CENBOND (7171) - RM1.75 Fair Price for Century Bond?
Century
Bond Bhd engages in the manufacture and trading of paper and plastic
packaging products. Besides, it involves in the manufacture of
industrial packaging tapes and materials, as well as the manufacture and
sale of corrugated carton boxes. It also manufactures stretch films,
plastic bags, and liners; and manufacture and sale of cement paper bags.
These are the major business segments of the company.
In
August 2016, KUMPULAN Perangsang Selangor Bhd (KPS) offered to acquire
Century Bond at RM1.75. The question is, was the offer price fair? How
should we assess the fairness of the price? Let's do some valuation
exercise.
Century Bond raked in net profits of RM15 - 20 mil for the past 5 years without much growth. Please refer below:
With
such stability in earnings, I think it is conservative to value Century
Bond based on RM15 mil annual earnings. Additionally, the company has a
3-Year average PE ratio of 10 times. Hence, the value of Century Bond
should be at least RM150mil or RM1.25 per share. Do note that my valuation perspective is extremely conservative.
But hang on...
As
of March 2016, Century Bond had a net cash of about RM0.61 per share.
If we include this into our valuation, Century Bond should worth at
least RM1.86.
According
to estimates, Century Bond has about 60% market share in the cement
packaging industry. With this strong track record of generating stable
earnings and high net cash position, I think the offer price of RM1.75
slightly undervalues the company.
Before
I end this topic, please note again that I used a very conservative
profit figure and PE ratio in my valuation. I personally think that it
would be fair if the shareholders demand for a higher price.
Please note that as of the time of writing this, my partnership and I are not the shareholders of Century Bond.
CENBOND (7171) - RM1.75 Fair Price for Century Bond?
http://www.valueinvestingstock.com/single-post/2016/08/24/RM175-Fair-Price-for-Century-Bond
