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.



barbertan said...

Leaving aside the numbers you presented above, I would like to add my view.

They have also tip toed into Vietnam via a JV to do print packaging.

While the announced investment is relatively small, I think Vietnam offers fantastic growth opportunities in the immediate future.

To me Tien Wah has morphed into a high growth company with multiple currency cashflows in the near future. Anytime a company steps out of its normal geography will bring along inherent execution risks. However, this is mitigated by the strength of its management core if one has followed the company over the years.

I am invested for the above reasons.

Good luck.

Kesh said...

Hi Barbertan,

Thanks for the highlight and I missed out the Vietname JV business. I agreed with you it should be a fantastic growth opportunity.

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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.