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.

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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.