40 undervalued stocks (Focus Malaysia)
Like last year, our list presents 40 stocks which we believe are undervalued based on their price-to-book (PB) value and their return on equity (ROE). We only feature stocks with a PB ratio lower than one, a ROE higher than 10% and which were profitable in the last financial year.
A low PB ratio can be a good first measure of potential promising stocks which are undervalued and might prove to be bargain buys.
However, a PB ratio itself does not necessarily tell the whole story and investors should always look at a stock holistically and evaluate it against a range of metrics before making any decisions.
OpenSys (M) Bhd is the most undervalued stock on our list with a PB ratio of 0.16. Its book value per share stands at RM1.82 versus 30 sen at its close on Jan 11 (our cut-off date for this artcle).
The tech player recorded a ROE of 18.9% for the third quarter of its financial year 2018 (3QFY18). Its earnings per share (EPS) came in at 0.7 sen for the same period.
The company provides technology solutions for project management, software engineering and system integration to the financial services, telecommunications and utilities industries.
Management attributes the improvement to stronger revenue derived from the rollout of its cash recycling machine product and higher maintenance revenue collected.
For 3QFY18, its revenue rose to RM17.1 mil from RM15.3 mil in the previous corresponding period. This led to a stronger net profit of RM2.1 mil versus RM1.5 mil.
www.focusmalaysia.my
My trading adventure blog
Valuation metric : P/B less than 1, no loss-making companies and ROE > 10%
#1 Opensys : with P/B 0.16, it is deemed to be the most under-valued ... so, attracted many buyers last week. So, if you believe in Opensys as under-valued ... time to accumulate and hold for say, 100% .... up above 60cents? Collect?
#2 Seal : with P/B 0.28, it is position as no 2 undervalued. Well ... a strong downtrend, and just buy in if one believes in media (will attract many punters and operators too).
#3 SDred : this is not liquid ... property sector and downtrending. I never trade her as it is not liquid. P/B given here is 0.31 to stand at no 3.
Conclusion : From the above, I will put Opensys in my list. I have avoided properties stocks since ... years ago?
Amazinggrowth blog
My reply to (S = Qr) Philip comment (A no-brainer investment?)
Author: Amazinggrowth Publish date: Sun, 10 Mar 2019, 9:09 PM
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My reply to (S = Qr) Philip comment on the following post
https://klse.i3investor.com/m/blog/Amazinggrowth/197164.jsp
Philip,
I don’t mind buying a company with high ROE of 18% and FCF yield of 15%, even if it is an “average” company, by your definition.
Better still, I’m paying less than 7x free cash flow for THE market leader with blue chip clients, with net cash position, with 3.79% dividend yield, with undemanding valuations, and exciting growth prospects.
Why exciting growth prospects? In the last five years, the total number of CRMs in the market has grown exponentially with a Compound Annual Growth Rate of close to 40 percent. Is this expected to continue? Yes. Because banks will continue to cut costs. Banks are benefitting from the cost- effectiveness of CRMs in areas of cost of ownership, lower cash holding and reduction in cash handling cost. These significant savings have been a major driving factor for banks to undertake major fleet replacement and consolidation, resulting in the exponential growth of CRMs.
What is the total market size? The total number of ATMs and CDMs in Malaysia is 17500 units with annual growth of about 5%. Opensys’ installed base of CRM (only) is 2600 units with close to 80% market share. Therefore, total CRMs in Malaysia is 3250 as compared to 17500 ATMs and CDMs to be replaced sooner or later.
Assume only 60% machines are CRMs in the future, the growth potential is more than 3 times (10500 units as compared to 3250 today).
Do you understand the business models of Opensys? You will appreciate more if you do.
OpenSys has four business revenue models, namely
(i) outright sales,
(ii) software services,
(iii) outsourcing services and
(iv) maintenance services.
In outright sales, our CRMs and cheque deposit machines are sold directly to the financial institutions.
In software services, we provide software development services to our customers when they need modification to their application software due to changes in their business or regulatory requirements.
In outsourcing services, we provide bill payment kiosks to utility, insurance and telecommunication companies over a contract period of 3-5 years. The customers pay a rental for the machines plus a click charge for each transaction.
In maintenance services, the banks pay us an annual maintenance fee of 10-12 percent based on the selling price of the machines that we sold to them. In return, we service and repair the machines to ensure high availability and optimum uptime.
(Sourced from annual report)
Yes, you are right. Opensys has been doing RM100 million sales for the last 3 years. and roughly half is from CRM outright sales. But you miss the crux of the matter. Maintenance profit!
1 CRM costs roughly RM70,000. Therefore, they sold ~700 machines per year for last 3 years. Maintenance fee is recurring annually after 2-3 years free warranty period. Lifespan of machines is 8-10 years. Total profit for 2600 CRMs? Recurring for the next 5-7 years? You do the math. The market is big enough to multiply profits several times if they continue to win more market share.
“Over the last 4 years, the penetration rate of CRMs has increased to approximately 20 percent of the total installed base, largely due to the efforts of OpenSys. If the banks in Malaysia start to install CRMs at their new branches, or replace their older ATMs and CDMs with CRMs, OpenSys is in a prime position to profit from it. Considering that we have an excellent track record, we are optimistic that we will continue to win more market share than our competition.” Opensys annual report
Source
Business models
http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=185709&name=EA_DS_ATTACHMENTS
CRM cost
http://www.theedgemarkets.com/article/opensys-roll-out-rm36m-worth-oki-cash-recycling-atms-3q
https://klse.i3investor.com/blogs/Multibagger/201273.jsp
