DIGI Updates – 24 Jul 2017

DIGI Analysis File – http://wp.me/a17Hxk-2IA

As a follow up to DIGI Updates – 21 Apr 2017, based on Q1 and Q2 FY17 results, I have updated financial modelling for DIGI by making couple of major adjustments, such as:

  1. Higher depreciation
  2. Higher capex
  3. Lower revenue projection 😦

After the adjustments, fair value of DIGI is around 4.6 which is overvalued (4.8 as of 24 Jul 2017). As of now, I won’t consider to accumulate DIGI, but to hold it for extremely high dividend yield as my average cost for DIGI is almost free.

VITROX Updates – 23 Jul 2017

VITROX Analysis File – http://wp.me/a17Hxk-2Iw

I sold off my VITROX shares in May 2015 at around 3.6-3.7 as I didn’t expect 46% revenue growth in FY16. As of 14 Jul 2017, VITROX share price was at 7.78 (before issue bonus 1:1). Hindsight is always 20/20, so I won’t regret my action.

Moving forward, I still bet on good growth drivers in VITROX business as Global Sales Report 2017 by World Semiconductor Trade Statistics shows positive outlook in the Semiconductor industry. The uptrend market outlook in the semiconductor and electronics assembly manufacturing sectors in the next 2-3 years coupled with ViTrox’s strong line-up of innovative, advanced and cost effective machine vision inspection products, and dedicated sales channel partners worldwide, ViTrox is well positioned to capture bigger market shares in both sectors in the next few years.

To be conservative, I don’t project 30%-50% revenue growth in VITROX business, but approx. +17% and +6% growth rate for FY17 and FY18 respectively. With this assumption, fair value of VITROX range from 7.1 to 8.1 (after 1:1 bonus issue, around 3.3 to 4.05). In my opinion, as of 21 Jul 2017, at RM4.00, I believe investors has already factored in its growth drivers. Thus, VITROX is fully valued.

Join my FB group: https://www.facebook.com/groups/285121298359919 for more collaboration.

KMLOONG Updates – 11 Jul 2017

KMLOONG Analysis File – http://wp.me/a17Hxk-2He

In my opinion, KMLOONG is overvalued where its fair value range from 3.2 to 3.4.

At 3.9 (11 Jul 2017),

  1. if based on fair value projection for FY17, investors assume CPO production of KMLOONG is 289,634MT and average selling price of CPO is 2,782-2,882. However, in FY17, the actual CPO production is 250,197MT and average selling price of CPO is 2,682. This is a strong signal of overvalue.
    KMLOONG Sensitivity 2
  2. if based on fair value projection for FY19, investors assume CPO production of KMLOONG is 355,448MT which is unrealistic for the size of plantable area owned by KMLOONG. This is a strong signal of overvalue.

KMLOONG Sensitivity

As of now, I won’t consider to accumulate KMLOONG, and offload KMLOONG gradually. CPO industry is cyclical, so no point to hold for long term.

Join my FB group: https://www.facebook.com/groups/285121298359919 for more collaboration.

CARLSBG Updates – 25 Apr 2017

CARLSBG analysis file – https://doc.co/vYKN41

I don’t expect significant growth in CARLSBG (and HEIM) business in foreseeable future. In my opinion, at 15, valuation of CARLSBG is fully valued where I believe its fair value range from 15.3 to 15.6. Its dividend yield is around 4.5%.

As of now, I won’t consider to accumulate CARLSBG, but to hold it for extremely high dividend yield as my average cost for CARLSBG is almost free.

Join my FB group: https://www.facebook.com/groups/285121298359919 for more collaboration.

 

DIGI Updates – 21 Apr 2017

DIGI Analysis File – https://doc.co/idLdDU

I think stiff competition between Malaysian Telcos will continue in the foreseeable future. I don’t expect significant growth in DIGI business (in matter of fact, this applies to other Telcos too). You can easily find challenges faced by Telco by Googling.

In my opinion, at 5.16, valuation of DIGI is fully valued where I believe its fair value range from 4.9 to 5.2. Its dividend yield is around 4% only.

As of now, I won’t consider to accumulate DIGI, but to hold it for extremely high dividend yield as my average cost for DIGI is almost free.

Join my FB group: https://www.facebook.com/groups/285121298359919 for more collaboration.

Duration of Investing a Stock if use DCF valuation

I was asked by a reader: “If we do 10-year DCF for a stock, does this mean we have to look into 10 year in investing the stock?

My response: NOT REALLY.

  1. By trying to help the reader to look from different perspective, I extended his question:”To get the total value of a company by using DCF, besides the 10-year projection, we also have to calculate Terminal Value. Terminal Value is necessary because we believe the company will continue generating profits for a very long time (infinity). Does this mean we have to invest in that company forever?

    DCF Components.png

    Remember: We have to discount the projected cash flow (near future value) and terminal value (far future value) to present value, at our discount rate. In this context, the present value means the company value as of the date we do the analysis. In other way, we can say the present value is our intrinsic value.

    DCF doesn’t tell you the timeframe of your investment, or how long you should invest.

    Thus, in theory, back to basics,

    1. Asking price > Intrinsic Value – Don’t invest or sell
    2. Asking price < Intrinsic Value – Invest!
  2. Intrinsic value derived from DCF is usually less conservative if compare to Dividend Discounted Model and P/E. Sometimes, a stock may need longer timeframe to approach the intrinsic value. This is probably the reason you have to invest (and wait) for longer term.
  3. “How long you should invest in a stock” – This depends on your investment plan. DCF is just a small part of your investment plan. Well, investment plan is another huge topic.

Join my FB group: https://www.facebook.com/groups/285121298359919 for more collaboration.

 

HEIM Updates – 7 Apr 2017

HEIM Analysis File – FY16 Q6 – https://doc.co/wybkYA

In the foreseeable future, I think HEIM won’t have significant catalysts to boost up its growth. Having said that, HEIM will still be able to achieve steady performance even if alcoholic beverage industry is a highly regulated industry, and also faces contrabands issues. At 17.98, valuation of HEIM is not bad where I believe its fair value range from 17.9 to 20. Besides, if you buy HEIM now, dividend yield is less than 4% (excluding special dividends).

As of now, I won’t consider to accumulate HEIM, but to hold it for >6.5% dividend yield based on my average costs.

There is one slight issue in my analysis file, but the issue doesn’t impact valuation very much. In its Cash Flow Statement, you can easily spot one item called “Amortisation of prepaid contractual promotion expenses”. In the footnote (AR 2016, page 129, Note 7.2), HEIM stated:

Included in prepayments of the Group are prepaid contractual promotion expenses for promotional activities of RM43,531,000 (30.6.2015: RM49,015,000) of which RM20,125,000 (30.6.2015: RM26,218,000) are to be amortised over a period of more than 12 months. The prepaid contractual promotion expenses are made to the Group’s distribution channels to carry out promotional activities specified in the contract. The amount is amortised to profit or loss based on the volume purchased by outlets from the distributors or the time period as stipulated in the contract.

Unfortunately, HEIM didn’t disclose how they allocate “prepaid contractual promotion expenses for promotional activities“, and how they amortised the expenses based on the volume purchased. Thus, there is no way for me to make projection. Although the figures were quite large, it didn’t impact valuation significantly.

Join my FB group: https://www.facebook.com/groups/285121298359919 for more collaboration.