Posted by RainT > 2017-06-05 20:14 | Report Abuse

Complicated

Posted by nekosan > 2017-06-05 20:17 | Report Abuse

this stock from 1 to 4 ... what to analyse ?

Posted by HauToInvest > 2017-06-05 20:33 | Report Abuse

@nekosan, which "1 to 4" did you refer to?

Posted by eyewitness > 2017-06-05 21:28 | Report Abuse

HauToInvest, excellent investment model.

Posted by valuelurker > 2017-06-05 22:26 | Report Abuse

Another one that justifies valuations because the model tells them so

1. Don’t create new terms like “EPM’ turnover just give credit where credit is due – aka Dupont’s ROE. Don’t complicate things to make it sound like you actually created something new. Everything that you can think of, has already been said

2. The next one is critical, and which you have completely missed, and it is so fundamental that it would jump right at you, were you actually able to get you head out of your model, hence why all the education and modelling does not help if you do not have the raw IQ, and that is:-

Plastic manufacturers have expanded margins and sales because RESIN prices have DROPPED over the last couple of years, mirroring the drop in crude oil to USD30/bbl

Prices however have been creeping up the last couple of Qtr’s (notwithstanding today’s oil price movement of course……..)

Edited for clarity

Posted by HauToInvest > 2017-06-05 23:17 | Report Abuse

@valuelurker, critical comments are useful! Below are my thoughs:

1) To actually simplify the model, I have to leave out other assets irrelevant to capacity-led growth model. So, only EPM assets are kept. I did not claim anything new for the empirical relationship between EPM assets and Sales

2) Indeed, if I think raw material price like resin is the limiting factor to SCGM future growth, then I could have built another model called cost-led growth

3) It is also possible I combine both capacity-led and cost-led to form a "hybrid" growth model. Then, it would be really more complicated

Posted by VenFx > 2017-06-06 00:09 | Report Abuse

Interesting and marvellous way ...
If could add the Effective Cost Range will be good to monitor and respond quickly.

Posted by Jay > 2017-06-06 08:14 | Report Abuse

good effort but allow me to give some inputs

1.your overall assumptions are quite bullish as they are based on historical highs or close to it. eg net profit margin is 15%, I briefly played with the model, slight decrease in margin would reduce the valuation significantly
2. assuming that demand is all there to take is dangerous. demand may not grow as rapid as the capacity and never discount competition, especially in manufacturing.
3. looking at forecast sales and profit to 2019, compound growth is expected to be >30% a year. I am not too sure if the industry or SCGM is going to grow that rapidly and continuously over the next 3 years
4. for margin of safety, I would suggest instead of using MGS yield, try simulating how far the assumptions would need to change which would change your investment basis. if it's too sensitive, than your margin of safety may not be as high as you think

just my 2 cents

Posted by Flintstones > 2017-06-06 08:48 | Report Abuse

Not a good analysis but great attempt. Please keep up with the good work. I will put your articles on my reading list

Posted by HauToInvest > 2017-06-07 05:53 | Report Abuse

@Jay,

1) Admittedly, I do not have much insight in profit margins because I didn't research it. As valuelurker already pointed out, oil price and, thus, raw material costs could explain gross profit margin improvement in the past two years; however, it could not explain those in in 2008 and 2009 when the oil price was significantly higher than today. Anyway, my opinion is that profit margins are NOT the limiting factors to SCGM growth but the production capacity. According to SCGM management guidance, EPM assets would be doubled in around next five years. As you also pointed out, 15% net profit margin is considered to be bullish; then how could we expect profit margins could be double in the next five years?

2) You're right. Two points from me. First, the production capacity expansion plan is taken from SCGM management. I just follow and "trust" them and, true, I could not judge whether they are bullish or not. Second, I did not explicitly assume that production capacity utilization is 100%; utilization is implicitly assumed in EPM assets turnover which I assumed to be 6.0, within historical range.

3) If all executions are according to SCGM's plan, it should be.

4) thanks for your suggestion