Quantitative analysis of Management: Pintaras Jaya

“

You can’t make a good deal with a bad person.” Warren Buffet

We talked about Qualitative Analysis of the management of Pintaras Jaya in the appended link below:

http://klse.i3investor.com/blogs/kcchongnz/46430.jsp

I find it to be one of the hardest things to do, unless we know them personally. I have also learned that smart guys, popular figures and good talking headsmay not be good managers, especially as managers who would take care of the shareholders. So to avoid subjectivity, I tend to use a few quantitative tests to gauge management quality.

A good management is able to produce high return from the clever utilization of the assets of the company. A return of asset higher than 7% generally signifies good management, although it may depend on types of industries. Pintaras was able to consistently produce ROA of above 7% for the last 5 years. More importantly, there is a very clear uptrend in ROA as shown in Figure 1 below.

Figure 1: Trend of ROA and ROE

Another metric I like very much to assess the management quantitatively of a company is the return on its equity (ROE) in absolute term and in comparison with other companies in the same business. This we have talked about in the flowing link:

http://klse.i3investor.com/blogs/kcchongnz/46408.jsp

A return of equity (ROE) of more than the required return of the equity holder, generally of more than 10% shows good management. With ROE of 19.3% as described in the above link, Pintaras places itself easily among the top handful of construction companies with the best ROE. Moreover, Pintaras achieved its high ROE with zero debts and huge amount of excess cash. Figure 1 above also shows that there is a clear upward trend of its ROE, despite that the equity has been growing at more than 10% a year. This is indeed a great feat. No other construction company is even close to its remarkable achievement.

Good management is also willing to share their fruit of success with good dividend to the shareholders.  Table 2 below shows that Pintaras distribute 13 sen dividend last financial year, for a yield of 4.3%, or much more than the return from fixed deposit.  More importantly, the dividend has been increasing as shown, and the book values have also been increasing as shown in Table 2 below.

Table 2: Dividend and change in book value

From a book value of about RM1.10 5 years ago, its book value has increased to RM1.69, plus a distribution of a total of 45 sen in dividends. There is indeed clear evidences that Pintaras’s management has been doing a fine job for increasing the value of shareholders, and hence undoubtedly a good management. If not, how else can you describe a good management?

K C Chong (20^th February 2014)

Appendix

Table 1: Return of assets and equity