Posted by kcchongnz > Jan 27, 2014 05:58 PM | Report Abuse

Scientex has very good growth after acquisition of GW Plastic and became one of the world's leaders in industrial packaging. So at RM5.04, the PE and EV/Ebit of about 10 is attractive. This business will take over its property development as a major earner very soon.

Using a super-abnormal growth assumption of 10%-12% for the next 5 years, the average intrinsic value I got for Scientex is about RM7.00. I think it may worth more than this in vies of its growth and heaps of FCF.

Thanks KeanPoh. I have not looked into detail but I am interested in this company. I think a sum of parts valuation makes more sense to value Scientx because of its 2 diverse businesses. I would use different industry average PE or EV/EBIT from property and packaging companies as a guideline and apply the necessary premiums or discount to that industry average depending on SCIENTX efficiency / growth.

keanpoh, care to enlighten on 2 things :-
1. How much from the PBT is contributed from property vs packaging
2. How does its margins in the packaging side compare to say Thong Guan ?

KC, can you share your valuation on SCIENTX ?

KC, good sharing.. I like the way you are being honest about your losers.. no beating around the bush and straight to the point... not many people are willing to accept they made a mistake or will simply blame it on bad luck..

Please read this link on the flaws of using PE ratio to value companies and using EV/EBIT as a better multiple. To put it in summary, a comparison using PE ratio would not be accurate if comparing 2 companies with different debt structure. One with high debt and the other with net cash.

http://klse.i3investor.com/blogs/kianweiaritcles/42882.jsp
http://valuationacademy.com/what-are-the-differences-between-the-evebit-evebitda-and-pe-multiples-and-when-would-you-use-each-one/

Appended is an example from KC Chong on using EV/EBIT multiples to compare furniture companies in Bursa
http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/40360.jsp

My view is that given the high margins and high ROIC for Homeriz and using EV/EBIT ratio, current price is not considered expensive. Homeriz at RM0.67 trades at an undemanding EV/EBIT of only 5.6 with ROIC of 29%.

wwwcomment, you echo my thoughts as well. My goal is to perform better than umit trusts out there.. else waste time doing all this research... furthermore loading costs are not that high nowadays. Can get as low as 2 pct entry fees.

vinext, I really dont see why I sould sell all my stocks which are still below intrinsic value... You are right, time horizon is not concern, I ll sell my stocks once they reach the i trinsic value... My intention of reviewing the performance over 5 years is to see the consistency of my investment results.

Haha... sure we should meet someday... cant beat the market ? We shall see... I picked up value investing about 1 year ago and am quite happy with the results so far... I plan to measure my performance over the period of 5 years... if i cannot beat the market,I will just sell all my stocks and put in index fund... haha

6) it's hard 2beat the mkt, dont bother. Also dont bother with DCA dollar cost average, VCA value cost averaging. I'v found better way that work on all stock mkt./exchanges


Vinext,wow really interested in this method you are mentioning... care to share ? You sound like a very experienced investor !

How do day traders survive if the reasonable expectations of returns are only 10 to 20 pct.. surely these guys have to make a lot more than that to actualky make a living from the market..

haha... another article highlighting Perak Corp unfair privatisation price has surfaced in Focus Malaysia this week.. good job JKing...

kcchongnz, my opinion is that just as bigger companies find it harder to achieve bigger growth, the same issue here may have happened to BH, obviously during the earlier years when the fund size was smaller, it was easier to maneuver and achieve higher returns. Once the fund becomes too big, it becomes harder to keep growing at the same CAR...

bsngpg, no need to apologize.. hope you make good money on MKH...

bsngpg,can invest direct in stocks with EPF... I am doing that currently... can go thru JF Apex or Jupiter... but bad thing is they stii charge you the 3 pc upfront fees

Posted by Ooi Teik Bee > Jan 14, 2014 04:46 PM | Report Abuse

Dear houseofodos,

EV = 210030 (at closing price of RM1.1)
EBIT = 15,850

Please show me how you get your EBIT. I cannot get your figure.

Thank you.
Ooi

OTB, after re-checking, the EBIT for 2012 is 14,985. I think for your number you are taking PBT so just work backwards to exclude other income and financing cost to reach the EBIT.

wt222 yes Hevea has a healthy cashflow... there is still a lot of porential for this stock... partickeboard section only breakeven last quarter due to forex loss... the result would have been better otherwise... also lower debt will eventually translate to better earnings with lower finance costs... the only concern I have is if owner is actively selling or trading the shares... not good for minority shareholders....

OTB, I guess you are using 2012 numbers, I m using the trailing 12 months results for my calculations which result in better EV/EBIT:-

Numbers in RM millions
EV = 202,378 (at closing price of RM1.1)
EBIT = 27,037
EBITDA = 46,141

EV/EBIT = 7.5
EV/EBITDA =4.4
PER = 4.8

Assuming you set a target EV/EBIT=10x then the fair value for HEVEA would be RM1.85


Lets say I used 2012 numbers for the calculation then

Numbers in RM millions
EV = 210030 (at closing price of RM1.1)
EBIT = 15,850
EBITDA = 41293

EV/EBIT = 13.3
EV/EBITDA =5.1
PER = 6.4

For EV/EBIT=10, the fair value would be RM0.53.

So it is still higher than your earlier number due to difference in EBIT computation, EBIT for me is income excluding other income, financing cost and taxation.

successful investing must require some sort timing and luck besides just FA... businesses are cyclical and using ratios alone without forward thinking on the business prospects can result in buying at the peak of the cycle.... My loser stock today I m holding with more than 30 pc paper loss is Evergreen. I bought this stock in 2011 using rear view investment method...blooking at its past history showed very good numbers and The biggest mistake I made was to extrapolate past results into the future.... ended up, the company over expanded during good times, suffered from poor efficiencies due to overcapcity and made big losses this year... i m still holding this stock with the hope that a recovery in the wood business will enable it to turn around. Furthermore the EBITDA has turned positive in previous quarter... lets see if I ll be proven right this time

I have had the unpleasant experience of seeing the share price of my losers soar immediately after I ve given hope and sold them.... This is also one of the reason its hard for me to cut my losses for fear of missong out on the recovery...

OTB, EV/EBIT of 10 shouldnt result TP of 0.29... even at 0.9x hevea s ev/ebit is only 7.1... check this valuation by KC here

http://klse.i3investor.com/servlets/forum/900172429.jsp

thanks KC

KC, I got about same number as you for EPV method. Just wondering how would you adjust the valuation if a company has issued warrants or convertible stock which could dilute shareholder EPV ?

What an interesting analogy... haha.. good one KC

JKing, how long does this type of deal take ? Anyway is this a sure thing ? can they confirm get the 75 % support ? If they dont , price could correct ?

JKing, what s your view on maju perak ? overvalued currently ? I notice it is loss making but it does have a lot of land...

Jking, though I saw someone in top 30 with your initials, perhaps just a coincidence :)

yup offer is definitely too low for such an asset rich company... furthermore they are having very healthy free cash flow every year due to their port operations.

A quick look at valuations of the other port operators based on an analysis on Alliance shows that the offer price is on the low side of the Price/Book.....

http://klse.i3investor.com/files/my/ptres/res19642.pdf

http://www.theedgemalaysia.com/features/163645-sc-bursa-plug-privatisation-loophole.html

Something I found about SCR. Basically they need 75% approval before they can privatize as what JKing mentioned. Hey JKing, saw your name in top 30 shareholder 2012 AR.

why is it called selective capital reduction instead of privatization...

notice that maju perak has been moving as well....

bsngpg, I jump in on Friday... this is still the highest MOS stock in my portfolio... if didn't get at cheapest nvm la... next Mon might pump in more.. I smell an uptrend coming soon....

KC, you have presented all the key points and risks one should consider when leveraging. Yes I agree leveraging is doubled edge sword. I personally have been considering to refinance my home and use proceeds for investment. For now I still have high cash ratio to stocks so not planning on doing that yet.. But what you explained from your personal experience of leveraging is exactly what I hope to accomplish...

KC, all studies have shown that stocks generally go up in the long run. As long as we have cashflow to service the loan, just buying an index fund should give excess returns on the cost of debt in the long run as long as interest rates remain low . However if interest rates were to go up drastically like during the asian financial crisis, leveraging is definitely dangerous..

kcchongnz Is there such a thing as "guaranteed" in investing, especially you want to get a return higher than the cost of borrowings

One example I can think of is like Amanah Saham schemes like ASB or ASM, these funds payout at least 6 pct annual returns even in bad times.... In fact banks used to provide loans just to buy ASB.

This leverage method would work well if you can find an investment that guarantees returns above cost of debt.

possible privatization?

nice close !

wow what s up with Perak Corp.. non stop up for past 3-4 days

Posted by vinsonkong76 > Jan 1, 2014 09:53 PM | Report Abuse
the last bar is not a hammer. Hammer should not has up tail. the bottom tail must at least twice the body. in VSA, down bars wide spread on ultra high volume with increasing volume indicate more selling pressure. this is not a bottom yet. when you see low volume down bar or bar pulling down to shakeout weaker, goes up close higher... may mostly indicate reversal

Interesting.. you are one of the first few talking about Volume Spread Analysis (VSA) in i3. Do you use tradeguider software to spot the sign of strength or weakness or practice VSA methods in your trades ? Would like to learn more from you...

There was a mistake in my earlier computation of CENBOND intrinsic value using DCF method which bsnpg corrected.

Do you have any hidden gem for 2013?
Dec 23, 2013 05:43 PM | 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.

hi KC, a clear and concise analysis. A few questions on PPHB as the extremely high earnings yield attracted my attention :-
Based on the PE numbers you are getting, it looks like this based on 2012 annual report ? I was getting higher number as you since I am using trailing 12 months. Can you share how you got EV/EBIT of 3.4 ? Besides excess cash, did you subtract anything else from the EV calculation from 2012 results ?

EV = Market Cap + Debt + Minority interest - Excess cash

I played around with the numbers and I think you probably subtracted investment properties, investment in subs and land held for development assuming that these are not contributing greatly to the revenue ?

is my chance to ride this boat coming soon ?

wow... OTB.. respect !

This book "Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports" might be useful too.

KC, this is indeed a very good compilation of financial shenanigans in Bursa.. must keep for future reference... Bravo on the effort !

gohcheehoh

Try this link. It has worked for me and its free.
http://klse.neobie.net/quote.php

waking up ?

wow based on the 9 months results, the PBT margins for their sterilization businesses (Electron Beam) is damn high (>50%)... I wonder what is the margin for the Peritoneal Dialysis... cause the major growth is going to come from here once trials are completed.

Segment Revenue PBT Profit margin (%)
Healthcare products 17390 1479 8.50%
Sterilization provider 9920 5055 50.96%

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.