Excel – http://1drv.ms/1vvzUE6
– Fair values:
– 5-Y DCF:
– Base Scenario: 4.1 (Fair Value Uncertainty: LOW)
– Good Scenario: 4.59 (Fair Value Uncertainty: LOW)
– Bad Scenario: 3.67 (Fair Value Uncertainty: MEDIUM)
– Ugly Scenario: 3.29 (Fair Value Uncertainty: MEDIUM)
– 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%
– FY14 (EPS: 0.198) – Fair value 2.41 (Fair Value Uncertainty: VERY HIGH)
– R4Q (EPS: 0.266) – Fair value 3.24 (Fair Value Uncertainty: MEDIUM)
– FY15 (EPS: 0.24) – Fair value 2.92 (Fair Value Uncertainty: HIGH)
– FY16 (EPS: 0.228) – Fair value 2.78 (Fair Value Uncertainty: HIGH)
– EPS applied to reach the current stock price (2.81): 0.231
– 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. Even in the ugly senario, it still worth 3.29.
– Nevertheless, In view of lower CPO prices and slower CPO demand towards end-2014, I expect weaker earnings in 2HFY15. FY15/16 EPS by 15%/7% was trimmed after imputing lower CPO price assumptions (CY14/15 at RM2,430/RM2,400 per MT). Also, I do not expect the group to see a sharp growth in FFB output in the near-term because of minimal new matured areas.
– I will closely monitor FCPO prices, and consider to buy KMLOONG when only FCPO turns bullish.
Latest Financial – Q2 2015 Financial Report (29 Sept 2014) http://www.bursamalaysia.com/market/listed-companies/company-announcements/1751245
At the time of writing, I did not own shares of KMLOONG.