive a good bargain, I can take a free ride on them. So have to pardon me for any perceived bias.

(P/S: Datuk David Goh is on the news again on last Sat)

Posted by observatory > 2021-10-08 20:41 | Report Abuse

I track the daily changes on Daiboshi share and warrant ownership. The status as of 8-Oct:

Total shares: 327.372m
Scientex: 218.871m or 66.86% (before 61:88%)
Apollo: 32.233m or 9.54% (before 9.38%)
Samarang: 17.206m or 5.26% (before 5.06%)
Open market purchased by others since 14-Sep: 4.816m or 1.47%


Total warrant: 27.297m
Scientex: 3.163m or 11.59% (before 4.25%)
Apollo: 4.894m or 17.93% (before 9.37%)
Samarang: 1.608m or 5.89% (before 5.89%)
Open market purchased by others since 14-Sep: 15.643m or 4.78%


Total share + warrant: 354.669m
Scientex: 222.034m or 62.60% (before 57.45%)
Apollo: 36.127m or 10.19% (before 9.38%)
Samarang: 18.814m or 5.30% (before 5.12%)

Posted by BeatySwalls > 2021-10-10 21:11 | Report Abuse

Not at all a comment on her personality. The countries she has invested in can use her brand of vocal activism. Puts her money where her mouth is. In another example of her outspoken nature, she has called on fellow-investors to cut down on use of plastic on 4 October 2021. A persistent mess that afflicts the countries she has invested in. Not surprising given her zeal for diving and maritime archaeology https://www.apolloinvestment.com/cbarnes.htm

observatory > Oct 8, 2021 8:40 PM
Welcome to i3 @BeatySwalls.
I don’t know anything about the Apollo’s Claire Barnes beyond her blog so will refrain from making comment on her personality.

Posted by observatory > 2021-10-10 22:43 | Report Abuse

As a minority shareholder of Daibochi, the only activism I care about is for fund managers like Claire to stop Scientex from buying up the company for a song at the moment when the economy is picking up and the RM100 million capex is about to bear fruit.

Over the last four weeks Scientex managed to acquire not more than 5% shares. At current rate it either has to pay up, or perhaps even better for long term shareholders, to abandon the privatization altogether so that minorities can share in Daibochi’s growth.

Posted by iknownuts > 2021-10-14 11:39 | Report Abuse

https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3200695

Independent Adviser deems offer FAIR and REASONABLE

Using DCF method only values diabochi at RM2.04 to RM2.17. Talks about counter being illiquid.

Good luck guys, i have already submitted my acceptance to scientex. I will consider revisiting this counter again once price goes nearer to the vwap/IA valuations.

Posted by dragon328 > 2021-10-14 13:06 | Report Abuse

There is nothing much to analyse in the Independent Adviser report. There is a vaccuum of information in how they derived the fair value.

The only info stated is the assumed cost of equity of 9.13% and perpetuity growth rate of 2.0%-2.5%, both are within ballpark estimates. However, there was nothing mentioned on assumptions made in the projected free cash flows of the company and how many years of FCFE was taken into account in the calculation of the present value.

It is totally unclear as to whether the Independent Advisor has taken into account the planned expansion in their projected free cash flows. If they had just taken the free cash flows of the company in the past 2 years to project a nominal growth of 2.0%-2.5% for the next few years, then it will understate the expansion growth effort of the company.

Posted by dragon328 > 2021-10-14 13:43 | Report Abuse

I just reworked out the fair value using the assumed cost of equity Ke of 9.13% and perpetuity growth rate, g of 2.0% and the stated formulae in the Independent Advisor report. To get the stated fair value of RM668m, they have assumed annual free cash flows of less than RM50m:

FCFE FY2022 2023 2024 2025 2026
RM m 47.3 48.3 49.2 50.2 51.2

Present Value of projected FCFE = FCFE / (1 + Ke)5 = RM190.2m
Present Value of Terminal Value = FCFE for FY2026 * (1 + g) / (Ke - g) * 1 / (1 + Ke)4.9 = RM477.4m

Fair Value = RM190.2m + 477.4m = RM667.6m

As I pointed out earlier, Daibochi's free cash flows for FY2021 already amounted to RM70m based on its Q4FY2021 quarterly results.

It is hence totally unreasonable to assume annual free cashflows of below RM50m for FY2022 - 2026, even lower than actual FY2021 FCF. The Independent Advisor has also clearly ignored the ongoing expansion plan and the potential earnings growth in next few years.

If I rework the fair value with assumed FCFE of RM70m for FY2022 then increasing 2% p.a. to FY2026, the fair value will be RM987.9m or RM3.01 per share.

If I assume the current expansion will result in 25% higher FCF for FY2022 and 50% higher FCF for FY2023 then increasing at 2.0% p.a. to FY2026, then the fair value would be RM1,439m or RM4.39 per share.

Investors pls beware of the huge disparity in valuation by tweaking the assumptions and do not take the face value given by Indenpendent Advisor as granted.

Posted by dragon328 > 2021-10-14 14:24 | Report Abuse

It appears to me that the Independent Advisor might have taken some of the expansion capex in reducing the free cash flows of the company in the calculation of the fair value.

My estimate is a capex amount of RM20-23m that has been used in suppressing the annual free cash flows of the company. This basis is totally fraud. The reason of embarking on an expansion plan is naturally to grow the company earnings and cash flows in future years, but the expansion capex incurred in FY2020-2021 has been used to its advantage of reducing the projected annual free cash flows for FY2022-2026 in the fair value calculations.

So cheeky yet clumsy!!

Posted by observatory > 2021-10-14 14:50 | Report Abuse

The IA report is out. Instead of just swallowing the report output without thinking, it's worthwhile to examine its method and assumptions behind.

The first thing I note is the IA report uses discounted cashflow (DCF) method based on free cashflow to equity (FCFE).

Anyone with a basic understanding of DCF will know that, given this method projects cashflow into the infinity, any result can be produced with slight tweaks of the input values. A good example is RHB reports for glove stocks that are DCF based. Last year using the DCF method their reports chased the glove stock price up. This year using the same DCF method the reports are chasing the price down (albeit with a new analyst now).

DCF is highly sensitive to three variables -- the cost of equity; the terminal or perpetual growth rate; and the starting cashflow assumption.

The first variable, the cost of equity is found on page 14 of the IA report. The COE of 9.13% derived from CAPM method come across as reasonable to me. So no issue there.

Next the terminal or perpetual growth rate. At page 16 it’s set as 2% to 2.5%. This values are not unusual. But note it’s applied for the period FYE 31 July 2026 onwards. In other words, the “high” growth phase of Daibochi will end in 5 years. Daibochi annual growth will settle to 2% to 2.5% from Year 6 onwards, perpetually.

Given valuation is performed in nominal term, and given the average inflation rate is about 2%, the assumption is Diadochi perpetual growth rate in real term is only 0% to 0.5%. In other words, this report assumes Daibochi become stagnant after 5 years!

This is in the context of Daibochi business selling to F&B MNCs which correlates with growth of population and prosperity. Malaysia is an emerging market with young population. Despite declining GDP growth rate over the decades, I believe Malaysia could still achieve GDP growth rate of around 3% for many years. And that 3% GDP growth rate is in real term. Translating to nominal term it’s about 5%. Furthermore Daibochi is now tapping into the even faster growing neighboring ASEAN countries.

While I won’t say the assumption of near stagnant growth just after 5 years in a fast-growing region is wrong, but is the assumption overly pessimistic?

The final factor is the initial conditions of free cash flow. By assigning too low/ high a starting point, the subsequent year FCFs, which is projected into infinity, could be grossly under/ over-estimated. So I want to see how the report treat Daibochi's >RM100m investment in the last two years. Rightfully these investments should translate into high FCF in subsequent years, where operating cashflow grows but investment is back to the low maintenance capex level.

To my disappointment I don’t find any details! I have expected the report to provide a table to lay down the 5-year calculation, outlying the annual projected earning, net capex and working capital. But none is given! Quite surprise indeed for a long report like this. (To RHB credit it always provide its DCF working for readers)

I notice @dragon328 has done a reverse engineering of the annual FCF assumptions.

Given I've done a FCFE for Daibochi quite some time back, later I'll bring up my old spreadsheet and do a smilar exercise too.

In short, I find the IA report does not provide sufficient transparency in its calculation. Until I can convinced myself otherwise with my reverse calculation, I will still stick to my PE calculation method shared earlier which assumes a fair value of 18.6 times (past 10 year mean PE) * post pandemic forward EPS of close to 20sen.

Posted by observatory > 2021-10-14 23:41 | Report Abuse

The IA report withholds the cashflow details from us. But luckily a few numbers are there to help working it backward to crack open this black box.

The first equation is shown in page 16, where terminal value (in present term)
= [ FCFE_2026 * (1+g) / (Ke-g) ] * ( 1 / (1 + Ke)^4.9 )

where
FCFE_2026 is the free cash flow (FCF) for FY2026 before discount
Ke = cost of equity = 9.13% or 0.0913
g = perpetual growth rate, where two scenarios are provided, which are 2% (0.02) or 2.5% (0.025)

As mentioned in Page 16, when g = 0.02 and 0.025, terminal value (in present term) is RM539.68 million and RM583.23 million respectively.

Substituting the number into first equation, it’s found that FCFE_2026 = RM57.883 million. (Note: this value has not been discounted to present value).


~~~~~~~~~~~~~~~~~~~~~~~~~


There is also a second equation in Page 17, where

Value of the Daibochi Group’s business
= Present value of projected FCFE based on the Future Financials
+ terminal value (in present term)

A simple explanation of this second equation is Daibochi value = first 5 years value + value from Year 6 to infinity.

Page 17 also informs that when terminal value (in present term) = RM539.68m and RM583.23m respectively, the corresponding values for Daibochi business is RM668.25 million and RM711.80 million respectively.

Again, assigning those values to the second equation, we find that present value for the first five years is RM128.57 million.


~~~~~~~~~~~~~~~~~~~~~~~~~



Now take a moment to think about this figure. A total free cash flow of just RM128.57 million (at PV) from FY22 to FY26. On average, the FCF per year is less than RM26 million!

Basically, the report expects little to come from the more than RM100 million capex spent over the past two years.

That presents two possibilities. First, the report is right. It also means the board has destroyed shareholder value with >RM100m capex since the adviser projects to yield miserable future return. It's ironic that the board accepts the findings.

The other possibility is, as I firmly believe, the report has made fundamental mistakes in its cash flow projection. But the board endorsed it as one may say. Of course the board endorsed it. I just don't want to dwell into that. Just wish this privatization saga is over soon and the board and management get back to their business of delivering value for shareholders!

Posted by observatory > 2021-10-14 23:49 | Report Abuse

I’m not going to stop yet. I want to work out the free cash flow assumed in each and every year from FY22 up to FY26.

It’s incredible that this report, which is paid by Daibochi shareholders, doesn’t reveal how they arrive at their numbers. Wonder why? Blame it on commercial secrecy, perhaps?

Nonetheless I’ve managed to reconstruct based on some trial and error on spreadsheet.

There are two pieces of information which we have worked out earlier:
(1) The undiscounted FCFE in FY2026 is RM57.883 million
(2) The total FCFE from FY22 to FY26, discounted to present value, is RM128.57 million.

I observe that the FCFE in the last year FY2026 is quite large, yet the total over 5 years (in PV term) is rather small. This could only mean the adviser starts with a very small number, and then inflate the number with high growth rate towards the end of the 5 year period.
(Note: It cannot start with a large FCFE like RM40 million in the first year, because the 5th year FCFE has to be RM58m and the 5 year total is constrained at RM129m)

This is another crazy assumption. Recall on Year 6 onwards they assume Daibochi growth rate will collapse to 2% to 2.5% forever, which is practically stagnant after adjusted for inflation!

I put forward two scenarios on how they could have grown the numbers. In the first scenario, the FCFE is assumed to grow from RM17.45 million at a constant rate of 35% annually (I know this is crazy)!

(In million RM)
Year FCFE FCFE @PV
FY22 17.450 16.130
FY23 23.558 19.954
FY24 31.803 24.685
FY25 42.934 30.536
FY26 57.960 37.775
Total N/A 129.080


~~~~~~~~~~~~~~~~~~~~~~~~~


Of course, free cashflow does not grow linearly. It depends on the different growth rates in earning, net capex, working capital and how long the capacity expansion still has to run. But all these assumptions are kept away from us.

So for illustration purpose, I massage the numbers to assume major capex spending for three more years (!), and after that, with magic, there is a 180% jump in FCF in Year 4. This is what I get:

(In million RM)
Year FCFE FCFE @PV
FY22 20.000 18.488
FY23 20.000 16.941
FY24 20.000 15.524
FY25 56.000 39.830
FY26 57.883 37.725
Total N/A 128.506


~~~~~~~~~~~~~~~~~~~~~~~~~


In both scenarios, the numbers and assumptions look suspect. It doesn’t match my understanding based on Daibochi past financial info.

But I’ll leave this cracked open black box here for time being. I’ll come back with more comments later.

Posted by dragon328 > 2021-10-15 09:40 | Report Abuse

@observatory, many thanks for the relentless effort to analyse the numbers behind the IA fair value.

I missed out on the terminal value of RM539.68 in my rushed calculations yesterday. I agree with your derived number of RM57.883m for FY2026 FCFE.

My guess of the numbers for FCFE in FY2022-2026 may come out more or less like what you had below. The common trick that might have been used was to deduct the operational cashflows of the company in FY2022-2023/2024 by the announced capex figure of RM100m to get a depressed set of free cashflows for the front years.

Again, to me any such basis is wrong for a number of reasons:
1) a majority part of the RM100m capex has been spent in FY2020-FY2021 before the takeover offer was made by Scientex, i.e. RM25.7m in FY2020 and RM64.0m in FY2021 ended July. There should not be much major capex left for FY2022-2024

2) In the DCF calculation, it is fair to deduct the operational cashflows by capex spent to derive the free cashflows. However, it does not appear to me that any benefit of the expansion capex has been reflected in the IA's cashflow projections. The implied FCFE of RM57.883m in FY2026 is even lower than the actual operational cashflows of RM70m in FY2021A. This is totally unreasonable as it suggests that the planned expansion plan by the management of Daibochi would be simply punitive in wasting shareholders' money without generating any higher returns in future.

3) If the intention of the IA was to derive the fair value of the company at current state (without any major expansion), they should have just used the normal maintenance capex of the company which averaged less than RM10m every year. It has somewhat become highly punitive to include the major capex of RM100m but not any benefit (increased earnings) of the capex in the calculations of the fair value.


______________________________________________________________________
So for illustration purpose, I massage the numbers to assume major capex spending for three more years (!), and after that, with magic, there is a 180% jump in FCF in Year 4. This is what I get:

(In million RM)
Year FCFE FCFE @PV
FY22 20.000 18.488
FY23 20.000 16.941
FY24 20.000 15.524
FY25 56.000 39.830
FY26 57.883 37.725
Total N/A 128.506