Sunday, November 28, 2010

ReValuation - Entry and Exit Strategy

Some of the valuation on The List has been dated. With so many earning reports passed by, lets do some re-valuation on some of the businesses.

Note: All valuations are done by having 10% discount on free cash flow with 20% margin of error

Let's start with JobStreet Corp [JOBST]. Quarterly revenues are recovering as expected and is on track to return to its heights in 2008. Q4 should should be an active hiring seasons for most corporates as employees tend to leave in Q1 after...well if you know what I mean. Taking the industrial average growth at 12% and 20% growth this year, it'll gives its value to:
Max Entry Price: RM2.80
Exit Price: RM3.15 (30% growth this year)

As for Freight Management Holdings (FREIGHT), the management has announce their intention to expand their business abroad especially in the Asean region through JV and acquisition to diversify its earnings. Currently, 78% of its earnings still comes from Malaysia so we should expect the expansion plan will happen in the next few years to come. Historically, everytime FREIGHT involves in an expansion plan, its revenue grows by more than 15%. Given to this I'll be using 12% growth:
Max Entry Price: RM1.23
Exit Price: RM1.95 (15% average growth)

Hai-O Enterprise (HAIO), has a challenging year this year and is expected to drag on in near future. MLM division has been disappointing this year. I can see they are having 2 problems. 1 is the new amendment made on the direct sales act, which will give them a temporary hiccup. 2nd is their products which they have not admitted.This is very much evident from their Q1 result. The massive drops shows how unsustainable their MLM revenues are. They need to come out with a more sustainable products sales strategy and they can't rely on big ticket items anymore. Their venture from the energy division to a new thermal technology is promising but their decision to manufacture the products itself has create some uncertainties to me. Recent announcement that they would like to venture into property development sector has made my decision to sell even easier. That's is one sector that I normally avoid for many reasons. The timing of their entry to property development sector is pretty much the same as they did before 1998 crash.So,
Valuation: Uncertain

NTPM Holdings (NTPM), one of my favourtie. This is one competing in a competitive industry and playing second fiddle to Kimberly-Clark as fas as products pricing are concern. Their products are seen as "greener" as compared to Kimberly-Clark which may provide some competitive advantage. Sales growth have seem to slow down. So I'll be using industrial average of 2% for its growth.
Max Entry Price: RM0.30 
Exit Price: RM0.75 (13% growth rate)

As for the rest, I'll do it next time as it is bit late now. From the list, there doesn't seem too much upside we have here. And with the bull run in KLSE this year, it is more difficult to find good value business than we have previous years. Evidently, Tan Teng Boo's iCapital.biz (ICAP) has seem to increase its cash position recently. Yea...ICAP. There is still an interesting choice here. ICAP applies value interesting strategy in its fund. If they are still holding the equities in there, chances are they are still undervalued. Even if they were to cash out all of them...you'll probably buying RM1.20 of cash for RM1.00 since it is still selling at a discount to its NAV. Yea I know...they do made losses at times but who doesn't. So if I don't feel comfortable holding some idling cash and don't know where to put my money, I'll leave it to Uncle Tan to manage.

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