Dear all,
Before I start, I would like to take this opportunity to thank my wife for taking good care of our children as I have to admit I am an absentee father. My wife becomes a full time housewife when she needed to leave her job to take care of our children. I consider my wife as smart, frugal and prudent. She knows where to get value for money things for daily necessities and for the CNY. Move fixed-deposit among banks to get maximum FD interest rate. She even appeals to relevant parties and make financial contribution so that all our children (straight A for primary school exam) able to be enrolled into: https://en.wikipedia.org/wiki/SMJK_Kwang_Hua,_Klang
SMJK Kwang Hua is a grade A school that has a 3660 students, 151 teachers and 12 support personnel. Many hundreds of the students graduate with minimum 6A in SPM exam compare with my 5A MCE exam in SMJK St’ Michael Alor Setar where less than 5 achieved better than 5 A.
School Motto:
Definition of High PE or growth trap: Growth, again, has little meaning without any reference to the future return of the business. Growth is only good if it is above the cost of capital. Let’s do some calculation on QL:
PE ratio= 6.87/0.127 = 54.1
Net profit growth rate (FY18) = (206,236/195,921-1) = 5.26%
PEG ratio= 54.1/5.26 = 10.28. Is this good?
Note: Net profit growth rate (FY17) 2%. (FY16) 0.35%
Nothing falls faster than a growth stock that suddenly stops growing. But relax QL top 30 shareholders (Rich daddy) controlled 74.42 % of shares.
Quote: “My wife has calculated the terminal value and cash flow possibilities for this company for the long term” Let’s start to calculate intrinsic and terminal value at year N for QL.
d = Discount rate, a = Land and building appreciation rate, N = termination year N
QL:
Non-current assets (RM 2,073,315,000) consist of:
Interest expense of financial liabilities: RM 48,645,000
Interest income of financial assets: RM 7,906,000
Mr. Philip may I know what is the final result from your wife calculated terminal value and cash flow possibilities for this company for the long term?
It is okay to assume a high growth rate, so long as it is sustainable growth, based on sustainable business and marketplace fundamentals.
RM (,000)
Is above growth rate considered as high growth rate? Is above business
able to achieve sustainable growth, based on sustainable business and
marketplace fundamentals?
Look into some comments in financial report 2018 to judge whether the growth is sustainable growth, based on sustainable business and marketplace fundamentals
1. For the period under review, QL’s fishery units in Kota Kinabalu were deeply affected by low fish cycle caused by unusual post-El Nino events, where a trail of storms followed. Compounding that, recent super typhoons in tandem with prolonged Northeast monsoons also adversely affected fishery activities. In Endau, the lower fish catch was compounded by a stronger Ringgit. The overall effect was a lower contribution from the fishery operations at this unit.
Three years ago, we commenced our prawn aquaculture activities to diverge from solely depending on fishing activities. In Kudat, the upstream activity challenges reported in the last financial year have been overcome. This Kudat prawn aquaculture unit is now in the recovery phase after the prawn disease outbreak last year.
QL produced 140,000 tonnes of surimi,surimi-based products, frozen fish and fishmeal. This is comparable to the 135,000 tonnes produced in the prior year and is the optimal output quantity for the operating MPM assets as at FY2018.
2. QL owns a 1,200 hectare mature palm oil estate in Sabah, as well as 15,000 hectare plantation ( 9,000 hectare mature) in Eastern Kalimantan, Indonesia. The third revenue pillar, POA, remained the smallest contributor to Group revenue. This division is most susceptible to weather patterns. The excessive rainfall, sustained El Nino stress and acute labour shortage in East Malaysia during the year resulted in lower fresh fruit bunch (FFB) yield as well as oil extraction rates.
The severe negative effects were slightly offset by the increased harvest thanks to the maturing profile of our planted estates in Indonesia. We initially anticipated POA activities to produce135,000 metric tonnes of FFB in the financial year under review. However, the high rainfall dampened production to 127,000 metric tonnes. Nevertheless, this was still a 27% higher in FFB production compared to the 100,000 metric tonnes harvested in FY2017. While the increase in FFB production provided more activities for the mills, the oil extraction rate (OER) was affected by the wet weather in Indonesia and severe labour shortage in Sabah. At the same time, Boilermech Holdings Berhad experienced slower business activity resulting from a poor order book, a hangover since FY2016. The CPO prices traded at about RM 2,500 per metric tonne in FY2018 did not provide the silver lining. Despite these challenges and the weaker CPO price in FY2018, the turnover increased by RM35.5 million from RM351.8 million to RM387.3 million while PBT increased from RM24.9 million to RM27.9 million. The contribution of Boilermech Holdings Berhad, an approximately 44% equity stake associate company has been taken into account in this performance. Boilermech’s contribution was lower due to weaker demand in the palm industries.
3. Operations in Indonesia rebounded healthily. With vigilance and effective vaccination programmes, productivity of the layers has normalised. The Vietnamese unit has also seen gradual increment in production and plans are being mulled to build a new layer farm facility in a new location to double production capacity. Approval for the commencement of this new business and farm has been granted by the Vietnamese authorities. The regional operations lay close to 1.5 million eggs per day. On the feed raw material front, the entry of new players saturated the market, causing intense competition and adversely affected sales and margins. The current intense competition due to market saturation from new entrants in feed raw material is likely to continue in the next financial year.
4. As part of QL’s outlined strategy to grow downstream via long-term scaleable businesses, QL is also the master franchisee of the FamilyMart convenience store chain in Malaysia. FY2018 marks a full year of FamilyMart operationsin Malaysia and the rapid expansion for the brand from Japan. By adopting the concept of konbini and providing convenience in particular with ready-to-eat food, FamilyMart created waves wherever it opened. As at 6 July 2018, there are a total of 50 FamilyMart stores in Malaysia. We aim to hit 89 stores by 31 March 2019 with the opening of an additional 50 stores, gearing towards fulfilling our promise of 300 stores in five years (FY2022).
Overall, actual performance in terms of key store operating key performance indicators (KPIs) such as gross margin, average ticket count and ticket size are meeting expectations.
http://www.investlah.com/forum/index.php/topic,79417.0.html
Family Mart: Japan Vs Taiwan. So can Malaysia Family Mart do better than Taiwan where like Family Mart Taiwan needs to pay franchise fees to Family Mart Japan.
5. Business outlook: Under Conserve are three businesses where we will maintain our foothold in. We will retain our strong base in surimi and fishmeal processing, two units which are facing limitations of marine catch resources and rising material cost. Another business where we will maintain is palm oil activities as this is a business where multiple facets of pressures are at play, from ever rising cost of production, severe labour shortages, long gestation period to compliance and environmental consciousnes. Livestock Farming and layer business is capital hungry but the return on investment is not as fast and attractive. Our anticipation of the short term economic outlook, within FY2019, will be a neutral to bearish.
Thank you
P/S: Free quote from Buddha
Praise and blame, gain and loss, pleasure and sorrow come and go like the wind. To be happy, rest like a giant tree in the midst of them all. - Buddha
Do not believe in anything simply because you have heard it. Do not believe in anything simply because it is spoken and rumored by many. Do not believe in anything simply because it is found written in your religious books. Do not believe in anything merely on the authority of your teachers and elders. Do not believe in traditions because they have been handed down for many generations. But after observation and analysis, when you find that anything agrees with reason and is conducive to the good and benefit of one and all, then accept it and live up to it.- Buddha
This article is my response to Mr. Philip article: THE PERCEPTION OF P/E or: How I learned to fear my Wife
https://klse.i3investor.com/blogs/phillipinvesting/190569.jspBefore I start, I would like to take this opportunity to thank my wife for taking good care of our children as I have to admit I am an absentee father. My wife becomes a full time housewife when she needed to leave her job to take care of our children. I consider my wife as smart, frugal and prudent. She knows where to get value for money things for daily necessities and for the CNY. Move fixed-deposit among banks to get maximum FD interest rate. She even appeals to relevant parties and make financial contribution so that all our children (straight A for primary school exam) able to be enrolled into: https://en.wikipedia.org/wiki/SMJK_Kwang_Hua,_Klang
SMJK Kwang Hua is a grade A school that has a 3660 students, 151 teachers and 12 support personnel. Many hundreds of the students graduate with minimum 6A in SPM exam compare with my 5A MCE exam in SMJK St’ Michael Alor Setar where less than 5 achieved better than 5 A.
School Motto:
- Kejujuran '诚'(Honesty)
- Ketekunan '勤'(Hardworking)
- Jimat cermat '俭'(Frugality)
- Keazaman '毅'(Dedication)
Definition of High PE or growth trap: Growth, again, has little meaning without any reference to the future return of the business. Growth is only good if it is above the cost of capital. Let’s do some calculation on QL:
PE ratio= 6.87/0.127 = 54.1
Net profit growth rate (FY18) = (206,236/195,921-1) = 5.26%
PEG ratio= 54.1/5.26 = 10.28. Is this good?
Note: Net profit growth rate (FY17) 2%. (FY16) 0.35%
Nothing falls faster than a growth stock that suddenly stops growing. But relax QL top 30 shareholders (Rich daddy) controlled 74.42 % of shares.
Quote: “My wife has calculated the terminal value and cash flow possibilities for this company for the long term” Let’s start to calculate intrinsic and terminal value at year N for QL.
d = Discount rate, a = Land and building appreciation rate, N = termination year N
QL:
Non-current assets (RM 2,073,315,000) consist of:
- Property, plant and equipment: RM 1,705,224,000
- Land and building: RM 543,148,000. Intrinsic value RM 543,148,000 X (1+a)^N/(1+d)^N
- Farm building, Boat, Plant, Machinery, Vehicle, Fitting, Work in progress and etc: RM 1,162,075,000. Intrinsic value as zero at end of life span N + DCF(Net profit generating from this non-current assets)
- Investment properties: RM 22,731,000. Intrinsic value RM 22,731,000 x (1+a)^N/(1+d)^N + DCF(Rental income)
- Prepaid lease payments: RM 57,600,000. Intrinsic value as zero at end of life span N
- Intangible assets: RM 10,617,000. Intrinsic value as zero at end of life span N
- Biological assets: Plantation development expenditure RM 133,681,000. Intrinsic value as zero at end of life span N + DCF (Net Plantation income)
- Investment in associates: RM 131,257,000
- Indahgrains Logistics Sdn. Bhd: Malaysia operating of warehouse an warehouse management (29.87%)
- Boilermech Holdings Berhad Malaysia: Manufacturing, repairing and servicing of boilers (43.67%)
- AB Hatchery Sdn. Bhd: Malaysia Hatchery and culturing of shrimps (40.83%).
Intrinsic value of associates = (29.87% of Market Cap of Indah grain at
year N)/(1+d)^N + (43.67% of Market Cap of Boilermech at year
N)/(1+d)^N + (40.83% of Market Cap of ABC Hatchery at year N)/(1+d)^N +
DCF(Dividend received)
- Deferred tax assets : RM 2,172,000
- Other receivables; RM 10,033,000. Intrinsic value RM 10,033,000 /(1+d)^N
- Biological assets (Livestock): RM 133,213,000
- Inventories: RM 376,289,000
- Raw materials: RM 92,753,000
- Manufactured and trading inventories: RM 282,903,000
- Net realisable: RM 633,000
- Current tax assets: RM 25,273,000
- Trade and other receivables: RM 383,986,000
- Trade receivables: RM 313,836,000
- Other receivables: RM 70,150,000
- Prepayments and other assets: RM 22,530,000
- Derivative financial assets: RM 242,000
- Cash and cash equivalents RM 304,028,000
- Cash and bank balances: RM 250,772,000
- Deposits with licensed banks: RM 39,971,000
- Liquid investments: RM 13,285,000
- Assets classified as held for sale: RM 7,042,000
- Loans and borrowings: RM 548,204,000
- Trade and other payables: RM 208,000
- Employee benefits: RM 6,282,000
- Deferred tax liabilities: RM 91,561,000
- Loans and borrowings: RM 465,920,000
- Trade and other payables: RM 283,040,000
- Derivative financial liabilities RM 34,339,000
- Current tax liabilities: RM 5,433,000
Interest expense of financial liabilities: RM 48,645,000
Interest income of financial assets: RM 7,906,000
Mr. Philip may I know what is the final result from your wife calculated terminal value and cash flow possibilities for this company for the long term?
It is okay to assume a high growth rate, so long as it is sustainable growth, based on sustainable business and marketplace fundamentals.
RM (,000)
| Revenue |
3,263,830
|
3,012,026
|
2,853,924
|
2,707,767
|
2,457,186
|
2,146,307
|
| YoY % |
8.36%
|
5.54%
|
5.40%
|
10.20%
|
14.48%
|
10.26%
|
| NP to SH |
206,236
|
195,921
|
192,079
|
191,400
|
159,929
|
131,706
|
| YoY % |
5.26%
|
2.00%
|
0.35%
|
19.68%
|
21.43%
|
0.23%
|
| NOSH |
1,622,627
|
1,247,904
|
1,247,660
|
1,247,838
|
1,159,746
|
832,260
|
| Tot borrowing |
1,014,124
|
923,787
|
773,535
|
756,991
|
654,276
|
603,610
|
| Equity to owners |
1,792,600
|
1,748,306
|
1,591,653
|
1,426,583
|
1,285,768
|
890,781
|
| Gearing |
0.566
|
0.528
|
0.486
|
0.531
|
0.509
|
0.678
|
| ROE |
11.50%
|
11.21%
|
12.07%
|
13.42%
|
12.44%
|
14.79%
|
| Cash flow | ||||||
| Net Operation |
298,632
|
305,988
|
251,375
|
225,110
|
274,146
|
119,066
|
| Net Investment |
(331,836)
|
(293,850)
|
(170,986)
|
(277,429)
|
(179,905)
|
(191,979)
|
| Depreciation |
123,729
|
110,076
|
96,407
|
86,436
|
76,256
|
64,156
|
| CAPEX/Acqisition |
338,887
|
315,473
|
238,108
|
261,943
|
188,259
|
188,703
|
Look into some comments in financial report 2018 to judge whether the growth is sustainable growth, based on sustainable business and marketplace fundamentals
1. For the period under review, QL’s fishery units in Kota Kinabalu were deeply affected by low fish cycle caused by unusual post-El Nino events, where a trail of storms followed. Compounding that, recent super typhoons in tandem with prolonged Northeast monsoons also adversely affected fishery activities. In Endau, the lower fish catch was compounded by a stronger Ringgit. The overall effect was a lower contribution from the fishery operations at this unit.
Three years ago, we commenced our prawn aquaculture activities to diverge from solely depending on fishing activities. In Kudat, the upstream activity challenges reported in the last financial year have been overcome. This Kudat prawn aquaculture unit is now in the recovery phase after the prawn disease outbreak last year.
QL produced 140,000 tonnes of surimi,surimi-based products, frozen fish and fishmeal. This is comparable to the 135,000 tonnes produced in the prior year and is the optimal output quantity for the operating MPM assets as at FY2018.
2. QL owns a 1,200 hectare mature palm oil estate in Sabah, as well as 15,000 hectare plantation ( 9,000 hectare mature) in Eastern Kalimantan, Indonesia. The third revenue pillar, POA, remained the smallest contributor to Group revenue. This division is most susceptible to weather patterns. The excessive rainfall, sustained El Nino stress and acute labour shortage in East Malaysia during the year resulted in lower fresh fruit bunch (FFB) yield as well as oil extraction rates.
The severe negative effects were slightly offset by the increased harvest thanks to the maturing profile of our planted estates in Indonesia. We initially anticipated POA activities to produce135,000 metric tonnes of FFB in the financial year under review. However, the high rainfall dampened production to 127,000 metric tonnes. Nevertheless, this was still a 27% higher in FFB production compared to the 100,000 metric tonnes harvested in FY2017. While the increase in FFB production provided more activities for the mills, the oil extraction rate (OER) was affected by the wet weather in Indonesia and severe labour shortage in Sabah. At the same time, Boilermech Holdings Berhad experienced slower business activity resulting from a poor order book, a hangover since FY2016. The CPO prices traded at about RM 2,500 per metric tonne in FY2018 did not provide the silver lining. Despite these challenges and the weaker CPO price in FY2018, the turnover increased by RM35.5 million from RM351.8 million to RM387.3 million while PBT increased from RM24.9 million to RM27.9 million. The contribution of Boilermech Holdings Berhad, an approximately 44% equity stake associate company has been taken into account in this performance. Boilermech’s contribution was lower due to weaker demand in the palm industries.
3. Operations in Indonesia rebounded healthily. With vigilance and effective vaccination programmes, productivity of the layers has normalised. The Vietnamese unit has also seen gradual increment in production and plans are being mulled to build a new layer farm facility in a new location to double production capacity. Approval for the commencement of this new business and farm has been granted by the Vietnamese authorities. The regional operations lay close to 1.5 million eggs per day. On the feed raw material front, the entry of new players saturated the market, causing intense competition and adversely affected sales and margins. The current intense competition due to market saturation from new entrants in feed raw material is likely to continue in the next financial year.
4. As part of QL’s outlined strategy to grow downstream via long-term scaleable businesses, QL is also the master franchisee of the FamilyMart convenience store chain in Malaysia. FY2018 marks a full year of FamilyMart operationsin Malaysia and the rapid expansion for the brand from Japan. By adopting the concept of konbini and providing convenience in particular with ready-to-eat food, FamilyMart created waves wherever it opened. As at 6 July 2018, there are a total of 50 FamilyMart stores in Malaysia. We aim to hit 89 stores by 31 March 2019 with the opening of an additional 50 stores, gearing towards fulfilling our promise of 300 stores in five years (FY2022).
Overall, actual performance in terms of key store operating key performance indicators (KPIs) such as gross margin, average ticket count and ticket size are meeting expectations.
http://www.investlah.com/forum/index.php/topic,79417.0.html
Family Mart: Japan Vs Taiwan. So can Malaysia Family Mart do better than Taiwan where like Family Mart Taiwan needs to pay franchise fees to Family Mart Japan.
5. Business outlook: Under Conserve are three businesses where we will maintain our foothold in. We will retain our strong base in surimi and fishmeal processing, two units which are facing limitations of marine catch resources and rising material cost. Another business where we will maintain is palm oil activities as this is a business where multiple facets of pressures are at play, from ever rising cost of production, severe labour shortages, long gestation period to compliance and environmental consciousnes. Livestock Farming and layer business is capital hungry but the return on investment is not as fast and attractive. Our anticipation of the short term economic outlook, within FY2019, will be a neutral to bearish.
Thank you
P/S: Free quote from Buddha
Praise and blame, gain and loss, pleasure and sorrow come and go like the wind. To be happy, rest like a giant tree in the midst of them all. - Buddha
Do not believe in anything simply because you have heard it. Do not believe in anything simply because it is spoken and rumored by many. Do not believe in anything simply because it is found written in your religious books. Do not believe in anything merely on the authority of your teachers and elders. Do not believe in traditions because they have been handed down for many generations. But after observation and analysis, when you find that anything agrees with reason and is conducive to the good and benefit of one and all, then accept it and live up to it.- Buddha
https://klse.i3investor.com/blogs/Sslee_blog/190733.jsp
