Introduction

In February 2013, Tune Protect Group decided to go public with an IPO price of RM 1.35. After more than 3 years in Bursa, the stock closed RM 1.49 today, a 10.37% return (excluding dividends).

The stock peaked at RM 2.57 in June 2014, and has since been down trending until January 2016, where it bottomed-out at RM 1.10.  Since then, Tune Protect has rebounded, hitting a YTD high of RM 1.58 recently.

Has the downtrend finally come to an end? Is there still more upside for this counter?

Let’s find out!

Financials

The latest QR balance sheet reveals solid fundamentals of Tune Protect. If we consider the items circled in red to be cash and cash equivalents, then we have: 602,007+41,259-520 = 642,746 thousand. This means Tune Protect is holding RM 642.7 million in net cash!

Wait, is it okay to add “investments” as cash and cash equivalents? What comprises of these “investments”?

While no data is given in the QR about these “investments”, if we refer to the most recent annual report (Note 10), we have the breakdown of these “investments”. These “investments” are very liquid and are reported at market value in financial statements, which makes sense to include as cash and cash equivalents.

Moving on to income statement and cash flow…

Over the past 5 years, Tune Protect did pretty well in terms of its revenue and earnings. Revenue achieved an outstanding 59.83% CAGR while net income grew in tandem at 26.12% CAGR! Tune Protect managed to maintain good operational cash flow and free cash flow throughout the past 5 years.

One of the plus point for Tune Protect is their low depreciations and low capital expenditures. This reduces the possibility of unexpected capex which could disrupt the entire cash flow of the company.

Management has also maintained a consistent 40% payout ratio in the past 3 years.

Valuation

We already have RM 642.7 million in net cash. Performing a constant growth DCF, I will assume FCF equal to net earnings around RM 70 million at required return of 12% and growth of 5% (required return and growth plucked out of thin air). This gives

Present value = FCF/(r – g) = 70/(12% – 5%) = RM 1,000 million

With 751.8 million shares outstanding, fair value is (642.7 + 1,000)/751.8 = RM 2.19, an upside of 46.98%!

Again, let’s assume an EV/EBITDA = 10. Then, (Market cap – Net cash – Minority interest)/EBITDA = 10. Refer to balance sheet for minority interest and EBITDA approximately RM 80 million,

(Market cap – 642.7 – 42.1)/80 = 10, solve for market cap we get RM 1,484.8 million.

This implies a fair value of RM 1.97, upside of 32.21%!

Conclusion

At this current price, Tune Protect is a BUY.

Hope you enjoy this article. Huat ah! :D

Note: Please buy and sell at your own risk.