Posted by kcchongnz > 2013-04-07 08:45 | Report Abuse

Value investors purchase stocks at relatively low prices, as indicated by low price-to-earnings (P/E), price-to-book (P/B), and price-to-sales (P/S) ratios, and high dividend yields (DY). Investing for "growth" results in just the opposite -- high P/E, P/B, and P/S ratios, and low DY. There are valid reasons why investors are willing to pay a higher price for growth stocks. A firm with a higher growth will grow its earnings at an accelerated rate compared to a low growth firm. Assuming a firm A earns 10 sen a share a year now and it pays no dividend, with all its earnings reinvested into the business with the same return. Assuming its earnings grows at 10% a year. In 5 years time, its EPS will grow to 16 sen (10*(1+10%)^5). If the growth rate is 30%, EPS after 5 years will be 37 sen, more than double that of the growth at 10%. Table 1 below shows the EPS at different growth rate. Table 1: Earnings growth rates Earnings growth 5% 10% 15% 20% 30% EPS in 5 years $0.13 $0.16 $0.20 $0.25 $0.37 So shouldn’t a stock with higher expected growth rate sell at a higher valuation, and how much should it be? This brings us to the concept that “The value of a firm is the sum of expected future cash flows generated by the firm discounted to the present value”. Assuming stock A above is selling at $1.00 and hence at a PE ratio of 10. Let’s say my required return investing in A is 10%. In 5 years time A’s EPS grows to 16 sen. Further assume that A is still selling at a PE of 10 in 5 years time, or $1.60. The present value of this future cash flow is also $1 (1.6/(1+10%)^5). So if you have bought the share at $1, you are paying a fair price. If you pay 1.50 for the stock now, or at a PE of 15, you are paying a high price; but you pay 50 sen for it, or at a PE of 5, you got a real bargain. Now let us look at a stock B with present EPS of 10 sen also but a high expected growth rate of earnings of 20%. Its EPS will grow to 25 sen in 5 years time. Assuming you pay a higher price at $2 to buy B now, or a PE of 20 and after 5 years, it is still selling at a PE of 20, the price then will be $5.00 (20*0.25). If you discount this price at 10% back to the present value, it is $3.10, more than 50% above the price you pay. You got a great deal even if you pay a higher price of PE of 20 for a stock B growing at 20% for the next 5 years. Table 2 below shows the effect of growth rate and PE ratios on the fair prices of stocks. Table 2: Effect of growth and PE ratio on stock prices Earnings Growth PER $1.00 5.0 10 15 20 25 30 5.0% $0.40 $0.79 $1.19 $1.58 $1.98 $2.38 10.0% $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 15.0% $0.62 $1.25 $1.87 $2.50 $3.12 $3.75 20.0% $0.77 $1.55 $2.32 $3.09 $3.86 $4.64 25.0% $0.95 $1.89 $2.84 $3.79 $4.74 $5.68 30.0% $1.15 $2.31 $3.46 $4.61 $5.76 $6.92 We have seen that it is justified to pay a higher price for stock B which has a higher growth than A. If investors see the consistency of the growth in B, they may be willing to pay a higher valuation for it 5 years later. As shown from Table 2, if the rate of growth is maintained at 20%, and valuation expanded to a PE of 30, the present value of stock B is worth $4.64. The problem is the “growth” we are talking about is the future expected growth, a forecast figure which is not easy to predict. The growth estimate, especially those with very high rates often do not last long enough to justify the high PE. In the case of stock B, if the forecast growth rate is lower than expected, say at 10%, instead of 20%, and that the PE ratio contracted to 15 as a result, investors who have paid $2.00 initially, would have its present value dropped to $1.50 after 5 years as shown in Table 2. So there is a price to pay for growth. Paying a fair price for growth expectation may earn an extra-ordinary return for investors; but paying too much for growth is detrimental to the return of investment. Of course the best thing to do for investor is paying a good price for a growth stock. Do you have some stocks in mind to share? KC Chong (7/4/2013)

4 people like this.

123 comment(s). Last comment by necro 2013-05-09 11:55

Frank Soweto

3,425 posts

Posted by Frank Soweto > 2013-04-07 09:14 | Report Abuse

ah this KC just like the other KC (loh) always willing to share good investment ideas :) Assets for i3 :)

yfchong

5,793 posts

Posted by yfchong > 2013-04-07 09:22 | Report Abuse

Great sifu have no boundaries of teaching it just want people to understand and make practices........

zuliana

5,395 posts

Posted by zuliana > 2013-04-07 09:43 | Report Abuse

WOW, Frank Soweto already becoming Grandpa, still have stamina for punting stocks. Tabik hormat pada Datuk Frank.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-07 12:13 | Report Abuse

SKP Resources, A growth stock

SKPR’s revenue and earnings has been growing at a compounded annual growth rate of 20% and 18% respectively for the last 5 years as shown in the table below.

Year 2012 2011 2010 2009 2008 2007 CAGR
Revenue 414834 256996 195735 174729 178341 170066 20%
EBIT 48200 30981 17552 5307 22323 19811 19%
NI 36844 26245 13404 2931 18294 15997 18%
EPS 0.061 0.044 0.022 0.005 0.030 0.027 18%
Equity 179936 158059 140797 130386 129561 113792 10%

TA and OSK forecasted that its revenue and earnings will continue to grow at an average of 16.7% and 19.4% a year respectively for the next three years. SKPR is hence considered as a growth stock with growth rate more than 15% a year. However at a closing share price of 31.5 sen on 5th April 2013, SKPR is trading at a very low PE ratio of 5.1 (<<10), PEG of 0.3 (<<1), a P/B of 1.2 (<1.5), and a dividend yield of 9.8% (>>3.5%). Hence SKPR is not only a growth stock, it is also a value stock in every aspect.

A high growth stock has a major concern; that is if the growth adds value to the firm. Growth is considered shareholder value enhancing if the growth in earnings exceeds the weighted average cost of capital of the firm. With a return of total capital of 20.5% last year, it has clearly demonstrated that the growth is shareholder value enhancing.

So is SKPR a free lunch for investors; one with high growth and yet selling at a very cheap price?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-07 13:34 | Report Abuse

TKW,
I am intrigued by your "Graham Number Stock Price". The number of 22.5, ie basing on a maximum PE of 15 and a P/B of 1.5, is a great number to check if you are paying too much for a growth stock.

However, for the opposing investing strategy, ie in value investing,or purchase stocks at relatively low prices, as indicated by low price-to-earnings, and price-to-book, which is more of my personal investing style, I demand a much lower Graham Number Stock Price. The number I demand is based on a maximum PE ratio of 10 and a P/B value of 1.2. Hence the Graham number I demand for value investing is a maximum of 12 which is about half of the 22.5 you mentioned.

It is really not too high a demand from the stocks in Bursa at this moment. for example, you have computed Graham Number of SKPR at 6.2 only. Hence SKPR also fully qualified as a value stock in my category.

I have other requirements in value investing. For one although it is a value stock, I still require a minimum growth of 5%. I also want to ensure that the quality of earnings is good, ie earnings is supported by cash flow. Lastly it should not have too much debt, ie debt/Capital<60%.

necro

4,726 posts

Posted by necro > 2013-04-07 14:16 | Report Abuse

SEALINK

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-07 17:22 | Report Abuse

Tan KW, I saw this from your link: 麻坡万利
Is Muar Ban Lee a growth stock? Absolutely!!

Year 2012 2011 2010 2009 CAGR
Revenue 78799 55062 44085 25417 46%
EBIT 17121 12397 7964 8878 24%
Net Income 17096 12190 7216 8624 26%

MBL's revenue and net income grew at a fantastic rate of 46% and 26% a year respectively for the last 4 years. Is its price at 1.02 today too demanding as a fast growing stock? Not at all.

The Graham Number is PE*P/B=5.5*1.1=6.0 (<<22.5).

Its PEG is 5.5/40=0.14 (<<1)

Further it has no debts and ROE is 20.8% (>>15%). Its quality of earnings is also very high with plenty of cash flow and free cash flow.

Hence MBL is a high growth stock but at the same time satisfies all my requirements as a value stock.

gark

924 posts

Posted by gark > 2013-04-07 21:26 | Report Abuse

Kc you bad boy... all your posting on mbl here make the stock so high already, no chance for me to buy more. Bad bad..... :-P

Frank Soweto

3,425 posts

Posted by Frank Soweto > 2013-04-08 02:48 | Report Abuse

haha Zuliana :) not good in TA or FA so have to learn from the sifu and good people here who take their valuable time to explain after doing extensive research so must show appreciation for those who help :) now a little busy with politics of GE and hope my fellow malaysians realise this is a very good opportunity to change for the better of the country with more transparancy of governing thru Pakatan :) From your previous comments posted you are already one of the smarter one so many Cheers to you :)

Ooi Teik Bee

11,167 posts

Posted by Ooi Teik Bee > 2013-04-08 07:51 | Report Abuse

Dear Kcchongnz,

The Graham Number is PE*P/B=5.5*1.1=6.0 (<<22.5).

Its PEG is 5.5/40=0.14 (<<1)

I have a few questions here,

1. How to get P/B ? is it price/NTA ?

2. What is PEG ?

Please enlighten me.

Thank you.

Ooi

tptan45

388 posts

Posted by tptan45 > 2013-04-08 08:15 | Report Abuse

PEG is PE/growth.
To put growth at 40% is probably unsafe.
I like to cap it at 25

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-08 11:16 | Report Abuse

gark, you know lah in value investing, you have an intrinsic value of your own for MBL. If the price is way below your intrinsic value, what would you do? Would you kira one two sen difference?

For me you know lah, I have to promote my share mah, so that I can sell you high. I got hidden agenda mah!

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-08 11:24 | Report Abuse

OTB, PEG is what explained by tptan45. I think it was popularized by Kenneth Fisher, son of Philip Fisher. The idea is not to overpay for growth, or PEG<1. Good to cap it like what tptan45 does. I personally seldom use it may be because I am not fan of high growth expectation. But it is intuitive.

P/B is the price to book ratio. Can be the same as your P/NTA, NTA excludes intangible and goodwill.

Graham Number introduced by TKW is new to me but make sense.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-08 11:38 | Report Abuse

TKW kind enough to introduce that to i3 site.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-08 11:51 | Report Abuse

Tan KW, I am no guru man. I just like to share finance and investment and hope get feedback which improve my knowledge. No, I got no tip. I don't think I ever give tips. I am bad at it.

Posted by houseofordos > 2013-04-08 13:07 | Report Abuse

KC, what do you think about CRESBLD ? This stock looks undervalued to me.. KENANGA has a TP of RM1.35 for this stock. Havent done a detailed study, but a quick check on latest results :-

ROE 12.7077
P/E 3.25
EPS 29.2277
DPS 4.97
DY 5.23%
PTBV 0.4130
Market Cap 130M

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-08 13:47 | Report Abuse

house Cresbld looks attractive from your statistics. My intention of this thread is about a growth stock trading at a reasonable price. Criteria are:

1) Profit growth >15%
2) Revenue growth >10%

But at reasonable price
1) PE<15
2) PEG<1

And good quality of growth
1) ROC > WACC
2) ROE> 12%

Or a value stock
1) PE< 10
2) P/B <1
3) DY > 3%

But not a dead wood
1) revenue and profit growth >5%

And not going to bankrupt
1) D/C <60%

Not cheating on earnings,
1) good quality earnings in terms of good cash flow

Can share with us how Crebld fits into one of these two?

tptan45

388 posts

Posted by tptan45 > 2013-04-08 16:11 | Report Abuse

for Cresbld, EPS (TTM) vs TTM 1 year ago= -46.72

Posted by houseofordos > 2013-04-08 16:26 | Report Abuse

tptan, where did u find this info ? Based on their 4Q report, FY12 EPS is 30.6sen vs FY11 EPS of 24.6sen

tptan45

388 posts

Posted by tptan45 > 2013-04-08 16:43 | Report Abuse

ttm = trailing 12 months.
Financial times.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-08 16:51 | Report Abuse

Is TSH a fantastic growth stock to invest in?

I still remember I read about recommendations of Philip Capital strongly recommending to buy TSH a couple of years ago. “Growth of 25% for the next 15 years” or something like that. Many investment banks like AMMB etc also recommending TSH because of its expected double digit growth. So is TSH really that fantastic as an investment? Let’s look at its past performance:

Year 2012 2011 2010 2009 2008 2007 2006 CAGR
Revenue 983680 1134203 909660 988662 1109941 861542 624652 8%
EBIT 111728 167357 115422 89342 100636 116949 73640 7%
Net Income 84375 129529 91737 63755 85069 109832 73244 3%

Does it look like TSH is a growth stock? Of course if you follow what the investment bankers forecasts. Let’s check its other metrics.

PE ratio is 24. Oh yeah really a PE ratio for a growth stock.
D/C is 50%, very high.
ROTC is 4.8%. Even lower than cost of debt, not to saying the WACC! ROE is 8.5% achieved with huge and increasing debt.

Do you want to buy TSH as a growth stock investment? Or as a value stock? Tell me.

tptan45

388 posts

Posted by tptan45 > 2013-04-08 16:54 | Report Abuse

what is TSH?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-08 16:56 | Report Abuse

TSH Resources, a darling plantation stock for most analysts.

Posted by houseofordos > 2013-04-08 17:01 | Report Abuse

tptan, what s the diff between EPS(TTM) and the EPS reported in the Q42012 report ? The website you quote shows EPS (TTM) of 13 sen while the Q4 report shows 30.6sen... i guess the website may not have been updated with the latest quarterly data.. dont know...

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-08 17:14 | Report Abuse

tptan45, I guess you got the outdated information from the website. The final year end result as at 31/12/2012 shows Crest Bulder's revenue and earnings are 685m and 40m respectively (that is also the ttm result for 2012) compared to 500m and 30.4 m for year ended 31/12/2011.

gark

924 posts

Posted by gark > 2013-04-08 17:29 | Report Abuse

TSH is banking on it huge unplanted landbank >100k ha.. hence written as growth over the next 10 years. Even with existing landbank, they plant 10k ha a year also enough for 10 years of sustained planting. But look out for their massive debt...The growth potential already reflected in the high PE value..

Instead of TSH, you might want to take a look at First Res, a relative unknown plantation share but with explosive growth potential like TSH.

Kc wanna do an analysis for it.. thinking of buying.. :P

Posted by khalil992418 > 2013-04-08 17:45 | Report Abuse

BIMB is better....

tptan45

388 posts

Posted by tptan45 > 2013-04-08 19:18 | Report Abuse

How embarrassing. I suppose I made a mistake. Was in too much of a hurry. Sorry guys.

tptan45

388 posts

Posted by tptan45 > 2013-04-08 23:26 | Report Abuse

Key Results Highlights QoQ, 4Q12 pretax profit grew tremendously by >100% to RM28.7m, largely due to the fair value gains of RM20.0m arising from revaluation of its investment properties i.e. The Crest office tower, car park lots and two other shop units located in Taman Megah and Sentul.
The above from kenanga regarding crest builder.
Does it mean that without the revaluation its profit was only 8.7 m for that q?
Was that revaluation a one time thing?
If it was, then we should take it out and focus on profits from operations.
Then its fy 12 profit would be down to 27 m, as compared to 37 m for fy 11.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-09 05:51 | Report Abuse

tptan45, you are absolutely right on all your comments above. I could see this things from their cash flow statement.

Just a glance at its financial statement ended 31/12/2012, I feel uncomfortable about investing in this company. The income statement lumps everything into revenue and profit, which includes that revaluation of its investment properties. This is inappropriate in my opinion. This stuff has to be specially separated as revaluation gain, or extra-ordinary gain or whatever, after the "profit from operations", and should not be classified as "other operating gain". How can a revaluation of assets be classified as "operating gain"? How can this gain be lumped together in earnings per share? Hiding the fact in the explanatory notes is irresponsible.

Financial Auditors: GEP Associates (2011). Who the hell is this?

I view it as a financial shenanigan. I may not be qualified to say so as I am no accountant. But I will definitely avoid this stock. There are so many to choose from Bursa.

Posted by houseofordos > 2013-04-09 08:06 | Report Abuse

Wow guys thanks for the comments. I learnt something new.

arebear

86 posts

Posted by arebear > 2013-04-09 08:28 | Report Abuse

No one touch PRLEXUS?

tptan45

388 posts

Posted by tptan45 > 2013-04-09 08:46 | Report Abuse

I thought kcchongnz wanted to have a look at it a few months back.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-09 17:22 | Report Abuse

Prolexus A growth stock?

The table below shows the 6 years revenue and earnings of Prolexus for the financial years ending 30th June. It doesn’t show that it is a high growth company in terms of revenue. It made losses in 2006 through 2008. However, after the disposal of some loss making investment in 2008, Prolexus made a turnaround. Its revenue grew at a CAGR of 8% from 2009 to 2012. Its EBIT surged by 45% a year for the three years from 2009 to 2012. The growth in EBIT and net income last year was 90% and 80% respectively. That would qualify Prolexus as a high growth company. Thanks to the growth in its garment manufacturing.

Year 2012 2011 2010 2009 2008 2007 2006
Revenue 189498 184464 136875 149998 166774 181527 174840
EBIT 11213 5886 6601 3694 -149 -2958 -1066
Net Income 10568 4906 3403 262 -2892 -5869 -1976

Prolexus closed at 1.33 on 9th April 2013. With a EPS of 28 sen per share, the PE ratio is about 5 (<<10), PEG is also very low at 0.2(<<1), a P/B of 0.9 (<1.5), and a dividend yield of 2.3%. Hence Prolexus is not only a growth stock, it is also a value stock in every aspect.

A high growth stock has a major concern; that is if the growth adds value to the firm. Growth is considered shareholder value enhancing if the growth in earnings exceeds the weighted average cost of capital of the firm. With a return of total capital of 15.2% and ROE of 16.2% last year, it has clearly demonstrated that the growth is shareholder value enhancing.

For the half year ending 31/12/2012, Prolexus has already made a net profit of 22.3 sen per share, 64% more than the same period the previous year.

So is Prolexus a free lunch for investors; one with high growth and yet selling at a very cheap price?

Posted by faberlicious > 2013-04-12 07:58 | Report Abuse

dear mr kcchongnz,

i'm newbie on i3. Since u mention Prlexus,i would appreciate it if u could do a similar thing with Magni(stock code 7087). Thanks in advance.

seedarren

12 posts

Posted by seedarren > 2013-04-13 14:30 | Report Abuse

How about Mudajya?

Year 2012 2011 2010 2009 2008 2007 2006 2005 2004
Revenue 1655722 1347059 870428 719971 422382 273981 285933 293113 385139
Net Profit 237104 231032 215553 119180 45117 30140 16255 14724 26679
Equity 1103833 1007725 760988 422840 304132 253862 164187 153152 144195
ROE 23.53 30.36 50.98 39.19 17.77 18.36 10.61 10.21

Growth Analysis(2004 to 2012)
=============================
Revenue CAGR = 20%
Net Profit CAGR = 31.40%
Equity CAGR = 28.97

Stock Analysis
==============
Curr Price = 2.56
PER = 5.94
Div Yield = 2.54
P/Book Ratio = 1.26
Graham Number = 7.50
PEG = 0.19

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-14 09:43 | Report Abuse

Magni-tech Industry, a growth stock?

Magni’s main business is somewhat similar to Prolexus in garment manufacturing. The table below shows the 6 years revenue and earnings of Magni for the financial years ending 30th April.

Year 2012 2011 2010 2009 2008 2007 2006 CAGR
Revenue 534123 443657 376717 388094 339658 201000 93058 34%
EBIT 41419 23774 22114 16096 13521 7588 2479 60%
Net Income 30637 17259 16495 11539 10157 4321 1169 72%

Isn’t it obvious that Magni is a high growth company?

Magni closed at 1.55 on 12th April 2013. With a ttm EPS of 32.2 sen per share, the PE ratio is just 4.8 (<<10). P/B is also low at 0.8 (<1.5), and a good dividend yield of 4%. The quality of its earnings is good. CFFO of 34.8m last year amounts to 114% of its NI of 30.6m. FCF amounts to 30.5m, 6% of its revenue. Hence Magni is not only a growth stock, it is also a value stock in every aspect.

A high growth stock has a major concern; that is if the growth adds value to the firm. Growth is considered shareholder value enhancing if the growth in earnings exceeds the weighted average cost of capital of the firm. With a return of invested capital of 26% and ROE of 17%, it has clearly demonstrated that the growth is shareholder value enhancing.

So is Magni a free lunch for investors; one with high growth and yet selling at a very cheap price? Can the old fashion garment manufacturing industry continues to grow with good return of capital? How do you compare with Prolexus? Which one would you prefer?

pohbc

2 posts

Posted by pohbc > 2013-04-14 20:29 | Report Abuse

@kcchongnz, I am a newbie to value investing. I gained a lot of distinctions from your postings. I hope to learn more from you in the future.

Can you elaborate on how to determine quality of earnings with respect to cash flow (operating cash flow, free cash flow, CAPEX)?

Posted by Ahmad Sheehan Shuib > 2013-04-14 21:01 | Report Abuse

example CBIP (machinery)
ben graham criteria fulfilled regarding 6/6/15

P/E is about 3
debt/cap: 3
roe about 50
and it gives decent div to..
this want is good quality stock.

Posted by faberlicious > 2013-04-15 08:01 | Report Abuse

thanks kcchongnz for that detailed look at Magni.So come Monday i just jump in head first n buy it bcoz its cheap n will not make me "pok kai" or go to Holland ! :D

Posted by faberlicious > 2013-04-15 08:05 | Report Abuse

btw kcchongnz,I'm big fan of yours.Follow your posting daily.

Posted by houseofordos > 2013-04-15 08:18 | Report Abuse

KC, did you have a chance to look at Willow ?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-15 12:41 | Report Abuse

Earnings and cash flows for Magni-tech Industry

As Magni has no or little debts, and negligible minority interest, and moreover, its cash flows and free cash flows are stable throughout the years, it is a good example to illustrate earnings and cash flows of a company. The table below shows the per share earnings and cash flows of Magni from 2008 to 2012.

Year 2012 2011 2010 2009 2008 Total
Earnings per share, RM 0.282 0.167 0.159 0.111 0.098 0.818
CFFO 0.321 0.086 0.129 0.216 0.286 1.038
FCF 0.282 0.035 0.058 0.191 0.226 0.792
Dividend+∂Book value 0.275 0.159 0.184 0.116 0.113 0.848

Magni’s EPS grows by 30% from 9.8 sen in 2008 to 28.2 sen last financial year. The total EPS for the 5 years is 81.8 sen. The total CFFO, i.e. the actual hard cash received in the 5 years was RM1.038, 22 sen more than EPS. This is the good quality of earnings I am talking about, i.e. the earnings is translated into hard cash. The main reason is each year there is this depreciation and amortization which is non cash, but is a form of accounting cost which reduces earnings. However sometimes EPS can be less than CFFO because earnings is not realized in hard cash; debtors owe the company money; sometimes the company may have booked this “earnings” but clients may dispute it. Some companies even book doggy “earnings” like what the infamous Enron did and many companies are doing now. Often company may have to build up its inventories and hence earnings is hidden there with more inventories, but not hard cash. Too much receivables and inventories build up causes CFFO less than earnings; and too much the gap means poor quality of earnings.

To maintain its competitiveness and growth, company got to spend money for capital expenses. After doing that, the money left behind is the FCF; cash which a company can use to distribute dividend, pay down its debts, make some investments and buy back shares. With capex, company then only can maintain its earnings and grow it earnings. There is why you can see earnings of Magni keeps on growing because of the capital expenses. However, each ringgit spent in capex may not grow as much earnings. Even without growth, company still have to spend money on maintenance capex like buying new machinery to replace old ones etc.
Hence according to Warren Buffet, the more important thing about a company is its ability to produce increasing “owner’s earnings”, or FCF, which Warren Buffet defines as:

"These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges...less (c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume”

In Magni’s case, the total Owner’s earnings for the last 5 years is 79.2 sen as shown in the table, slightly less than the total earnings.
The last line in the table shows the sum of dividend plus the change in book value per share of Magni of a total of 84.8 sen for the last 5 years. This according to the presenter of the video in the following link, is a more appropriate measure for return for an investor.

http://klse.i3investor.com/blogs/kianweiaritcles/26972.jsp

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-15 17:38 | Report Abuse

house, you seem to be very interested in Willow. I promise I will write something about it, very soon. But before that, let me cite a poem translated from Chinese, just to add some spice to the boring market.

When wind blows, the branch of willow tree sways.
Big branch sways, small branch sways, every branch sways.

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-15 18:16 | Report Abuse

Is Willowglen MSC Bhd a growth stock?

Willow is engaged in the research, development and supply of computer-based control systems. Its supervisory control and data acquisition (SCADA) system is used in security monitoring, building management and environmental control systems. The following table shows the financial performance of Willow from 2005 to 2012.

Year 2012 2011 2010 2009 2008 2007 2006 2005
Revenue 000 83427 52160 54470 62001 51157 51937 39445 36359
NI, 000 15231 8381 9312 12614 8061 8238 8055 4341
EPS, sen 6.2 3.4 3.8 5.1 3.3 3.3 3.2 1.8
DPS, sen 3.0 2.5 3.0 3.0 2.0 2.0 1.0 0.0

The revenue and earnings of Willow is relatively flat from 2006 to 2011, and hence is hardly a growth stock. The spike of revenue and earnings happened last year when revenue and earnings rose by 60% and 81% respectively. Is it the beginning of the high growth of Willow? It does seem so in view of the many contracts secured by Willow recently. Is Willow a value stock?

Willow closed at 41.5 sen on 15th April 2013. With a EPS of 6.2 sen per share, the PE ratio is just 6.7 (<10). P/B is also low at 1.4 (<1.5) is reasonable for an asset light technology stock. The dividend yield of 7.2% is very attractive to income investors. The quality of its earnings is reasonably good with positive CFFO and FCF every year as shown in the table below.

Year 2012 2011 2010 2009 2008 2007 2006 Average
CFFO 1623 5304 15065 8736 15309 5204 1759 7571
Capital expenses -1006 -381 -458 -2541 -1107 -3715 -989 -1457
Free cash flows 617 4923 14607 6195 14202 1489 770 6115
FCF/Revenue 0.7% 9.4% 26.8% 10.0% 27.8% 2.9% 2.0% 11.4%
FCF/IC 1.6% 21.5% 61.0% 22.0% 63.3% 5.1% 3.5% 25.4%

Average FCF is very good at 11.4% and 25.4% of revenue and invested capital. Willow also has a squeaky clean balance sheet with no debts at all.

A high growth stock has a major concern; that is if the growth adds value to the firm. Growth is considered shareholder value enhancing if the growth in earnings exceeds the weighted average cost of capital of the firm. With a return on invested capital of 41% and ROE of 21% last year, it has clearly demonstrated that any growth of Willow is shareholder value enhancing.

So how much you think the share price of Willow should worth? I hope to have some inputs here.

Posted by faberlicious > 2013-04-17 07:49 | Report Abuse

If u give it a PE of 8 times ,Willow being a smallcap stock could be worth about 49 sens.

Posted by faberlicious > 2013-04-17 07:58 | Report Abuse

kc I own Willow shares bought sometime last year when it was trading around 30 sens!. I was attracted by its 10 % yield. Still at 41.5 the yield is good at 7.2%. Besides that,it has yet to announce the ex date for 2012 final div. of 3 sens.

Posted by faberlicious > 2013-04-17 08:01 | Report Abuse

KC,when u r free please take a look at Deleum(5132) another value growth stock?

kcchongnz

6,684 posts

Posted by kcchongnz > 2013-04-17 18:47 | Report Abuse

Posted by seedarren > Apr 13, 2013 02:30 PM | Report Abuse
How about Mudajya?
Year 2012 2011 2010 2009 2008 2007 2006 2005 2004
Revenue 1655722 1347059 870428 719971 422382 273981 285933 293113 385139
Net Profit 237104 231032 215553 119180 45117 30140 16255 14724 26679
Equity 1103833 1007725 760988 422840 304132 253862 164187 153152 144195
ROE 23.53 30.36 50.98 39.19 17.77 18.36 10.61 10.21
Growth Analysis(2004 to 2012)
=============================
Revenue CAGR = 20%
Net Profit CAGR = 31.40%
Equity CAGR = 28.97

Stock Analysis
==============
Curr Price = 2.56
PER = 5.94
Div Yield = 2.54
P/Book Ratio = 1.26
Graham Number = 7.50
PEG = 0.19

Mudajaya certainly is a growth stock from 2005-2010. Revenue and net profit (NI) grew at the speed of bullet train. However after that, though revenue continue to grow, NI has stagnated. This is natural as Mudajaya grew to a giant size, it is harder to grow any more. Hence I would stop calling Mudajaya a growth stock from now on. But does MudaJaya qualifies as a value stock. Let us evaluate using Cold Eye's 5 yardsticks.

1) ROE is 23% tick
2) The quality of earnings for last year was fantastic. CFFO is 234% of NI and FCF is abundant at 29% of revenue, tick.
3) PE ratio at 6.5, <10, tick
4) Dividend of 9 sen, or DY of 3.5%, more than FD rate, tick.
5) Price-to-book of 1.3 <1.5, ok and tick

Hence Mudajaya qualifies as a value stock in all aspects.

I think there are two major reasons for the undervaluation of Mudajaya; one was the poor credibility of its management which investors have not forgotten yet. Secondly, I have doubt about its power plant in India. There are many political, social, economical, etc issues about this power plant development in India.

jm3525

94 posts

Posted by jm3525 > 2013-04-18 01:03 | Report Abuse

kc..

can u help me about MPAY..

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