KMLOONG – Fundamental Analysis (1 Jul 2015)

KMLOONG Analysis:-

Excel – http://1drv.ms/1LDe7np

Notes – http://tinyurl.com/ofregj3

My View:-

  • Valuation:
    • 5-Y DCF:
      • Good Scenario (0.0% 2.0%): From 3.87 to 4.10 (Uncertainty Risk: LOW to MEDIUM)
      • Base Scenario (-2.0%): 3.66 (Uncertainty Risk: MEDIUM)
      • Bad Scenario (-6.0% -4.0%): From 3.27 to 3.46 (Uncertainty Risk: MEDIUM)
      • Ugly Scenario (-10.0% -8.0%): From 2.93 to 3.09 (Uncertainty Risk: HIGH)
      • At current price (2.77), based on RDCF, assumption of FCFF growth rate in the next 5 years is -12%.
      • Considering the factors surrounding this sector and this company, I think the assumed FCF growth may not supported by future earnings. I will take the bad/ugly scenario into consideration.
    • Absolute EY%
      • Trailing:
        • FY15 (EPS: 0.238) – From 3.00 to 3.54 (Uncertainty Risk: MEDIUM to HIGH)
        • R4Q (EPS: 0.199) – From 2.51 to 2.96 (Uncertainty Risk: HIGH to VERY HIGH)
      • Forward:
        • FY16 (EPS: 0.161) – From 2.03 to 2.39 (Uncertainty Risk: VERY HIGH to EXTREME)
        • FY17 (EPS: 0.193) – From 2.44 to 2.87 (Uncertainty Risk: HIGH to VERY HIGH)
      • EPS applied to reach the current stock price (2.77): 0.210
    • Simple Yield Valuation
      • FY15–EY%: 8.8%
      • FY15–DY%: 4.7%
      • R4Q–EY%: 7.2%
      • R4Q–DY%: 8.3%
    • I manually calculated average (median) of P/E of this industry: 20, which is 5% EY%. If I apply this to Absolute EY%, this yields range of fair value: 3.22 to 3.8.
    • Looking at various of valuation, I think fair value of KMLOONG range from 2.9 to 3.4.
  • The CPO price moves in a cyclical manner. In a worst case scenario, KMLOONG, a net cash company with a low cost of production and an experienced management team would be able to withstand the turbulence and even take up expansion opportunities.
  • In overall, valuation of KMLOONG is not bad, but less attractive.
  • KMLOONG is not only a good counter for trading, but it maintains high dividend yield too. I am not sure it can maintain high dividend yield if CPO prices continue at low range.
  • Unfavourable outcome of a court case made by some natives against its subsidiary, Tetangga Akrab Pelita (Pantu) Sdn Bhd (currently known as Winsome Pelita (Pantu) Sdn Bhd), regarding their customary rights to land. The group has accounted for impairment of assets and provision of contingent liabilities of RM3mil.
  • The FFB production for the current quarter and year-to-date were 77,300 MT and 304,700 MT respectively which were 10% lower and 6% higher comparing the corresponding periods in last year.
  • The plantation operations did not face problem in selling its FFB production as most of the produce was supplied to mills within the Group. Average FFB price was 6% higher for the current year-to-date as compared to last year.
  • I will closely monitor FCPO prices, and consider to buy KMLOONG when only FCPO turns bullish.

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Latest Financial – Q1 2016 Financial Report (30 Jun 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4787713

At the time of writing, I did not own shares of KMLOONG.

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