Posted by kcchongnz > 2013-12-08 12:43 | Report Abuse

Eric, that is correct.

Posted by Eric Wong > 2013-12-08 12:59 | Report Abuse

Based on 2013 Financial Reports:

1. ROE = 0.08/1.19 = 6.7% which is very low compared to 15%
2. Cash flow and FCF: CFFO = 66m; 1.5 times of gross profit 43m. CAPEX = 33.3m, that's make its FCF = 32.5m which more than 5% of revenue
3. PER = Price/EPS = 8.125 which still quite low
4. DY% = Dividend/Price = 1.5%; but last year DY% ~ 3%
5. NTA = 1.19 which is 1.8 times of current share price

Company mainly involved in manufacture SLR camera lens, HDD. Last year end, fire broke out at Klang plant and it affected their productions. Insurances claimed (only partial if not mistaken).

Posted by Eric Wong > 2013-12-08 13:04 | Report Abuse

kcchongz, what do think about Notion?

By the way, thanks for the guidance. :)

Posted by sephiroth > 2013-12-08 13:13 | Report Abuse

eric wong , notion's earnings is distorted by one off insurance claim of RM35.8m

Posted by Eric Wong > 2013-12-08 13:16 | Report Abuse

So, actually they're losing money this year, after we take out the insurance claim, right?

Posted by sephiroth > 2013-12-08 13:28 | Report Abuse

notion's fy13 core earnings of 15.5m is a pittance, if not supported by camera segment (now revenue falling 30% y-o-y, they will be down the drain (for eg jcy) HDD is history, smartphone and tablet RULES hence very profitable results from GTRONIC/INARI

Posted by Eric Wong > 2013-12-08 13:37 | Report Abuse

Yes, they're now only gain from camera segment. Probably monitor for another year to see how 1st. :) And let's see how their investment for Alcyone.

GTRONIC/INARI, riding hight now...:)

Posted by sephiroth > 2013-12-09 12:19 | Report Abuse

kcchongnz, need yr help to do a quick FA on property counter Keladi Maju(6769). Thanks a lot

cash rich RM143.32 m with no borrowings, positive CFFO for many quarters

Posted by kcchongnz > 2013-12-09 18:04 | Report Abuse

Posted by sephiroth > Dec 9, 2013 12:19 PM | Report Abuse
kcchongnz, need yr help to do a quick FA on property counter Keladi Maju(6769). Thanks a lot
cash rich RM143.32 m with no borrowings, positive CFFO for many quarter

LOOKING AT WHAT YOU MENTIONED ABOVE AND WHAT THE GENTLEMAN BELOW HAS ANALYZED, KELADI DOES SEEM TO BE A GOOD INVESTMENT AT 26 SEN NOW. IT MEETS MY FAVORITE MAGIC FORMULA; HIGH ROIC OF 19% WHICH IS MUCH HIGHER THAN THE COST OF CAPITAL, AND HIGH POTENTIAL RETURN AS SHOWN BY THE EARNINGS YIELD OF 26% (>15%).

HOWEVER ONE THING ABOUT PROPERTY COMPANY IS THAT IS THE EARNINGS CONSISTENT ESPECIALLY IN THE FUTURE? THIS I THINK YOU HAVE TO LOOK AT ITS LAND BANK AND FUTURE DEVELOPMENT. THERE ARE ALSO MANY OTHER GOOD PROPERTY COMPANIES TO INVEST. SO IS KELADI BETTER THAN OTHERS?

ANOTHER THING IS A GOOD COMPANY IS GOOD FOR LONG TERM INVESTMENT BUT BE WARY OF THE INSIDER/MAJOR SHAREHOLDER; IS HE A SHARE MANIPULATOR, IF SO THEN IT IS NOT GOOD FOR BUYING IT FOR SPECULATION. FOR EXAMPLE YOUR ANOTHER FAVORITE STOCK MARCO, INVESTING IN IT I THINK IS OK BECAUSE OF ITS REASONABLE DIVIDEND, BUT SPECULATORS FOR THIS STOCK DON'T END UP WELL BECAUSE I THINK THERE IS FREQUENT MANIPULATION OF STOCK PRICE BY A MAJOR SHAREHOLDER. I DON'T KNOW IF THIS MAJOR SHAREHOLDER OF MARCO THE SAME OF THAT KELADI. IF SO BETTER DON'T GAMBLE WITH HIM.

Posted by houseofordos > Jul 5, 2013 12:10 AM | Report Abuse
How about Keladi Maju ?
Property developer with projects mainly in Kedah as well as some business in palm oil upstream activities.

Based on 2013 annual report:-
• Earnings Yield = 26%
• ROIC = 19%

Using the magic formula, the effects of the one-off gains from re-measurement of associates recently were excluded and still showing good value ?

EV/EBIT=3.2
FCF/Rev = 15%
CFFO/NI=28%
Div yield = 1.9% (kind of poor)

Cash backing of RM0.16 per share
Net asset backing of RM0.32 per share

Looks like value buy for me ? Any comments ?

Posted by miketyu > 2013-12-09 19:13 | Report Abuse

If not mistaken Keladi Maju the shareholder is the same with Marco

Posted by Eric Wong > 2013-12-09 21:44 | Report Abuse

guys, how about this Brem since someone shared it in Blogs.

Brem, another property company and its details are written here:http://klse.i3investor.com/blogs/kianweiaritcles/43001.jsp

Based on 2013 Financial Reports:
1. ROE = 11% which less than 15%; all five years ranged from 6.5 to 14%
2. FCF = 48.5m , minus out with short term borrowing still got balanced of 38m? Or we have to consider non current liabilities?
3. PE = 5, still very low
4. DY% > 5%
5. NTA = 2.54 compared to current price 1.4.

Basically, high debts company, almost same kind as Cresbld if i'm not mistaken.

kcchongz, please correct me.

Posted by kcchongnz > 2013-12-10 07:48 | Report Abuse

Brem, what, another property company?

Posted by Eric Wong > Dec 9, 2013 09:44 PM | Report Abuse

guys, how about this Brem since someone shared it in Blogs.

Brem, another property company and its details are written here:http://klse.i3investor.com/blogs/kianweiaritcles/43001.jsp

Based on 2013 Financial Reports:
1. ROE = 11% which less than 15%; all five years ranged from 6.5 to 14%
2. FCF = 48.5m , minus out with short term borrowing still got balanced of 38m? Or we have to consider non current liabilities?
3. PE = 5, still very low
4. DY% > 5%
5. NTA = 2.54 compared to current price 1.4.

Basically, high debts company, almost same kind as Cresbld if i'm not mistaken.

kcchongz, please correct me.

I have not much knowledge about Brem, especially its concession in PNG and hence dare not venture in this company. Moreover, I have enough property companies for me to chew.

But just comment on your numbers here. Not sure how you get your numbers. Can you show how you get them? My calculation based on the same March 2013 results show totally different figure from yours.

1)ROE=22443/466596=4.8%
2)There wasn't any CFFO for 2013, how did you get your FCF? FCF=CFFO-capital expenses, nothing to do with borrowings
3) How did you get your PE of 5? EPS is 13.2 sen and price now is 1.4?

Posted by Eric Wong > 2013-12-10 11:59 | Report Abuse

Based on 2013 Financial Reports:
1. ROE = 0.28/2.54 = 11% which less than 15%; all five years ranged from 6.5 to 14%
2. FCF = Net cash from operation (49446806) - purchase of PPE and investment properties (659425 + 214730) =48.5m , minus out with short term borrowing still got balanced of 38m? Or we have to consider non current liabilities?
3. PE = 14./0.28 = 5, still very low (1.4 is the latest price on 9/12/12)
4. DY% > 5%
5. NTA = 2.54 compared to current price 1.4.

Dear kcchongz, please enlighten.

Posted by houseofordos > 2013-12-10 12:56 | Report Abuse

Eric, KC is using 2013 annual results, you are using trailing 12 months results perhaps...

FCF = Net cash from operations - PPE.
Whether investment properties should consider PPE is subjective depend on company's business.
We dont subtract borrowings to determine FCF. We just see if there is enough FCF to cover the debt payments/dividend payments. This should be under cashflow for financing activities.

A good reference on understanding financial statement can be found here.
http://www.oldschoolvalue.com/blog/financial-statement-analysis/

Posted by kcchongnz > 2013-12-10 13:01 | Report Abuse

Eric, what I see is the earnings per share of 13.2 sen. I don't know where you get 28 sen.

The cash flow statement of the audited account is so different from the unaudited account. From the audited account, I see CFFO of 37.6m but it was a negative of 39m in the original unaudited account.

In the audited account, I don't understand items like "Reversal of impairment losses on investment in associates" and "operating financial assets" as part of CFFO. It looks messy to me.

Posted by Eric Wong > 2013-12-10 13:09 | Report Abuse

Sorry, i made mistake. The EPS is 13.2 sen, the 28 sen i just extract directly from the financial report but it has * mark beside which mean they based on weighted average number of ordinary shares.

If we refer to audited acc? You're using net operation cash flow for CFFO. Ok, i get it. Anyhow, if it look messy, i will try other ctrs. Just to make myself more familiar with these items.

Thanks again.

Posted by Eric Wong > 2013-12-10 13:10 | Report Abuse

#houseofordos, thanks for pointing out my mistake and also your sharing.

Posted by houseofordos > 2013-12-10 14:03 | Report Abuse

Eric no problem.. we are all learning from each other

Posted by TeckChuan Lee > 2013-12-10 15:54 | Report Abuse

Dear all,

Have you all came across ECS ICT BHD?

From my findings its doing quite okay, although a very young ICT company.

1. Free cash flow
2. ROIC 25%
3. ROA 9%
4. ROE 16%
5. EV/Ebit 3
6. Earning Yield 34%
7. P/B 1

What you guys think about this company?

Posted by Eric Wong > 2013-12-10 19:25 | Report Abuse

This ECS is one of the company recommended by coldeye. But i not yet look into it in details.

Posted by Eric Wong > 2013-12-10 23:58 | Report Abuse

kcchongz also used Coldeye's 5 yardsticks for this stock:
http://klse.i3investor.com/servlets/forum/900214344.jsp?ftp=1

Posted by TeckChuan Lee > 2013-12-11 00:34 | Report Abuse

THANK YOU ERIC.

HAVE YOU LOOKED AT JCY? ANOTHER TECH COMPANY WHICH IS CHEAP AND DOING OKAY....

Posted by Eric Wong > 2013-12-11 00:38 | Report Abuse

Actually, i put JCY and Notion in my monitoring list recently. Wow, so late already, not yet sleep? :)

Posted by Eric Wong > 2013-12-11 00:48 | Report Abuse

By the way, ur sifu kcchongz missed u :)

Nov 30, 2013 11:14 AM | Report Abuse

Just spotted this post.

Posted by sephiroth > Nov 10, 2013 09:57 AM | Report Abuse

Teck Chuan Lee spotted this hidden gem 4 months ago but stop posting since sept. He might be a student of kcchongnz. His FA counters include Luxchem/FPI/SUPER/SEAL/FLBHD (Star performer, he spotted at price 0.72)/EKSONS. The other counter might be zzzz now but eventually will wake up

When Teck Chuan emailed me about wanting to learn FA, he knew nothing about investment. He is a lorry salesman as he told me. However, after getting my spreadsheet, he made use of it and keeps on practice doing financial statement analysis. He emailed me directly and asked me a lot of questions, initially very simple questions, very persistently, to the point I was like telling him off, that he should post in in i3 so that others can discuss and all of us can learn from each other.

Yes, he becomes very good in FA now through learning and practising. Yes Sephiroth has testimony that Teik Chuan has on his own, has discovered many good companies to invest in at good prices. I even got some ideas from him like Homeritz, Scicom etc. Very happy about this good learner.

Just wondering where is he now?

Posted by TeckChuan Lee > 2013-12-11 00:59 | 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

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?

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?

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

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?

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?

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.

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.

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?

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

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?

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.

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.

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.

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.