Friday, November 25, 2016

What is the intrinsic value of TienWah?

What is the intrinsic value of TienWah in the next 10 years?

Current business
We follow current earning power, which earned RM26 million per year. So with the latest renewal 3 years contract, Tienwah will earn RM78 million for next 3 years, with assumption earning remain the same throughout the years.

If it is able to continue to secure the contract from BAT after next 3 years and remain stable for another 7 years. Then total earning will be RM260 million.

Property business
Sale of PJ land with value RM63.75 million. This cash mostly will use for future developement of the land.
Propose joint venture with Singapore developer with initial investment cost RM500 million, whereby cash injection RM200 million, and bank loan RM300 million. 
Assume profit margin for this project is 17%, then Tienwah will earn RM42.5 million, after profit sharing consideration.

Tienwah further propose to listing its new property company once it hit 25% of group's net profit or asset. 

Once its new property company go listing, then sales of new shares will be recorded as Tienwah earning. Since it is too many uncertainty on this, so we ignore this bonus earning.

Indonesia printing business
Acquired from BAT Indonesia with purchase cost RM96.9 million and come with 6 years contract.
Historical record showed Tienwah ROIC stand around 15%, which mean it takes 6.7 years to double up earning. The return years is almost same with the contract years, which is 6 years. So we can assume Tienwah is based on this return to calculate out the purchase price. If it is correct, then this new business will generate RM14.5 million per year,

With the 6 years contact, Tienwah is able to earn RM87 million.
If Tienwah manage to get secure renewal contract from BAT after the 6 years, then it can make RM145 million in 10 years. 

Middle east, Dubai business
Total investment cost is RM21 million. 
As a business man, you will not simply to go and acquire a factory without secure any business. Hence it is believable Tienwah is done their research and secure some contract there.
Assume ROIC is 15% as well, then this new business will generate RM3.15 million earning per year.
So in 10 years time, total earning will be RM31.5 million


Current share price RM1.82 x 144 million shares, the market capital is around RM260 million.

In next 10 years time, Tienwah will be able to generate RM542.75 million (RM260 million + RM63.75 + RM42.5 million + RM145 million + RM31.5 million)

From above calculation, it shows that Tienwah is trading more than 50% below it's 10 years total earning, which create a good safety margin.

Tienwah price is giving an attractive margin of safety with 50% discount, yet it provides a high growth prospect to tap into other region and property industry. Besides that, Tienwah also provide a 50% dividend policy, which will translate to nearly 10% dividend yield for next 10 years. 

Note: I have assumed inflation and business volume growth will be equal, so this factor is taken out from calculation.


Sunday, November 13, 2016

Tienwah latest acquiry

With the recently annoucement from Tienwah, which has been awarded the tender to acquire BAT Indonesia printing business with amounting RM96.9 million and with a contract of 6 years to supply printing service to BAT Indonesia.

What does it tell you anything from this info?

General Info
BAT Indonesia market value around RM750 million ~ RM800 milliom
TienWah Malaysia market value around RM200 million
BAT Indonesia has been loss making for past 3 years, amounting RM500 million each year
BAT Indonesia has issued private placement to raise up RM4.515 billion, at which RM3.87 billion (around 86% of the private placement) was used to pay outstanding default loan. The loan was called default and been settled up fully on Jun year 2016.

The followings are my assumption:-

1. BAT Indonesia is loss making, so it requires money to support its business cash flow. Hence propose to sell its subsidiary printing business.
2. Tienwah beg for renewal of contract of printing. Hence it is willing or force  to help BAT Indonesia in order to secure the contract. By the way, it is win-win situation. Both get what they want. BAT Indonesia get the cash flow. Tienwah get the opportunity to tap into Indonesia's market.
3. Tienwah definately will secure the renewal of 3 years contract. As it should be a part of agreement for Tienwah to buy BAT Indonesia printing business.

Tienwah's market value is only RM200 million, but it invest RM96.9 million into new market. So do you see the number? 

Next I will write out on Tienwah's intrinsic value. Stay tune.

Friday, November 11, 2016

Trump affect

Following are some Trump's proposals and my point of views: -

Proposal: Decreased American Investment in M'sia due to reduce US corporate tax.
Answer: By reducing US corporate tax, will not being back their manufacturing. It finds no sense to make a product yourself if you can buy it cheap on somewhere. The economy of scale is not there and it will burden more US people living cost. You will just buy a product if there is few cent cheaper.

Proposal: Lead to Capital flight to the US from M'sia.
Answer: If it really happen, it makes more difficult for Trump to create more jobs opportunity in US, as RM is weakening, so it is more worth to invest in Malaysia than US.

Proposal: TPPA will be scrapped off.
Answer: This yet to happen, so any affect?

Proposal: Impose 35% tax higher on goods from China and Mexico.
Answer: It will cause recession to China and Mexico, as well as US itself. So he won't do it.

Everything he talked in the election regarding policy and economy are required to go through the House and the Senate. It won't be so easy to make it happen.

Wednesday, June 29, 2016

Benefit of Brexit

The benefit of BREXIT to Malaysian! Digestive biscuit will become cheaper! :)

Tuesday, May 31, 2016

Karex Berhad: SELL

Karex Berhad

General information
27 years experience in this industry
World's largest manufacturer
Global condom market year 2015 = RM27 billion
Capacity increase from 4 billion to 5 billion
Net cash position
Private placement RM158 million on March 2015

Target to increase capacity to 7 billion in 2017 (40% increase of capacity from current production)

Finance Background
Gross profit margin = 33% to 39%
Distribution expenses = 5.0% (year 2014) to 5.5% (year 2016) - getting worse
Administrative expenses from 4.5% (year 2014) to 11.0% (year 2016) - getting very worse
Net profit, exclude currency gain/loss and others gain/loss will be normalised at around 16%

Annually revenue for year 2016 (estimation) will be RM340 million

Assume net profit margin 16%, exclude any extra gain/loss, then profit shall be RM54.4 million

Outstanding shares = around 1 billion

EPS = 54.4/1000 = 5.44 cents

Assume 40% increase in profit (in line with increment with capacity production)

EPS @ 2017 = 5.44 cents x 1.4
= 7.62 cents

Give high PE ratio 20 for this industry, target price is RM1.52

Current share price RM2.26, which is over price.

If consider margin of safety, you shall get in at PE = 15, which give you the entry price of RM1.14 (provided this company still in high grow path)

Note* Even Warren Buffett bought Coca-Cola Company when it is trading at around PE 15. So do you think current price have any buffer zone for margin of safety? (which is twice the price of PE15). You judge it yourself. Buy or sell at your own risk.

i3investor please do not simply copy and paste. Please do respect intellectual property right!

Monday, March 14, 2016

VS Industry Berhad: SELL

VS Industry Berhad: SELL

  • Leading integrated Electronics Manaufacturing Services (EMS) provider
  • World's top 50 EMS from 2007 to 2014 (source: Annual Report 2015)
  • Director Salary, RM20 million annually (50% of operating expenses)
  • Dividend policy minimum 40%
  • Outstand shares 1,155 million shares
  • Warrants 290.8 million shares (EPS will be diluted 25% once warrants convert to mother share)

  1. Major customers, like customer Keurig and Dyson are expected to remain strong, with sale percentage 38% and 25% respectively.
  2. Customer Keurig to grow CAGR 29% from FY15-18 to 4.6 million units
  3. Customer Dyson sales for FY16 are expected to grow 50% yoy to RM639 million.
  4. Dividend policy minimum 40%
  5. Management is confidence on future growth.
  1. Major revenue depends on two (2) customers (63% of total revenue)
  2. Director's salary too high (50% of operating expenses)
  3. Minimum wage implementation on July 2016 from RM900 to RM1000 (11% increase), which shall be minimum impact on profit.
  4. 2QFY (January) and 3QFY (April) performances are typically its weakest quarters due to seasonal demand.
  5. Earning sensitivity 1.5% to 2.0% reduction for every 1% ringgit fall. 
Share price                      = RM1.20
Earning per Share          =RM0.144
Price to Earning ratio    = 8.3 (based on current outstanding shares) or 10.4 (diluted shares)
Dividend Yield                = 4.8%

My personal view
  1. Since there next two quarters are traditionally weakest quarters, hence there is no hurry to buy in. 
  2. Next quarter result is expected to be weaker, compare to current quarter.
  3. Consistence future growth is a question mark. Risk management is too low.
  4. Profit Margin increase almost 100% from last year, which is unlikely to maintain. If profit margin go back to normal rate, there will be 50% drop on profit, hence as well as share price.
  5. Management is not taking care shareholder's interest, as taking too high salary and implement ESOS too frequent.
  6. Price is at high side based on diluted shares. It might be higher due to ESOS on every year.

Target price
Buy below RM0.70 for better safety margin.

Thursday, March 10, 2016

HUPSENG 5024 SELL @ 10/03/2016

HUPSENG 5024 SELL @ 10/03/2016

HupSeng is it worth to hold now?
Recent result achieve highest profit in history and bring the share price to historical high as well. But is it substainable? 

You may need to read out the interview article below from HupSeng Management

According to management, recent better result is due to lower commodity price and weaker Ringgit Malaysia, which help to registered higher profit margin at average 18%.
However if all these two external factor back to normal and expecting by management. The profit margin shall be back to average 13%., which is 27.8% downward from current earning.
The 13% profit margin is based on the external factor, CPO price at RM2800 per ton and RM3.80/USD, which is highly possible.
  • Current share price, RM1.30
  • PE = 19, which is high
  • DY = 5.7%, which is above average but it is not committed by management and is not substainable, as dividend payout is higher than earning.
Future prospect 
  • New product launching, "Naturelle" brand biscuit. I have tasted it and it is not my cup of tea.
  • Cash reservation at 4Q15 = RM120 million
  • New production line will be implemented and will cost around RM26 million
  • Purchased new factory and land at cost RM17.5 million on March 2016.

My personal view
  1. Share price now is high, based on PE ratio
  2. Management informed that the profit will be back to normal if commodity price and currency back to normal, which i think is highly possible. 
  3. There will be a risk of poorer result for next few quarters.
  4. Constant dividend payout is a BIG question mark, as management didn't commit any dividend policy.
  5. No timeline for new production line and new factory.
  6. Management is not agreesive to develope new product.
  7. Saturated "Cream-Cracker" market with annual growth 2% to 4% only.

Target Price 
  • Buy at RM0.50, without consider dividend yield or,
  • Buy at RM0.97, if dividend is able to maintain, which can give a DY at 7% (BEWARE! It is not achievable in long term)

Sunday, January 17, 2016

Will Jaya Tiasa register a growth for coming quarter?

Average Log production of 4Q15 is slightly higher than 3Q15
Average FFB, Palm oil production of 4Q15 is much lower than 3Q15

So would Jaya Tiasa register a growth for 4Q15? What do you think? ^v^

Monday, January 4, 2016

NO surpirse for SCH Group for next quarter

There should a no surprise for SCH Group in next quarter.

According to their quarterly report, 3Q15Y statement,

"Domestically, demand is expected to lose some momentum as reflected in big-ticket items after implementation of Goods and Services Tax (GST) in April.

In addition, Bank Negara in a statement released recently has also cited a more cautious tone on Malaysia's ecenomy with the continued uncertainties surrounding the global economy.

Nevertheless, looking forward, given the ongoing implementation of projects under the 11th Malaysian Plan with an average annual development expenditure of about RM52 billion, it is anticipated that the continued developement expenditure will provide a buffer from possible economic slowdown if external remains unfavourable."

It is believe that the revenue and profit will remain for the next quarter.

3Q15 EPS = RM0.055
Current share price RM0.22 @ 4th January 2016
Current PE 10.6

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.