Most of the time we look at figures and neglected the growth prospect of a company but nevertheless this is the most direct and easiest way to look at as it implies the healthiness of a company, because the figure never lie and is the easiest to obtained.
It is worth mentioning KFIMA again when May 2010 is approaching; because it is the time KFIMA will announce it 4th Q result. Presuming the rolling 4 qtrs will sum up to below :-
4Q EPS (03-2009) = 6.43
1Q EPS (06-2009) = 7.01
2Q EPS (09-2009) = 3.75
3Q EPS (12-2009) = 6.88
4Q EPS (03-2010) = ??
We take 4Qs of above and sum up will give a total EPS of 24.07sen. Wow, this is fantastic figure as mentioned in the previous post. Though, we do not know what will turn out in the coming 4Q result but taking it previous 4Q figure is just good enough as everything work out here is based on estimation and forecast. So, this in turn will represent a PE of 4.28sen. One must think it is low enough to spur the price up ? Yes, indeed it does make sense to trade at higher valuation at a minimum of PE 5X at least. Lets study in-depth other figures to substantiate what I said.
1) Dividend
This is what I most concerned as my first criterion is dividend. KFIMA has a tendency of average dividend payout ratio of 17% of net profit. Estimated dividend to be declared this time round is 24.07 x 17% = 4.1sen. This represent a 4.1/1.03 = 3.98 % on current price @ RM1.03. Much higher compare to FD.
2) ROE
Company has to make money to continue it operation. Judging previous figure, a ratio of ROE is around 13.8%, this is a very good margin so to speak, not many companies can meet that.
3) Gearing
In order to stay healthy with comfortable operation cash flow, my own figure of a company gearing should not go beyond 70% of it total asset. KFIMA at this level only stay around 30% debt which is very healthy in my opinion.
Another good figure for KFIMA is, it is in high ability in meeting interest expense where KFIMA has power to service interest expense on debt easily.
The only setback is KFIMA relatively consider under a low cash flow ratio.
4) FV
As usual, my way of FV = 5 x 24.07 = RM1.20. Represent a 20% discount on current price at RM1.03.
17 comments:
Hi Horse,
You posted another favorite counter of mine again. Actually it became my favorite after reading your previous posting on 5 undervalued stocks. I agreed with most of the things mentioned by you except that I am more bullish than you on this stock.
I assumed Kfima's fourth quarter financial performance mirrors that of the third quarter. Its ROE would be 17%, more than my minimum of 15%. In terms of cash flow, if I were to project by assuming 4th quarter the same as that of 3rd quarter, it would be 55 sen per share, which is very high, in contrary to your comment of poor cash flow. But such projection could be too optimistic as it will yield an extremely high valuation for Kfima. Even if I take the previous year audited cash flow which I think is conservative, it is still 21 sen per share, or a price to cash flow of only about 5, very cheap indeed. A free cash flow discount model with this lower assumption, a required return of 12% and others will still give a fair price of about RM2.00 for Kfima.
Today, sold off all Yilai at 87.5-88.5sen, realize all handsome paper profit. Bought also some cresbld at 72sen and add new stock: Protasco bought at 1.03.
Update portfolio + margin line
1. Pharma 63.7% (cost: RM 4.30)
2. Manulife 27.4% (cost 2.65)
4. Keladi 25% (cost: 15.7sen)
5. Nihsin 16.3% (cost 21sen)
6. CCM Duopharma 12% (cost 2.39)
7. Cresbld 8.1% (cost 72.5sen)
8. Protasco 4.2% (cost 1.03)
Second portfolio + margin line
1. CCM duopharma 42.5% (cost 2.40)
2. Keladi 28.2% (cost: 16.2sen)
3. Chuan 16.2% (cost 60.5sen
about kfima, i'm waiting to re-enter these preferably below RM 1.00.
Congrat hng. :)
KC,
Wah, congrat, you seem to know what you want. You are right, i in fact would seldom used cash in analyst in the FA of a company, coz it is not realistic for a company to purposefully maintain high levels of cash to cover liabilities. The reason being that it's often seen as poor asset utilization for a company to hold large amounts of cash on its balance sheet, as this money could be returned to shareholders or used elsewhere to generate higher returns. Typical example is GENM where it hold ton of money/cash for RPTs to benefit another party, instead this money could be returned to shareholders.
Talk abt GENM, i think it is almost the right time to accumulate this laggard stock, judging the unusual trading pattern of GENM recently. THere is always a late huge buy in if you notice. Worth taking a look.
horse, GENM certainly has hell lot of cash which you rightfully mentioned that it should be returned to shareholders rather than doing all sorts of doggy related party transactions. That is why institution investors greatly dislike buying this counter. In my comment on Kfima, I am not talking about cash holdings in the balance sheet. I am talking about free cash flows (FCF), cash flow from operations less cash needed to reinvest into the business to produce recurring income. This FCF can be distributed as dividends to shareholders, paying down loans, invest in other profitable ventures etc. Attached is a link on the explanations and the importance of FCF.
http://www.investopedia.com/terms/f/freecashflow.asp
This method discounts all future free cash flows to a present value of equity of the firm and hence the stock price. Cash flows are more 'real' than earnings as earnings can be and usually managed. It must be noted this method is also art as there are many assumptions used such as growth rates, discount rate etc. I believed I used some conservative assumptions for valuing Kfima, and yet the fair value is still at least 60% to 70% above its market value, not forgetting that other metrics such as PE ratio (about 4 as pointed by you)and price to book of 0.7 are also very attractive.
This morning, take opportunity to accumulate more protasco, bought at 1.01-1.02; add new stock kfima, bought at 1.00-1.01.
MBFHLDG propose first maiden div of 10sen. 15% there, very impressive. !!
Today, increase stake of protasco and cresbld, bought at 1.00-1.02 and 71.5-72sen, respectively;Portfolio also add Kfima, bought at 1.00-1.01
Update portfolio + ultramargin line
1. Pharma 63.7% (cost: RM 4.30)
2. Protasco 32.3% (cost 1.01)
3. kfima 28.2% (cost 1.01)
2. Manulife 27.4% (cost 2.65)
4. Keladi 25% (cost: 15.7sen)
5. Nihsin 16.3% (cost: 21sen)
6. CCM Duopharma 12% (cost 2.39)
7. Cresbld 11.6% (cost 72.2sen)
Second portfolio + margin line
1. CCM duopharma 42.5% (cost 2.40)
2. Keladi 28.2% (cost: 16.2sen)
3. Chuan 16.2% (cost 60.5sen
5070 PRTASCO PROTASCO BHD
Single Tier Final Dividend 5 Sen
Entitlement Details:
single tier final dividend of 5 sen net per share for the financial year ended
31 December 2009.
Entitlement Type: Final Dividend
Entitlement Date and Time: 30/06/2010 05:00 PM
Year Ending/Period Ending/Ended Date: 31/12/2009
EX Date: 28/06/2010
To SCANS Date:
Payment Date: 08/07/2010
horse
Yeah, finally Protasco declare better than expected 5senTE dividend, together with interim dividend Protasco declare total of 9sen TE dividend , yield 9% net.
Just wonder have you realize your Citibank profit already, it go as high as above $5? Citi is expect to under selling pressure once gov initiate selling its stake to open market, by then you can buyback again on weakness.
ya, only got rid half of my C holding at $5. Will buy back if it ever go < $4 again. :)
Hi, like to share this counter, Ajiya.
5-year compounded annual growth rates on revenue, net profit and operation cash flows of 16%, 20% and 10% respectively.
2009 EPS of 32 sen, hence PE=6.7. price to cash flow=3.9.
Times interest cover=56.
Healthy debt and liquidity ratios. Profit margin, ROIC, ROE all about 12%+.
Price to book=0.8 and
dividend yield=3%.
Only noticeable shortcoming is its low market capitalization of RM 150 m.
About MBF
Lourdenadin controlled 79.12% of MBfH and had proposed to buy out minority shareholders at 65 sen a share plus 10 sen in final dividend as a “parting gift” proposed at the EGM on Tuesday.
The proposals, however, collapsed after 33% of the minority shareholders rejected the deal
On allegations that he had held back the company from paying dividends to shareholders, Lourdenadin said that he had made it clear that he would only support the board of directors’ final dividend proposal for the year ended Dec 31, 2009 if the SCR was implemented.
Ajiya look pretty healthy and fundamentally sound. Solid & impressive earnings year after year. Will put in my radar screen. Thanks KC.
hng, i think MBFH is kind of one off thing, sustainability is queation mark here. I'm staying out for this.
Take a look at GENM trade detail, about 150K shares traded just within 2 minutes at 2.84...? Some manipulation by big fellow ?
hng, take a look at the metrics i have worked out for your prostaco.
1) Revenue and net income increase of 9% and 48% respectively last year
2)ROE at 12%, ROIC at 19%
3) 56 times interest earned
4) Very healthy balance sheet
5) Price today 1.04
PER=9.2, Price/CF=2.4, DY=7.7%
6) Price-to-book=0.9
Quite a good investment
KC
Thanks for your analysis on Protasco. There will be some adverse impact on its earning in view of recent escalating raw material cost namely petroleum products.
But, there should be no problem for protasco to maintain its 9sen single tier dividend or about 9% net yield.
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