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

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Temporarily No Power?

Company Background – PWRoot

Power Root Home1-750x750.jpg

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 energydrinks. 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.

Declining Price Trend?

PWROOT_price.png

It appears that PWRoot is “lacking power” as it is currently facing downward price pressure with support lines at RM1.78 and RM1.38. Nevertheless, PWRoot is a fundamentally strong consumer company with financial strength:

 

Trend Trailing 12M
Dec 2015
Full Year
Mar 2015
Full Year
Feb 2014
Full Year
Feb 2013
Per Share Data (Adjusted)
[+] Earnings Per Share (EPS) – Adjusted [RM]
(Earnings/Latest Number Of Shares)
0.18668 0.14172 0.12751 0.11309
[+] Net Asset Value (NAV) Per Share – Adjusted [RM]
((Shareholders’ Equity – Other Share Capital)/Latest Number Of Shares)
0.7824 0.7595 0.7259 0.6709
[+] Net Tangible Asset (NTA) Per Share – Adjusted [RM]
((Shareholders’ Equity – Other Share Capital – Intangible Assets)/Latest Number Of Shares)
0.7663 0.7434 0.7084 0.6534
Valuation Ratios (Adjusted)
[+] Price Earnings Ratio (PER) – Adjusted
(Price/Adjusted EPS)
11.30 14.89 16.55 18.66
[+] Price/NAV – Adjusted
(Price/Adjusted NAV)
2.6969 2.7780 2.9069 3.1449
[+] Price/NTA – Adjusted
(Price/Adjusted NTA)
2.7537 2.8384 2.9788 3.2295
[+] Price/Revenue – Adjusted
(Price x Latest Number Of Shares/Revenue)
1.692 1.674 2.091 2.296
[+] Price/Operating Cash Flow – Adjusted
(Price x Latest Number Of Shares/Operating Cash Flow)
10.027 9.510 16.894 27.916
[+] Price/Free Cash Flow – Adjusted
(Price x Latest Number Of Shares/Free Cash Flow)
10.876 11.335 19.983 52.741
[+] Dividend Yield – Adjusted [%]
(Gross Dividend Per Share/Price)
5.924 4.728 4.223 3.274
[+] Dividend Yield incl Special Dividend – Adjusted [%]
(Total Dividend Per Share/Price)
5.924 4.728 4.223 3.274

Analysts’ Price Target

Date Open Price Target Price Upside / Downside Price Call Source
23/12/2015 2.75 3.10 +0.35 (12.73%) TRADING BUY KENANGA

If PWRoot continues to maintain its strong business and financial fundamentals, it is not unreasonable to assume PWRoot’s share price will rebound in the long run.

DISCLAIMER: THIS SITE IS 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. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.