Meng Teck is an author, investor and entrepreneur.
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Before we proceed, I would like to invite you to read our disclaimer and also warn that this article may be biased as I am pretty bullish on L&G.
This is actually a write up to update on the performance of L&G since it was last featured few months ago.
How did it perform this quarter?
60 Million profit for this quarter! Nearly 300% the earnings on the preceeding year quarterly result.
The purpose of this update is actually not to simply discuss about the increase in profit of this company even though I am more than delighted that this company continues to surprise and exceed my expectation quarter after quarter. The main purpose,however, is to do a better valuation towards this company as I think I have been pretty loose on it previously. Now, the question is, is this company still worth investing?
Valuation was difficult due to the existance of ICULS but since most of the ICULS were converted in the last quarter, I think it is easier for us to do a proper valuation. Before we proceed to calculating the diluted earnings per share of the company, let us find out what's the number of shares as of 26/11/2014.
No of Shares Outstanding = 1,053,117,816
No of ICULS yet to be converted = 143,206,744
Total Shares Assuming All ICULS Converted = 1,196,324,560.
The total amount of shares assuming all ICULS are converted (Fully Diluted) is about 1.2 Billion Shares. The current quarter result is about 60 Million in profit which translates to an earning per share of 5 cents for this quarter alone.
Assuming that this quarterly result is consistent throughout the year, this company will earn an earning per share of 20 cents. At the current valuation of 0.55, the projected PE for this company will be less than 2.75! (That's cheap!)
But of course, I don't think this earning can be sustained.
Projected EPS = 0.15/ Year.
Need more justification why I think this is a good buy?
Book Value = RM 690 Million / 1200 Million Shares = RM 0.575. (Refer the image above).
At current price, you're buying this business below it's book value.
If you look at the quality of the asset, it is actually very good. Out of the 1 Billion Ringgit Asset, 443 Million of it is Cash & Cash Equivalents. Not to be forgotten, it's agricultural land (Oil Palm & Rubber Tree) in Mukim Kerling, Ulu Selangor of is only written as 48 Million in the book where the real value should be close to 235 Million.( Refer the image below).
1 hectare = 2.4 acres
1 Acres is worth around RM98,000.
1000 Hacteres equal 2400 acres equal to a value of (2400*98,000) = 235 Mil.
At current price, you're getting the business at a discount to the book value (that is,in my opinion quite conservatively written) but not only that, you get the competent manager, Mr.Low Gay Teck ( Regarded by many as the White Knight Of L&G for the ability to turn L&G around in a few year. Note: He is also the MD of Mayland previously.) and also some part of the 600 Million Unbilled Sales mentioned by them previously (I'm not sure how much is left) for free.
If you want to put a conservative valuation to this company, assume this, you're going to buy this business as a whole. It seem to have plenty of good projects on the pipeline, a quite competent management is already in place and the financial position is quite healthy.
The question is how much are you willing to pay?
Is it safe to presume that paying for the book value + a premium of 5 years earning will be conservative? If so, then the valuation will be like the following:
Book Value (0.575) + 5*Projected Yearly Earnings (0.15) = RM 1.325
Yes, I am saying that I believe this share is worth RM1.325.( I may sell before it reaches this price) and that's a potential 200% gain. I do realize that my valuations can be more conservative in terms of projected earnings but I think at the current price, this is a real bargain. Remember, this is not a recommendation to buy or sell, this article is strictly educational. Any action resulting from the use of this article is on your own risk.
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I like something that I can understand. Predictable & Certain, that's my thing.
Before I proceed with anything, please read this article after reading our disclaimer. I've been holding this share for my client for almost 3 months now. (Don't bother asking me about this, my fund is extremely private, you wouldn't want me to invest for you, and I wouldn't want to invest for you). The average purchase price is 3.16. Current price is 2.72. ( A 14% paper loss). Did I screw up? I don't think so. I'm writing this article today as a proof to the amateur investors who will read this in the future date that you don't always make money immediately after you purchase a share. You need to be able to hold it eventhough there is volatility and paper loss. What we are concerned is the business fundamentals and this one is doing very fine. I would say it is one of the most undervalued if not the most I have seen. And it is certain. Why? Let's proceed.
For your information, at the time of writing, I am still an undergraduate in Universiti Teknologi Malaysia. I first saw this share around April. At quick glance, it seems cheap with low PER. However, previous earnings has been bad. I quickly skipped this share because of 2 reasons:
1) Unstable Earnings in the past. (I like it predictable and stable)
2) I don't want to add another company in property industry to my portfolio.
However, last August, one of my graduate highlighted this to me (Thanks Kenn!)
as he was considering to buy this share. Being an overly concerned tutor, I checked this company out. (More in depth analysis).
As I was reading through their description, I immediately fell in love with this company when I found out they built the Taman Universiti that I go for meal every day, every meal (Almost). They are also situated in Johor, I can visit them easily. And so I did.
Being a curious investor, I drove to their showroom, about 20 minutes from my university. I disguised as a prospect looking to buy properties and went in to ask the salesgirl some questions. What I found out was great! Most of their shoplots and houses are sold out. I couldn't remember what phase and or the name of those projects. But the impression that I get is most of their projects are sold out and now they are concentrating on 2 things.
1) Their One Sentral Project and,
2) To build some affordable houses around that area (Government Requirement)
One Sentral Project. A Condominium.
A Quick Ratio will give you a current ratio of more than 2. Which is good enough to avoid liquidity issue. We can also observe that the borrowing is not too much. Overall, the balance sheet seems healthy albeit the high receivables.
I went away from their sites with 3 impressions.
1) Their sales is doing very well and income streams for another 1 and a half to 2 years wouldn't be a problem.
2) Their houses built are getting smaller and smaller.
3) They are building on a very strategic location. Only 5 Minutes drive to Kota Iskandar, Puteri Harbour, and Legoland.
Now, having this insight is good, but proper investing process needed to be followed. So next to do is to analyse the financial health of the company.
We can observe that the recent years has been very well for the shareholders of CView with a good uptrend in earnings. ( I reckon these earnings are contributed by the finished projects) The trailing 4 quarters result @ 16.11.2014 turns out to be even better than the performance in 2013 with a profit of 82 Million which is a EPS of 82.52. The total dividend paid out throughout last 4 quarters has been 28 Cents.
Method 1 : Cigarette Butt Method.
Assuming the company's income stream will be constant for the next 1.5 Year.
2.81 (Current Book Value) + 1.5 (0.8252) = 4.04
Assuming that the price to book ratio is at 1. Which what is has been valued at throughout the years. At current price of 2.72. A Potential Gain of 47.2% within a 1.5 Year.
Method 2 : Comparing PE across Industry
Based on the approxiamte industry average PE of 8 (For Propery Development Industry)
The fair value of this company should be 0.8252 * 8 = 6.60
A potential 142% gain.
I think method 1 is more appropriate with this company. Just like finding a cigarette butt on the floor,you saw there is still some puff to it, you pick it up and have that last puff. It's not sexy, it's not a great business. But it's a cheap last puff. Even if you do not agree with my valuation method, at current price, you're getting 10.30% dividend yield. All you need, is to be certain that they will pay out this dividend at a constant rate for more than a year.( A projection I am quite certain about). My target price for this company is 4.00.
(Note: This is not a recommendation to buy, hold or sell, the author disclaims any risk or liabilities as a result of the use of this article.)
Update (Nov 2015) - This turns out to be my first major mistake in investing.
2 Things you can learn from this:
1. Don't buy just because they are cheap. Focus on quality first.
2. Don't buy companies that you are not certain they will grow in earnings.
Sold my share at 2.80 when I notice the eps started declining steadily due to no project launch. Cut my losses of 15%. Lesson learnt. Lost few thousands on this. :(