Posted by Ooi Teik Bee > 2013-07-06 23:25 | Report Abuse

Dear valued members,

It is not a recommendation to buy, I just want to show the Intrinsic value of KSL share. It is really undervalued. This worksheet was done recently when KSL share price is 2.12 and WA is 0.925.

KSL
Total Net profit years 10/10

Total Positive Operating Cash Flow years 9/10

Total Dividend Payout years 9/10

Total Positive Free Cash Flow years 4/10
32/40
Growth
10 years Average Turnover 255,442
31/12/2012 (latest) 404,431 58.3%

10 years Average Net Profit 92,069
31/12/2012 (latest) 131,580 42.9%

2010 2011 2012 Q1 2013 Growth
EPS 32.0 21.5 34.1 39.47 15.92%
PER 6.63 9.86 6.23 5.37 15.92%
ROE 13.8 8.78 12.2 13.34 9.34%
NTA 2.51 2.46 2.79 2.99 7.17%

Price CAGR % (Buy and Hold)
Average return (history) 9.76%
3 years return 14.29%

Method 1
EPS 39.47
g (growth) 7.96
Y 7.0
IV=(EPS*(8.5+1.5g)*4.4)/Y 5.07
Current price 2.12
Margin of Safety 58.19%
Potential gain 139.20%

Method 2
Discounted Cash Flows Calculator
Discount rate 12.00%
EPS 39.47
Earning expected to grow (annually) 7.7
for the next (? Years) 3.0
before leveling off to an annual growth 3.00
Calculate Stock Value per share 5.05
Current price 2.12
Margin of Safety 58.02%
Potential gain 138.21%

Method 3
IV=ROE/Rr*NTA
ROE 13.34%
Rr 12.0%
NTA 2.99
IV 3.32
Current price 2.12
Margin of Safety 56.8%
Potential gain 56.8%

Method 4
(22.5*EPS*Book value per share)^0.5
EPS 0.39
Total equity 1155443
Number of shares 390548
(22.5*EPS*Total Equity/share)^0.5 5.13
Current price 2.12
Margin of Safety 58.64%
Potential gain 141.78%


KSL-WA
Expiration date 19/8/2016
Exercise price 1.60
Price of Mother share (KSL) 2.12
Actual price of WA 0.925
Premium 19.10%
Gearing 2.3

Conclusion

Please note that base on aforesaid calculation, KSL price is about 5.13, KSL-WA is = 4.24.

Technical chart
This stock is very weak technically because Tabung Haji is still selling this stock. This is a down trending stock until big seller completed their selling on this stock. I do not think it is time to buy this stock unless you are willing to hold it for at least 6 months.

I want to cautious valued members here that it is a correct strategy for someone to push down the share price so that this stock can be taken private at a low price. Please reject this takeover unless the takeover price is 110% of its NTA (2.99) which is = 3.29.

Thank you.
Ooi

Posted by Foong Oi Lai > 2013-07-07 13:36 | Report Abuse

Thanks for your great sharing, Ooi.

Posted by Foong Oi Lai > 2013-07-07 13:47 | Report Abuse

Ooi, refer to method 1, IV=(EPS*(8.5+1.5g)*4.4)/Y,5.07 .IS 5.07 the IV? what is 8.5,1.5 & 4.4 stand for?

Posted by Ooi Teik Bee > 2013-07-07 13:52 | Report Abuse

It is the formula. Just follow it. You must know EPS, g=growth rate and y is the cost of fund. I just follow Kcchongnz write up. Please read all Kcchongnz write up in this forum.

Thank you.

Posted by kcchongnz > 2013-07-07 15:52 | Report Abuse

Ooi, hope you don't mind I explain here.

IV=(EPS*(8.5+1.5g)*4.4)/Y is the Graham growth model to estimate the intrinsic value of a stock.

IV is the intrinsic value
EPS is earnings per share. Use normalized EPS as much as possible.
8.5 is the PE ratio Graham willing to pay for a stock without growth.
1.5g is the weightage given to a growth company. Graham used 2.0 in his original form.

At that time, the long-term bond yield was 4.4%. so to adjust the formula to the present long-term bond rate, Y%, a factor 4.4/Y is used. So one can see the rationale of the formula.

One thing I realized now is this formula should not be relied too much on to get the intrinsic value of a stock because too much weigh is given to the growth g of a company. Also Graham did not include any risk premium in the formula as modern financial theory would tell you that investing in equity has a higher risk than bond.

Imagine a company earns 10 sen per share but with an expected growth rate of 15%, and using Y as 5% would have an IV of 3.40 compared with no growth of just 75 sen. Would you want to pay so such for this "expected" growth?

But I think the formula would be useful to check whether the share price is too high, or too much expectation is built on the company.

For example TSH EPS is 7.6 sen last year. Its share price is 2.39 now. Using Graham's growth formula, Y=5, iteration of the formula to get the intrinsic value equals to its share price will yield a g of 18.5%. So do you think TSH's earnings can grow at 18.5% a year for the next 5-7 years? If so, the the share price of TSH may be reasonable.

For me, to grow at 18.5% for the next 5-7 years is not an easy feat. So I think the market is paying too much for TSH's expected growth.

Posted by inwest88 > 2013-07-07 16:12 | Report Abuse

Hi KC, There a few Messaq counters which are making profits consistently but the share prices do not reflect that. One is EA Holdings. what do you think of this company. Thanks.

Posted by Sky Lim > 2013-07-07 16:26 | Report Abuse

mr ooi teik bee, do you have a blog or website? are you running a stock group ? because i see your headings in several posts "dear valued members"

Posted by newbiestock > 2013-07-07 16:31 |

Post removed.Why?

Posted by kcchongnz > 2013-07-07 17:42 | Report Abuse

Posted by inwest88 > Jul 7, 2013 04:12 PM | Report Abuse
Hi KC, There a few Messaq counters which are making profits consistently but the share prices do not reflect that. One is EA Holdings. what do you think of this company. Thanks.

inwest88, go to the appended link for my response:

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

Posted by Foong Oi Lai > 2013-07-07 20:24 | Report Abuse

Thanks a lot all Taiko, I am digesting now :)

Posted by Foong Oi Lai > 2013-07-07 20:27 | Report Abuse

Dear kcchongnz, my first question is : what is normalized EPS? Any different with those EPS that announced in Bursa. Appreciate your helping hands

Posted by kcchongnz > 2013-07-08 12:48 | Report Abuse

Normalized earnings account for seasonality and economic cycles. For example palm oil companies have high earnings during the up cycle of the price of palm oil, but low earnings in the down cycle owing to change in the prices and hence the margins.

Normalized earnings also exclude onetime off nonrecurring or exceptional items, or gain/loss which is not related to the ordinary business of the company. For example, a gain in revaluation of the property of the company, an exceptional gain due to disposal of assets etc, should be excluded.

In essence, normalized earnings are an indication of the true financial performance of a company.