Posted by kcchongnz > 2013-01-04 07:26 | Report Abuse

Every year at the beginning of the year, investment banks would recommend some stocks which they think would out-perform the market. Maybank, Public Bank, CIMB, TM, Tenaga, Digi, Axiata, Sime, AirAsia etc, the same ones are always on the lists. Nothing wrong with the recommendations as most of them would do well I believe. But the problems of these recommendations are: 1. Almost every investment bank is recommending the same companies, is there any chance that they would earn extra-ordinary return as everyone is chasing the same stocks? 2. Nearly all funds, local or foreign own them because of the liquidity which is good. But if every fund has to own them, won’t the price been chased up long ago to its intrinsic value? 3. Is there any conflict of interest with the investment banks who have funds holding these stocks, or have business dealing with the companies recommending these stocks? 4. Most companies recommended are big capitalized companies. What is the potential of high growth in order to achieve high return in the future? 5. These stocks are well known by everybody in the market, the institutions and retail players. What is the chance that they are selling at bargain price, and hence the chance of high return? Do you have any hidden gem which is tucked in some where undiscovered, unloved and institutional investors have no mandate or interest to buy them for the time being, and selling at bargain price. The chance to earn 50% return a year, a double bagger, five baggers or even ten baggers. An ugly duckling which would turn to a beautiful swan in the near future? Which one and why?

22 people like this.

1,225 comment(s). Last comment by chang0509 2014-06-06 13:43

Posted by TeckChuan Lee > 2013-12-11 01:02 | Report Abuse

The book says that ACE market has quite a few good companies has anyone found out about that?

miketyu

464 posts

Posted by miketyu > 2013-12-13 12:09 | Report Abuse

Dear kcchongz,

Would you regard Fitters as hiddengem?

EPS feb 2012 0.10, feb 2013 0.129, Third quarter 2013 at 0.1066.
ROE at 12% based on earnings up to third quarter, Debt to equity ratio at 0.47, PE 4.7.

Problem with this stock is it hardly distributes dividend. But seems the earnings and EPS has been increasing year by year. What would be your view on this?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-12-13 14:11 | Report Abuse

Posted by miketyu > Dec 13, 2013 12:09 PM | Report Abuse
Dear kcchongz,
Would you regard Fitters as hiddengem?

EPS feb 2012 0.10, feb 2013 0.129, Third quarter 2013 at 0.1066.
ROE at 12% based on earnings up to third quarter, Debt to equity ratio at 0.47, PE 4.7.

Problem with this stock is it hardly distributes dividend. But seems the earnings and EPS has been increasing year by year. What would be your view on this?

If I used Greenblatt's magic formula to evaluate Fitters, it would pass the investing criteria of a good investment company as its ROIC=16%>15%, and Ebit/EV=21%>15% based on the last annual financial report. Please refer to this link here about the magic formula.

http://klse.i3investor.com/servlets/forum/900285510.jsp

However one thing I don't like about Fitters is not because of it did not distribute dividend, but its very poor cash flows. The quality of its earnings is poor with little cash flow from operations which is way below its net earnings consistently. It has no free cash flows, also consistently. Its third quarter 2013 results show the deterioration of this cash flow further.

Another thing is its business. It is now more of a property company. So I think there are many other more established and more undervalued property companies around.

No, Fitters is not a gem in my book.

Posted by TeckChuan Lee > 2013-12-14 15:22 | Report Abuse

MIKROMB 0112 RM0.24
MIKRO MSC BHD

Technology ACE Market

Based on June13 Report RM0.21

1. ROIC 28%
2. ROA 14%
3. ROE 17%
4. EV/EBIT 5.6
5. Earning Yield 18%
6. P/B 1.3
7. Cash Flow OK. Operation CF 164% over Net Income

Studies based on figures only. Have yet to read through full annual report.

Posted by faberlicious > 2013-12-14 17:17 | Report Abuse

Posted by TeckChuan Lee > Dec 11, 2013 12:59 AM | Report Abuse

ER YEAH NOTION VTEC IS ANOTHER TECH COMPANY IN MY WATCH LIST.

EH I DIDNT KNOW MY NAME CAME UP IN ONE OF THE POST HERE LOL..

ERIC WHERE YOU GET ALL THE COLD EYE SELECTIONS AH? JUST WONDERING.
ONE OF MY GOOD FRIEND HAPPENS TO KNOW COLD EYE. MY FRIEND SAID HAIYA WHY NEED TO GO THROUGH ALL THE FUSS DO SO MUCH HOMEWORK? JUST FOLLOW WHAT COLDEYE BUYS CAN LIAO......... WHICH IS QUITE TRUE ALSO WHAHAHAHHAHA

TeckChuan Lee,you can find Cold Eye and many other good articles here posted by the hard working Tan KW.

http://klse.i3investor.com/servlets/cube/pft/kianwei.jsp


Cold Eyed (冷眼) 42 Stock Picks Simulation
http://klse.i3investor.com/servlets/pfs/19909.jsp

miketyu

464 posts

Posted by miketyu > 2013-12-14 18:05 | Report Abuse

Oic, What would be the benchmark or ratio you would use to determine whether the company has excellent cash flow compared to others?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-12-14 18:10 | Report Abuse

Posted by TeckChuan Lee > Dec 14, 2013 03:22 PM | Report Abuse

MIKROMB 0112 RM0.24
MIKRO MSC BHD

Technology ACE Market

Based on June13 Report RM0.21

1. ROIC 28%
2. ROA 14%
3. ROE 17%
4. EV/EBIT 5.6
5. Earning Yield 18%
6. P/B 1.3
7. Cash Flow OK. Operation CF 164% over Net Income

Teck Chuan,
Based on your numbers, Mikromb does fit the Magic Formula. However, it is still a very small company with very small sales (<30m) and hence vulnerable; vulnerable to small customer base, loss of key customers, competitions (from China?), downturn of economy etc.

But there are many big companies now also grew from small too. In fact small company can grow faster. Just not sure if it won't subject to keen competition from those low cost producers from China.

Can invest, but I think don't place too heavy weight in your portfolio. Just my opinion.

Posted by TeckChuan Lee > 2013-12-15 00:23 | Report Abuse

Thank you for your feedback KC. Coming back Malaysia anytime soon? golf and booze on me.

Posted by 爱丽斯 梦幻世界 > 2013-12-15 11:50 | Report Abuse

Kcchongnz, can help check ofi intrinsic value? Can it be 2014 gem? Thx

Posted by Fat Cat Tim Buddy > 2013-12-15 11:59 | Report Abuse

super hidden gem of 2013 ( buy at January ) ---> tnlogis , hlcap , inari , dsonic

diversify 1 dollar* into this 4 stocks , your return by now will be 7-8 dollar

:D if anyone buy all this 4 stocks and hold till now,george soros also need to call you sifu already.

Posted by 爱丽斯 梦幻世界 > 2013-12-15 12:01 | Report Abuse

Haha. Fctb right

Posted by 爱丽斯 梦幻世界 > 2013-12-15 12:03 | Report Abuse

Thats all super gem for 2013. Now we hv look foward. Yr 2014 gem?

hongchai

96 posts

Posted by hongchai > 2013-12-16 23:47 | Report Abuse

Dear Kcchongnz,

What do you think of EITA (5208.klse)?
Do you think it is still a hidden gem?
Thanks for ur opinion.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-12-17 09:39 | Report Abuse

Ofi a gem in 2014?

Posted by 爱丽斯 梦幻世界 > Dec 15, 2013 11:50 AM | Report Abuse
Kcchongnz, can help check ofi intrinsic value? Can it be 2014 gem? Thx

In the long run in a capitalist country, the return of invested capitals would be about the same as its costs of capitals. OFI is no exception. Its ROE and ROIC of about 10% speak volume.

In the long run, the capital market is somehow efficient for most stocks. That is also reflected by OFI. PE ratio of 11 times, and enterprise value 8 times ebit is a fair valuation for OFI in my opinion.

Using an assumption of required return of 10% and 3% growth forever from now on, OFI is worth about RM2.90, a 15% upside potential, just a fair margin of safety.

miketyu

464 posts

Posted by miketyu > 2013-12-18 15:05 | Report Abuse

Mr Kcchongz,

SBC Corp.

Everyone shouting this counter as a gem, worth rm3 to 5. EPS is great, 18sen at 2nd quarter. But my concern is the cash level is negative? I dont know I have evaluated wrongly or what. Can you help out?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-12-18 15:59 | Report Abuse

Posted by kcchongnz > Jun 3, 2013 03:42 PM | Report Abuse X

Is SBCCorp a good company? Is it a good investment?

Posted by ccs999 > Jun 1, 2013 04:02 PM | Report Abuse
Hi kcchongnz, any comments on Cenbond 7171 & SBCCORP?
Appreciate your commenrs and thanks.

SBCCorp’s share price shot up from RM1.00 to RM1.58 now, for a 60% gain just in 3 months. Wow! Even at this price, it is trading at a PE of just 5 and a price-to-book value of just 0.5, damn cheap isn’t it? So the momentum is there and the valuation is undemanding, what are you waiting for?

But wait, this thread is about finding a good company to invest, then only check if it’s valuation is not to high before investing. Let’s don’t jump the gun and evaluate if SBC is a good company or not first.
Siah Brother has been an established name in construction, in particular the superstructure construction. By superstructure I mean the building from above the ground, after contractor like Pintaras has done its foundation and basement work. Superstructure construction works has been a very competitive work and margin and profit is low. In fact the margin for SBCCorp is surprisingly high at 21% last fy. That was because of the inclusion of investment and other income. However the turnover of SBC is surprisingly low at 127m last year. Even with such seemingly good results last year, ROE is only at 9.2%, below my required return. ROIC at 8.8% is also not good enough, hardly above the weighted average cost of capital.

There is also up and down in construction and with many inherent problems in the industry. Unless that company is big and has influence, or it has a niche (like my favourite Pintaras), it is really hard to survive in this dog eat dog environment. Many construction companies, some high fliers, have vanished into the thin air after each crisis. Hence I could not myself rate SBCCorp as a good company. Below is my assessment:

SBCCorp a Good company? 1.580
Good governance ?
Durable business No
Growth No
ROE No 9.2% <12%
ROTC ok 8.8% *=WACC
Balance sheet Neutral D/E 0.26
Cash flow ok

Screens for investing
ROTC Neutral 9% *=WACC
P/B Yes 0.5 <2.0
PE ratio Yes 5.0 <20

chang0509

167 posts

Posted by chang0509 > 2013-12-19 21:30 | Report Abuse

Parkson has drop to this level. Will you consider to buy in and keep for long term? Is it worth to invest in this counter now?

chang0509

167 posts

Posted by chang0509 > 2013-12-19 21:40 | Report Abuse

Hope to get some guidance from u,Mr KC chong. Thx

Posted by 爱丽斯 梦幻世界 > 2013-12-19 23:06 | Report Abuse

Thx Kcchongnz, I hv 'follow' ofi few yrs rdy. Only one problem its too low volume in trade.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-12-20 04:47 | Report Abuse

Posted by chang0509 > Dec 19, 2013 09:30 PM | Report Abuse
Parkson has drop to this level. Will you consider to buy in and keep for long term? Is it worth to invest in this counter now?

Parkson has had its days 10 years ago when the Chinese economy was doing extremely well. After the US sublime crisis, its profitability has declined by a wide margin.

Last year it earned 22 sen a share. With the price now at RM3.08, PE ratio is 14. This ratio is not expensive for a company like Parkson. However first quarter 2014 ended 30/9/14 showed continued deterioration of its bottom line when net earnings per share dropped severely by 50% to 2.85 sen per share.

Whether Parkson can turnaround depends very much on the recovery of the Chinese market, and its success in foray into the some Southeast Asian countries. This requires detail analysis of its business there which is beyond what I can do.

Below is what I have commended before. Note that Parkson's business has deteriorated since then.


Posted by kcchongnz > Jun 2, 2013 12:28 PM

Is Parkson a good company? Is it a good investment?

Posted by yfchong > May 31, 2013 02:14 PM | Report Abuse
bro KC from nz, any change to comment on Parkson..

Yeah, felicity has written a good analysis on Parkson and there are also valuable comments there. Go and have a read.

For me I still think Parkson is a good company. That is despite that its growth has slowed down considerably these two years. Its margin has also contracted, quite badly to 15% based on its 2013 ttm results, down from 20% a year ago. ROE and ROTC also suffered quite badly, retreating to 12% and 5% respectively. This is mainly due to the slowdown in the China market. Parkson has forayed into Indonesia, Vietnam and Sri Lanka. So Parkson’s continuous success very much depend on the recovery of China’s economy and the success in those new countries.

Below is my assessment of Parkson if it is a good company and a good investment.

Parkson a Good company? 3.82
Good governance Yes
Durable business Yes
Growth No 2.3% in revenue
ROTC No 5% <WACC
Balance sheet Yes 0.33 D/E
Cash flow Yes 157% CFFO/NI

Screens for investing
ROTC No
P/B Yes 1.5 <2.0
PE ratio Yes 14.4 <20

Posted by houseofordos > 2013-12-23 00:12 | Report Abuse

Let me share my thoughts on CENBOND which I believe is a forgotten undervalued packaging company. I went through a series of checklists both qualitative and quantitative before deciding if an investment is good enough.

1. A brief business description
CENBOND operates in 3 main segments :- paper packaging, plastic packaging and contract manufacturing (MLM business). It has businesses and subsidiaries in Malaysia (packaging), Indonesia(packaging) and Singapore (mainly MLM business). Paper packaging business forms >90% and >75% of its PBT and revenue respectively based on the latest results.

2. Understanding its business
a. Products:- The paper division produces a variety of paper solutions ranging from paper bags, polymer bags, bulk bags and multi-wall bags.
b. Customers:- Its customer base should be diverse as packaging is used everywhere such as building products (cement sacks). pharmaceuticals, chemicals, food, shipping etc
c. Geographical exposure:- Mainly Malaysia, Indonesia and Singapore
d. Its business should resilient as packaging materials are always needed in any economic cycle.

3. Financial performance/metrics

The following table shows a comparison of paper packaging companies listed in Bursa based on the latest trailing 12 months financial results

Company Price NM(%) ROIC(%) EV/EBIT P/E D/E Netcash/share P/B DY
CENBOND 1.58 10% 20% 5.5 9.9 0.03 0.6 1.23 3.2%
BOX-PAK 2.36 5% 8% 10.5 9.7 0.39 -0.78 1.01 4.2%
PPHB 0.635 7% 8% 7 6.7 0.36 -0.32 0.49 0.0%
MUDA 0.875 4% 5% 17.6 6.9 0.81 -1.43 0.45 2.3%
ORNA 0.72 3% 6% 11.4 8.7 0.56 -0.71 0.45 0.0%

CENBOND clearly stands out among other paper packaging companies listed in Bursa due to its superior net margins, ROIC and cheap valuations of only 5.5 times enterprise value / EBIT. It has the strongest balance sheet among all with a net cash of RM0.6. Its Price/Book multiples is the highest but justified due to its superior metrics when compared to the other competitors. Furthermore, a lot of its assets are hard cash.

CENBOND always generated free cashflow for the past 5 years. Last year its free cashflow was 17% of its total revenue. On average, its FCF/Revenue has always been above 5% which is healthy. Its free cashflows enabled it to sustain dividend payments which is fair at around 3.2% yield.

The operational efficiency shown above clearly demonstrates that CENBOND enjoys some competitive advantage over its peers.

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

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

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

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

5. Catalysts
M&A in the paper packaging space. Oji Paper (Japan) which is one of the largest paper manufacturers in the region has made acquisitions of Malaysian companies in the past. In 2010, it took over United Kotak Bhd at price of RM1.4 representing P/B of around 1.0. In 2011, it took over HPI Resources at a P/B of 1.8. Both these companies were and are manufacturers of corrugated cartons, a similar business CENBOND is in. Based on CENBOND's tight ownership (directors indirectly own >50% of the company), it may be difficult to undertake a hostile takeover. However, based on valuations of past acquisitions and CENBOND's relatively high cash per share and superior margins, it could still be on the radar of larger expansion hungry companies.

6. Threats
a. Rise in raw material prices. Wood pulp would make the bulk of raw material costs. Rise in this commodity would erode future earnings.
b. Weakening of Rupiah. Operations in Indonesia derive income in local currency while earnings reported in MYR.

bsngpg

2,842 posts

Posted by bsngpg > 2013-12-23 07:38 | Report Abuse

Hi House : Thanks for the analysis.
Your PV of FCFF of core operations $203,000. I got the figure $236,535. I cannot get $203,000.

Am I right to say debt is 4,327,475(short term) as 271,712(long term loan) should be excluded.

Thank you

Posted by houseofordos > 2013-12-23 08:07 | Report Abuse

bsngpg, it depends on what you put as This year FCF input. This is subjective. I choose to be more conservative and put in the average 6 years FCF in my computation rather than use latest FCF number

As per the computation, add excess cash and subtract debt and minority interest before arriving at FCF/share value.

Btw, CENBOND's numbers are actually based on 2013 annual report.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-12-23 12:18 | Report Abuse

Tan KW, I suggest you include houseofordos's 2014 portfolio for sharing.

Excellent and detailed analysis on Cenbond. Almost all angles were covered. Yes, Cenbond is a buy.

I suggest you start to share your analysis and portfolio for 2014.

Posted by houseofordos > 2013-12-23 12:52 | Report Abuse

KC, thanks for the feedback. Unfortunately, with a full time job, I do not have the time to create my portfolio by end of this year... however, if I do find good stocks, I will share them on this forum.

bsngpg

2,842 posts

Posted by bsngpg > 2013-12-23 13:50 | Report Abuse

Hi Housefordos : Would you mind to check if you have the same figure ? If I cannot regenerate your numbers, I am not fully understand the DCFA.

Base Yr 1;2;3;4;5;6;7;8;9;10;Terminal
FCF: 13,871; 14,565; 15,293; 16,057; 16,860; 17,703; 18,588; 19,518 ; 20,494; 21,518; 22,594; 332,460

PVFCF:-- 13,241;12,639;12,064; 11,516; 10,992; 10,493; 10,016; 9,561; 9,126; 8,711; 128,178;

PV of FCFF of core operations=236,535

Thank you

Posted by houseofordos > 2013-12-23 17:43 | Report Abuse

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

bsngpg

2,842 posts

Posted by bsngpg > 2013-12-23 22:56 | Report Abuse

Houseofordos : Thank you.

bsngpg

2,842 posts

Posted by bsngpg > 2013-12-24 07:05 | Report Abuse

Hi Houseofordos : Would you kindly help me to understand
1)what are :Investment properties $0 and Interest in associates $0

2) Where to get these 2 items in Annual Report if both are applicable ?

3) Should both be added or subtracted when applicable ?

4)Do you have any example?

Thank you very much.

Posted by houseofordos > 2013-12-24 09:04 | Report Abuse

bsnpg, I am not an expert but I think these 2 items can be found in the balance sheet. My understanding is that these 2 items are just added to PV of Free cashflow for the firm (FCFF) cause they are not the core segments of the business or just investments.

In first stage of DCF calculation, FCFF calculation only involves the FCF generated from core business which is Cash flow from operations minus capital expenditures. In order to get the FCFE (free cashflow to equity holders which is you) need to add back the present value of those investment items, excess cash and minus debt and minority interests.

Perhaps our FA guru KC Chong can explain in a more elegant way.

bsngpg

2,842 posts

Posted by bsngpg > 2013-12-24 09:57 | Report Abuse

Hi Houseofordos: thank you for the kind explanation.

I got FCF/share at RM2.40 too.
I knew how and where to get the raw data from AR. Mission was accomplished. Thanks. Will move to another counter to sharpen my understanding.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-12-24 10:08 | Report Abuse

Posted by houseofordos > Dec 24, 2013 09:04 AM | Report Abuse

bsnpg, I am not an expert but I think these 2 items can be found in the balance sheet. My understanding is that these 2 items are just added to PV of Free cashflow for the firm (FCFF) cause they are not the core segments of the business or just investments.

In first stage of DCF calculation, FCFF calculation only involves the FCF generated from core business which is Cash flow from operations minus capital expenditures. In order to get the FCFE (free cashflow to equity holders which is you) need to add back the present value of those investment items, excess cash and minus debt and minority interests.

Perhaps our FA guru KC Chong can explain in a more elegant way.


"I have nothing extra to add". Well done houseofordos.

bsngpg

2,842 posts

Posted by bsngpg > 2013-12-24 11:04 | Report Abuse

KC: thks.

miketyu

464 posts

Posted by miketyu > 2014-01-01 09:41 | Report Abuse

Mr kcchongz,

Would you regard Focus Lumber FLBHD as a hidden gem?

Expected full year EPS to be 14sen, ROE around 11%
Graham net net value gives 0.85.
It has cash of 54230 and total liability of 11469.
What attracts me is the clean balance sheet and increased dividend payout from 6 sen a year to 8 sen this year.
It will achieve better profit as strengthening of USD will increase the selling price of plywood product.

What is your view on this?

kcchongnz

6,684 posts

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

miketyu, this was my previous comments on FLB.

Posted by kcchongnz > Oct 31, 2013 06:49 PM | Report Abuse X

Is Focus Lumber a good company? Is it worth investing?

I have not studied those stocks before you mentioned here. But since you ask, I will try to look into one of them. I will give my opinion if this is a good company worthy of investing.

Focus Lumber Berhad is engaged in the manufacturing and sale of plywood, veneer and laminated veneer lumber (LVL), and investment holding. The Company mainly produce thin panel plywood, of which the thickness is below six millimeter (mm) and are capable of further processing by laminate factories. It also produce thick panel plywood ranging from 6 mm to 18 mm.

The business is cyclic in nature and it appears to be good this couple of years although there is sign that it is slowing down.

It's business has a high net profit margin of about 10% and provides a return of 14% (>12%) of invested capital. The quality of its earnings is good. Free cash flow is abundant at more than 10% of revenue (>>5%). It has plenty of cash, amounting to 57 sen per share with zero debt and hence a very safe company to invest in. The only shortcoming is its business is quite stagnant with not much growth.

At 81.5, its PE ratio is 7.3 (<10), EV/Ebit=3.0 (<8) and price-to-book of 0.7 (<1). So it is not expensive and hence may offer investors a good investment.

Ooi Teik Bee

11,023 posts

Posted by Ooi Teik Bee > 2014-01-01 14:33 | Report Abuse

Dear Miketyu,
Below is the IV calculation,

Year 2012
Stock name FLBHD
Sales 132803
Share price 1.19
No. of shares 103200
Market cap 122808
Net income 11600
Total Asset 131667
Equity 115877
Net profit margin (N.profit/sales) 8.73%
Asset turnover (sales/t.asset) 1.01
Financial leverage (Total asset/equity) 1.14
ROE 10.01%
Dividend payout 6192
Total capital 51600
ROIC - (N.profit-dividend)/total capital 10.48%
EPS 0.12
P/E 9.84
Total liability 15790
Cash & Securities 57537
Stock 18413
EV - (Mart cap + T.liability - Cash - Stock) 62648
EBIT 8384
EV/EBIT 7.47
Target price (EV/EBIT=8) 1.23
Current Price 1.19
Margin of Safety 3.48%
Potential gain 3.60%

In 2013, Projected ROE grows by 8%, my new target price for 2013 should be 1.23*8% = 1.33.

Thank you.
Ooi

miketyu

464 posts

Posted by miketyu > 2014-01-01 17:16 | Report Abuse

Thanks sifu Kcchongz and sifu OTB for the prompt reply.

May I ask few questions about the above valuations?

1.ROIC and CROIC should be > than what percentage to be considered investment grade stock? Should them be compared year by year or just looking at latest figure?
2. Should investment in properties and investment in associates included while computing figures for (Cash & Securities 57537) if they exist in balance sheet?

Really thousand thanks for your kind sharing.

Ooi Teik Bee

11,023 posts

Posted by Ooi Teik Bee > 2014-01-01 22:40 | Report Abuse

Dear Kcchongnz,

For year 2012, EV/EBIT = 8, it means the fair price for the stock in 2012. If there is a growth of 10% in ROE in 2013, can I assume the fair price of the stock in 2013, EV/EBIT in 2013 should be lower than EV/EBIT in 2012 ? It means the fair price in 2013 should be higher than 2012.
Please advise. Thank you.

kcchongnz

6,684 posts

Posted by kcchongnz > 2014-01-02 08:35 | Report Abuse

Two companies exactly doing the same business; one has a higher ROE should normally given a higher market valuation; ie EV/Ebit should be higher. This is because it is more efficient utilizing its assets.

Similarly if the same company has improved its ROE next year, then it should be selling at a higher EV/Ebit next year than this year. But there may be other factors, like market sentiment. Even if ROE is lower next year, it may sell at higher EV/Ebit if the market sentiment is so much better than this year, and vice versa. That is the beauty of investing. There are so many uncertainties. The future is unknown.

Be caution about ROE. The E can be deceptive. It can include one-time off non-recurring items and it often does. It can also be amplify by leverage, having more debts, and hence more risky. Hence I advocate the metric of ROIC, a little bit more work to compute.

sephiroth

14,110 posts

Posted by sephiroth > 2014-01-14 11:13 | Report Abuse

kcchongnz, need yr help to check on the fundamental of EUROSP, thanks a lot, quarterly rpt seems very good


Very low share base of 44.42m shares(price very easy to move)
Closing price RM0.69/NAV RM1.01
Cash RM17.87m or 40.25 sen per share
Borrowings RM3.4m or 7.72 sen per share
Receivables only RM2.233m

yesterday reported RM1.56m profit, seems pathetic, due to low share base, eps is a whopping 3.52 sen per share
1HFY14 profit RM3.12m or 7 sen per share
annualised 14 sen for full yr, at 69 sen, PE 4.92X

the improve results is also due to the strengtening of USD

kcchongnz

6,684 posts

Posted by kcchongnz > 2014-01-14 11:22 | Report Abuse

sephiroth, I have done an analysis of Eurospan and compared with other furniture companies as shown below for your information:

Posted by kcchongnz > Dec 9, 2013 11:24 AM | Report Abuse X

A month has passed since I wrote a comparison of three furniture companies in Bursa, they are Homeritz, Latitude and Lii Hen. I have stated my preference on Homeritz due to its high margins, efficiencies and reasonably priced as compared to others.

Since then Latitude has released its latest quarterly report on 30/9/2013. Its revenue and net profit for the first quarter 2014 jumped by 27% and 63% to 531m and 30m respectively. The market also reacted positively with its share price rises by a whopping 38% from RM1.31 to RM1.81 at the close on 8/12/13. What a windfall for shareholders of Latitude. Another furniture company, Poh Huat also rode on the wave and its share price increased by 25% from 73 sen to 91 sen. Not sure why was that so as Poh Huat’s financial results are not impressive at all. On the other hand, the share price of Homeritz and Lii Hen remain unchanged from the same period.

Let us review the comparison on investing in those furniture companies again with the updated results. Also included are another four more furniture companies; Hevea, Eurospan, Poh Huat and Tafi.

Market valuation
First we examine which has the cheapest market valuation of all the furniture companies here with their latest prices and their twelve months trailing financial results as at 8th December 2013 as shown in Table 1 below:

Table 1: Market valuations of furniture companies
Company Homeriz Lii Hen Latitude Eurospan Hevea Poh Huat Tafi
Price 0.575 1.650 1.810 0.510 0.950 0.910 0.270
PE Ratio 7.7 5.9 4.3 6.8 4.2 5.9 NA
EV/Ebit 4.3 3.4 3.7 3.3 7.1 4.2 NA
EV/Ebitda 3.9 2.8 2.7 3.0 3.6 3.1 5.4

All except Tafi were making good profit for the past one year. We will rule out Tafi as an investment option because of its losses. They are selling cheaply too as all PE ratios are single digit with the lowest at 4.2 for Hevea and Latitude. Homeritz appears to be the most expensive at 7.7. In term of enterprise value, Hevea appears to be the most expensive at EV 7.1 times it Ebit. This is mainly due to its heavier debt burden. For the rest, EV is not much different from each other and they are all in a very low and tight range of 3.3 to 4.3 Ebit and 2.8 to 3.9 times Ebitda. However, Lii Hen and Latitude appeared to be the preferred choice as far as market price is concerned. Let us look at their operation performance for the past one year to see which company is indeed a better investments.
Margins and efficiencies

Table 2 below shows the margins of the business of each furniture company.

Table 2: Margins of furniture companies
Margins Homeriz Lii Hen Latitude Eurospan Hevea Poh Huat Tafi
Gross Margin 45.0% 15.1% 15.3% 21.1% 13.4% 16.7% 14.5%
Operating Margin 18.3% 6.7% 9.1% 5.7% 7.0% 5.7% -1.6%
Net Profit Margin 15.9% 5.3% 7.4% 5.6% 5.5% 3.8% -0.3%

All furniture companies have low to moderate gross margin in the teens and operating and net profit margin in the higher single digits. The exception is Homeritz with each of its margin from double to triple of the rest. For example its gross margin is 45%, three times that of Laitude and Lii Hen. Net profit margin shows the same difference. Thanks to its niche which differs from others in its design and manufacture of upholstered home furniture. It also has its own brand Eritz. Homeritz high margin business has return on invested capital in ROE and ROIC of 21% and 30% respectively, outperformed the rest of the furniture companies by a wide gap as shown in Table 3 below.

Table 3: ROE and ROIC of furniture companies
xxxxx Homeriz Lii Hen Latitude Eurospan Hevea Poh Huat Tafi
Net profit margin 15.9% 5.3% 7.4% 5.6% 5.5% 3.8% -0.3%
Asset turnover 1.1 1.6 1.1 1.2 0.9 1.5 0.5
ROA 17.3% 8.6% 8.5% 6.5% 5.2% 5.7% -0.1%
Leverage 1.2 1.3 1.5 1.2 1.8 1.6 1.1
ROE 20.6% 11.4% 13.1% 7.8% 9.3% 9.3% -0.2%
ROIC 29.9% 14.5% 16.7% 11.5% 8.5% 9.8% 4.8%

Two other companies, Latitude and Lii Hen also garnered ROE and ROIC comfortably above the cost of capitals above 10%, while the rest are marginally acceptable with the exception of Tafi. Wondering why some people chose Tafi. They must have something we don’t know.

Conclusions
Taken all into considerations, I still favour Homeritz as the top pick in furniture company to invest in. Although it has a slight higher enterprise value over its ebit, its margins and operational efficiencies are way above the rest. My personal top three ranking of the market valuations is as follow based on their respective market price now:

1. Homeritz
2. Latitude
3. Lii Hen

So which furniture company do you favour as an investment?

KC Chong in Auckland (8/12/13)

Posted by jennylee1382 > 2014-01-14 21:18 | Report Abuse

kcchongnz, would you mind to check on the fundamental of properties stocks. Thank you very much

speakup

25,050 posts

Posted by speakup > 2014-01-14 22:46 | Report Abuse

SYMLIFE PE only 3.6! ROE 17! Price now RM1.03 vs NTA 1.99!

aaron69

11 posts

Posted by aaron69 > 2014-01-15 10:44 | Report Abuse

Kc,now that 2014 is here,how about starting a thread for gems of 2014?Appreciate all the info that you've given.Thanx!

kcchongnz

6,684 posts

Posted by kcchongnz > 2014-01-15 14:58 | Report Abuse

SymLife good?

posted by speakup > Jan 14, 2014 10:46 PM | Report Abuse
SYMLIFE PE only 3.6! ROE 17! Price now RM1.03 vs NTA 1.99!

Have been looking at some property stocks and most of them are undervalued, and with plenty of cash and very little debts. Read some of then here:

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/36493.jsp

But suddenly somebody mentioned about SymLife and I took a look. Gosh, what a big difference.

EPS of 8 sen as compared to its share price of RM1.03, nothing great. Please do not treat the sale of PPE as if it is part of the ordinary earnings as reported. It is deceiving. Looking at the cash flow from operations, negative for last two years, how? Some more need money for a lot of capital expenses, 40m last year, how?

That is why its balance sheet is getting worse each year with total debt increasing to 322m already last financial year, almost double of the previous year.

At 1.03, price is 13 times normalized earnings, same as total enterprise value against Ebit. Not cheap at all.

Why would I want to buy a property company with those kind of financials and price when there are so many much better ones and much cheaper?

Sorry, no good words from me on SymLife.

AyamTua

13,598 posts

Posted by AyamTua > 2014-02-18 22:52 | Report Abuse

kcchongnz - humbling myself before you, sir ... need your kind thoughts, ,opnions and views on

AHB Berhad (AHB - 7315)
NTA 9.6070 / current price: 0.235
Source: http://bonescythe.blogspot.com/2014/02/ahb-rewriting-glorious-episode.html
Credit: Bonescythe

Questions

1. Graham Net Net qualifier? something like Hexza, PMCorp? NTA: 9.6070
2. An Undervalue qualifier?
3. A potential turnaround? A baby Homeriz?

thank you, kcchongnz ... take your time no hurry .. thanks

bsngpg

2,842 posts

Posted by bsngpg > 2014-03-25 11:06 | Report Abuse

Hi KC Chong: would you mind to drop few lines on “Matrix”, a newly listed properties developer primarily in Seremban. Good eps, good div, good DPO(>40%), +ve cash flow, good ROE, at low cycle of the industry. Thks.

kcchongnz

6,684 posts

Posted by kcchongnz > 2014-03-25 12:12 | Report Abuse

bsngpg,
I have no idea of Matrix. I truly believe you are good enough to analyze yourself as shown by the metrics mentioned by you. You may also refer to the following link to confirm your analysis:

http://bursadummy.blogspot.co.nz/search/label/Matrix

This guy is good.

bsngpg

2,842 posts

Posted by bsngpg > 2014-03-25 12:16 | Report Abuse

KC Chong : Thank you.

chang0509

167 posts

Posted by chang0509 > 2014-06-06 13:43 | Report Abuse

Mr KC Chong, Parkson has dropped to such level. Can we buy more to average down the price? Or need to wait first

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