Betting On Mineral Water Bottle

Spritzer Berhad operates in three business segments: manufacturing, which includes the production of natural mineral water, carbonated flavored water, distilled water, drinking water, non-carbonated flavored water, polyethylene terephthalate (PET) pre-forms, PET bottles, caps and toothbrushes; trading, which includes the sale of bottled water and other consumer products, and others, which includes investment and properties holding.

Continue reading “Betting On Mineral Water Bottle”

Why Implied Volatility So Low?

The implied volatility of an underlying may be low (i.e relatively lower than realised volatility of the underlying) due to numerous possible reasons – e.g future expectation that the underlying may go up (for put warrants) or go down (for call warrants), low liquidity for the derivative (possibly newly traded), declining market risks and other tonnes of reasons. What surprises me is that the newly traded structured call warrant FBMKLCI-C3E (06503E) (underlying: FBMKLCI) has a relatively low implied volatility.

Continue reading “Why Implied Volatility So Low?”

Healthcare Stocks = Not Cheap

Sometimes I am wondering why on earth are Malaysian healthcare stocks (e.g IHH and KPJ)  trading at such premium valuation (at least in terms of relative earnings yield). As shown below, both IHH and KPH are trading at a relative lower earnings yield if compared to the general KLCI index:

KPJ vs IHH.png

Further, IHH trades at a higher P/E (i.e lower earnings yield) if compared to KPJ. There has been this consistent relative premium valuation associated with IHH if compared to KPJ:

KPJ vs IHH 2.png

My personal view (strictly personal): I will only consider the Malaysian healthcare stocks if they trade closer to current earning yield (i.e closer to 5.0%, perhaps?) of the broader KLCI market. The more expensive you buy a stock, the less return you are going to get in the future.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Yield Differential (Update: August 2017)

In this brief posting, I am going to take a quick look at the yield differential between Earnings Yield of FBMKLCI (i.e the inverse of FBMKLCI’s price-to-earnings ratio) and yield to maturity (YTM) of 5 Year AAA-rated private debt securities (PDS). The lower amount of yield differential (earnings yield minus PDS yield) may potentially indicate a higher risk of equity overvaluation.

Continue reading “Yield Differential (Update: August 2017)”

Making Sense Of Earning Numbers

I am eagerly waiting for the latest quarterly results to be announced by Malaysia-listed Power Root Berhad.

Company Background

Power Root Berhad, through its subsidiaries, engages in the manufacture and distribution of beverage products primarily in Malaysia. It provides ready-to-drink (RTD) coffee, RTD tea, RTD chocolate malt drinks, RTD cereal, and energy drinks. The company markets its products primarily under the Alicafe, Perl Cafe, Oligo, Alitea, and Power Root brand names. It also distributes health and beauty products. Power Root Berhad also exports its products to 18 countries, including Singapore, the United States, the Republic of Taiwan, South Korea, Brunei, the United Arab Emirates, the Republic of China, Bahrain, Qatar, Oman, the Kingdom of Saudi Arabia, Indonesia, Syria, Kuwait, Yemen, Jordan, Egypt, and Lebanon, as well as re-exports its products through overseas distributors/traders to Sudan, Australia, the United Kingdom, and the Philippines. The company was formerly known as Natural Bio Resources Berhad and changed its name to Power Root Berhad in July 2010. Power Root Berhad was incorporated in 2006 and is headquartered in Masai, Malaysia.

Prior Year Results

The following table highlights the growth in EPS appears to have tapered off, with the latest financial year recording a marginal decline in EPS. The 4-year average y-o-y EPS annual growth rate is approximately 5.8% whilst the 3-year average is approximately 3.39%.

EPS.png

Quick Desktop Valuation

The following table shows the following:

  1. If you assume that the projected annual growth rate in EPS is about 5.84%, then there could be some level of margin of safety (but growing at 5.84% per annum may appear to be ‘tall order’ considering the recent EPS decline in the latest financial year as well as a low single digit EPS growth rate being recorded in FY2016)
  2. Assuming a lower annual EPS growth rate of close to 3.39% per annum may be a fair assessment of current situation for this Company (unless there is a significant positive change in revenue and cost components)
  3. Assuming a discount rate of 10% and terminal growth rate of 2.0%, the market is expecting a lower EPS annual growth rate of 2.97% (which is not too unrealistic at this juncture).
  4. Should the discount rate be higher or lower? Considering 10Y MGS of close to 3.9%, expected return on market is close to 7%-9% and beta of less than 1, I think 10% is about fair
  5. Should the terminal growth rate be higher or lower? 2% is about right, lower than current Malaysia’s GDP rate and 2% is pretty much the GDP rate for most of the developed nations (i.e assuming that Malaysia will eventually become a fully-developed nation in 10 years time).

 

Scenario.png

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.

Fundamental Scoring

I was quite thankful to my close friend, James who is currently working at an investment management firm. Today, he has provided the latest list of securities listed on Bursa Malaysia with relevant key parameters (extracted from Bloomberg) – P/E, P/B, Average 3Y ROE, ROIC, Gearing, Dividend Yield and Operating Margin. Hence, with this data, I decide to rank 932 listed securities via a simple fundamental scoring system.

Continue reading “Fundamental Scoring”

Calmer, But Is It Over Yet?

Volatility has stabilised. Volume & activity have also dropped. Things appear to be ‘calmer’ for Lotte Titan Chemical (recently listed on Bursa Malaysia). We are seeing some sort of support zone at $4.27.

5284.MY.png

If you choose to believe that the recent poorer than expected result was due to one-off water disruption,  then the worse may be over.

My Super High Level View On Fair Value

Strictly For Illustrative and Educational Purpose

My personal view – assuming that the incident was a really really one-off impact from the water disruption, plus assuming that this company can achieve a projected annual EPS of RM0.52 (annualised based on 2 quarters) for FY18 and plus this company can trade at a trading P/E of 12 times (vs Petronas Chemicals’s P/E of >15 times), we may be looking at a target price that is higher than its current price of RM4.37.

Valuation.png

One should also be concerned whether there will be further rise in oil price due to geopolitical uncertainty. This may impact on the company’s raw material costs.

DISCLAIMER: THIS IS A PERSONAL BLOG AND SHALL NOT BE RELIED IN WHATSOEVER MANNER BY ANYONE. ALL ARTICLES CONTAINED IN THIS SITE ARE STRICTLY FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY, COMPLETENESS AND TIMELINESS. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED IN THE ARTICLES.