Posted by probability > 2016-08-07 19:11 | Report Abuse

no growth potential like the other furniture stocks mentioned there..reason for its price rise was coz of its dividend policy and the recent interest rate cut and further reduction potential

Posted by asdf > 2016-08-08 04:53 | Report Abuse

The product range is too confined

Posted by Ricky Yeo > 2016-08-08 06:20 | Report Abuse

Dividend is a function of ROE earned by a company, just like Earth circles the Sun, and same goes for profit margin. Margin is indeed higher than furniture stocks but ROE is pretty much in line with FLBHD, Latitude etc because of lower turnover.

Using ROE 13% and payout of 90%, the growth for EPS is 1.3% pa. If dividend is 13 cents, there will be close to no growth unless ROE increases. And what is the basis that a 10 cents dividend would justify a fair price of $2.06? How much a company should worth is the expected future cash flow discounted back to present. IF CIMB is indeed correct it is a low-growth industry, which explain why they have a high payout, the stock would act more like a bond that pays out perpetual income.

Using DCF of 13 cents in perpetual and 1.3% growth for next 10 years, the value is $1.42. Unless one believe CSB can growth at 5-6% pa for next 10 years, then $2.06 is warranted. If they want to grow at 5% pa without reducing 90% payout rate, how much the ROE needs to be? About 50% ROE. That would rival Dlady, considering that they use leverage. To get 50% ROE, CSB's margin either have to go through the roof or sell more frames to increase turnover, but how do you increase turnover when the industry isn't growing?

Posted by Ricky Yeo > 2016-08-08 10:46 | Report Abuse

But Ben your discount rate needs to confirm with the majority in order for the price to move to 2.17 right?