Sorry, same mistake made, forgot to account for non-controlling interest (minority interest).

While, without full information, there is no way to segregate the cash flow and cash & bank balance between HLIND's shareholders and minority shareholders of subsidiaries.

To make thing simplified a bit, just assume all the cash flows and cash & bank balances are 100% from Hong Leong Yamaha Motor, then discount all fair values above by 30.4% will do.

Back to fair value computation based on future perpetual discounted Free Cash Flow (FCF) model adopted by Gemstar back on 17 April.

(Warning: technical dry stuff ahead)

I change some assumptions to be more conservative and some to actual value (still perpetual):
Free cash flow = RM366m (FY2020 actual FCF, also deduct investment in intangible asset)
Growth Rate = 0%
Discount Rate = 9.83% (per Gemstar’s working)

Since there is no assumption of change of growth rate, the terminal value as at end of FY2020 will equal sum of future perpetual discounted FCF.

Terminal Value as at end of FY2020 = RM366m X (1 + 0%) / (9.83% - 0%) = RM3,723m

Fair Entity Value = Terminal Value as at end of FY2020 = RM3,723m

Fair Value per share = RM3,723m / 314m shares = RM11.86

Judge yourself if you are agreeable to the assumptions made, especially:
- RM366m of FY2020 FCF, fair?
- at low side due to MCO? or
- at high side due to lower sales (so changes on working capital at the positive side)? or
- FY2019 FCF = RM402m
- 0% growth rate, fair?
- Ignore inflation rate?
- Ignore population growth rate?
- Ignore urbanization growth rate (and motorbikes usage will go down)?
- Perpetual (i.e. HLIND will live forever), fair?
- still somehow acceptable for 0% growth rate assumption
- well, if HLIND could continue this operation level for long enough, say another 30 years, there is almost no difference to perpetual for this purpose (30 years = 98.5% of perpetual, 20 years = 88.7% of perpetual, 10 years = 63.8% of perpetual, with 0% growth rate and 9.83% discount rate).

Side note: Assuming 3% growth rate to somehow reflect inflation rate compounded with population growth rates, the fair values above will increase by a whopping 48%.

Another side note: assuming FCF per year = RM402m (FY2019 actual), and all other assumption no change (including 0% growth rate), this gives fair value per share = RM13.02.

Yet another side note: Perpetual discounted future FCF assumption means assuming no converting of fixed assets and other current assets (minus liabilities) into cash at the end of business (because no end of business). But cash is cash, in fact, current cash and bank balances (minus borrowings to be fair) should be added on to the terminal value (also the discounted future FCF), which will add another RM3.80 to the fair values per share computed above.

So, fair values =
RM15.66 per share (RM366m FCF assumption), or
RM16.82 per share (RM402m FCF assumption)
(both with 0% growth rate, 9.83% discount rate and perpetual assumptions)

Above are just products of mathematics, judge yourself for your own investment.

HLIND release latest quarterly report yesterday, my analysis:

Prelog: many people thought that HLIND involved deeply in construction industry, but the fact is HLIND generates most of its revenue and profit from selling Yamaha branded motorbikes from its majority owned subsidiary of Hong Leong Yamaha Motor.

Reporting Quarter performance

1) The reporting quarter (FY2020Q4, quarter ended 30 June 2020) is a non-comparable, non-repeatable quarter for most businesses in Malaysia, especially for local consumer market (e.g. motorbikes market for HLIND).

2) However, HLIND managed to deliver positive gross profit (though only 15% GP margin compared to 19% in normal quarter) at reported revenue which was less than half of normal period (imagine your factory closed & your customers closed shop, but you still need to continue depreciation, pay basic salary to workers, keep machines warm etc.)

3) Net loss after tax for the quarter = RM25.5 million for the quarter. Remember this is Q4 result, with some year-end accounting impacts: loss of RM11.1 million from discontinued operation (will not repeat in future) and damage of RM11.8 million due to impairment of assets (likely will not repeat in future, with probability of reversal). To take out the 2 factors, net loss after tax will reduce to RM2.6 million and it will turn loss before tax to small profit before tax (which is an incredible performance for MCO period for a mainly local consumer market based company).

FY2020 performance and prospect:

4) At least 2 months loss of motorbikes sales (biggest revenue and profit contributor), mostly happened in last quarter. Assuming sales in first half (July – Sept 2019) are normal and average, the whole FY2020 sales lost averagely 2.3 months of revenue due to MCO.

5) Despite lower sales, HLIND still delivered RM169.4 million of profit after tax attributable to shareholders, i.e. RM0.54 per share.

6) MCO kind of lockdown is an UNLIKELY event to repeat in FY2021. Revenge sales pick-up will happen in at least next reporting quarter (due to MCO loss of sales in previous 2 reported quarters), i.e. FY2021 sales will be higher compared to FY2020, and expectedly better profit.

7) History trend: Bad economy (before Vaccine for COVID-19, a likely event) is beneficiary to motorbikes sales (people tend to buy motorbikes instead of cars when economy is not good).

8) HLIND's bad business portfolio like Hume Roofing has been discontinued. This will contribute positively to HLIND's overall result in FY2021 (info: the discontinued operation had burdened HLIND with RM10 million of loss or 3 sen per share in FY2020 alone (or 90 sen potential price upward if valued at 20x P/E for this discontinuation of operation event alone).

Others:

9) Solid overall Balance Sheet:
- Cash & bank balances stood at RM1.2 billion, with negligible borrowings.
- Current ratio: 5.21 (> 1.5 consider particularly healthy)
- Quick ratio: 4.55 (> 1 consider particularly healthy)
- Gearing: N/M (net cash company, gearing is not meaningful)

10) Strong cash flow:
- Operating cash flow of RM423 million (> net profit) (RM1.35 per share)
- Free cash flow of RM375 million (> net profit) (RM1.19 per share)

11) Other Financial Indicators (assuming share price of RM7.70):
Net cash per share = RM3.80 (49.45% of share price)
Equity per share = RM5.34 (69.35% of share price)
P/E (FY2020) = 14.3x (< 25x (4% ROI) considered good buy, given HLIND’s strong balance sheet health)
EV/EBITDA (FY2020) = 3.0x (< 10x considered good buy)
Dividend Yield = 5.5% (> your FD interest rate, now < 2%, considered good already)
Z Score = 7.27 (testing health for bankruptcy, > 3 considered healthy)

Conclusion:

Good health (extremely good Z Score, no risk of bankruptcy), good prospect (motorbikes are still selling well in Malaysia, especially when economy is down), good product (Yamaha is the best-selling motorbike brand in Malaysia), good P/E, good EV/EBITDA, good dividend (even based on performance badly hit by MCO and COVID-19). What else to expect?

Target price: RM12.00

Even for RM12 future target price to apply to FY2020 one-time MCO affected performance, you still get:
- P/E = 22.2x (4.5% ROI)
- EV/EBITDA = 6.4x
- Dividend Yield = 3.5%
Still an ATTRACTIVE investment, isn’t it?
(Don’t forget, it is highly likely that FY2021 will be a lot better than FY2020)

Writer’s interest: 2,500 HLIND shares held at RM7.68 average cost.

Regard the writer: I wrote above mainly for other purpose. I visited i3investor as guest on and off and never commented anything. This is my first comment of any kind, just sharing my writing and not to waste it.