October 16, 2021

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Insights : Cycle Carriage Bintang Berhad, Apollo Berhad. & Gadang Berhad.

Undervalue Companies : 

Gadang 

Yesteryday the 1Q2016 was announced and the EPS doubled YoY from 4.41 sens to 9.61 sens. NTA increased to RM1.87. There are many ways to look at this counter to arrive at a fair value. I chose to rely on simple analysis of the quarterly results simply because the company has been delivering good results every quarter with minimal disappointment. Against its peer, this net cash company has been undervalued for the longest of time trading only at at multiple of 6. Some may argue that construction counters value are determined by the orderbook, the bigger the orderbook the bigger the multiple etc. I agree to a limited extent. Cashflow and balance sheet coupled with healthy (not big) orderbook should determine the share price. Gadang has business in construction, property along with water & palm oil. Construction is still the main driver with property contributing solid figures due to the JV. With 1Q2016 EPS at 9.61 sens, assuming it can maintain the performance through out the year, 12 months EPS should be at 36 sens (increase from 28 sens for 2015 and 21 sens in 2014). Applying a multiple of 10 (similar to Mitra), the value of Gadang should be RM3.60. However, we know historically, Gadang only trades at x6. Hence, the price should be RM2.16. I think continue applying a multiple of 6 is not fair to Gadang due to the consistency in delivery shown since 2012. As such, I raise the multiple to x8 and conservatively forecast the full year 2016 EPS at 30 sens, this would bring the FV to RM2.40 which in my opinion is reasonable.

Cycle and Carriage Bintang

This is a turnaround counter which has has performed amazingly well in 2015 despite a weak economic climate and achieve new sales high each quarter. Yesterday, the quarter results was announced, 9m15 EPS = 41.62 sens, even without annualising giving it a multiple of x10, its FV amount to RM4.16. Assuming conservatively the Q4 EPS = 5 sens, bringing 12m EPS=46 sens, FV amount to RM4.60. I do agree with many that CCB is not consistent unlike Gadang in delivering results. After all, it is a auto industry player which is highly reliant on the model of the car produced. However, contrary to some commentators, CCB is not a cyclical company. Its a car distributor which is highly reliant on the model of the cars it produced. It went through huge suffering past few years due to poor design of their previous models and losing out market share to the revamp Audi + prolific BMW new designs. Ever since the makeover, Mercedes S Class waiting list is so long with GLA, CLA are all selling extremely well. C class' launch caused the spike in sales volume for 2015 due to its hot market response. 2016 will be launch of new E Class. (please check autoblogs to get the estimated date). If investors believe in the potential success of E Class, then annualising EPS is not farfetched. Since the result was announced, instead of rerating, it fell. I believe the irrationality of the market provides opportunity for further buy in. Although it has yet to reach RM4.00, I believe it is a matter of time for it to reflect its true value. Dividend will help the case although management did mentioned funds will be spent on upgrading service centers and outlets.

Safe defensive Companies : 

Apollo 

I like Apollo only for one reason. Slow and steady. It is like the tortoise outpacing the rabbit. Market turbulence somehow does not impedes the upwards progression all these years. Additionally, it is not a particular sexy business. It is a humble business which serves the market all these years silently. This F&B counter value stems from its generous dividend policy and increase in revenue YoY. The current price at RM4.91, the PE is x12 and the NTA is 3.24. What attracts me most to this counter is the dividend amounting to 25% (25 sens) to go ex on 9 Dec 2015. Many great investors like KC has also highlighted this counter. The 5.1% DY is the safety blanket needed in a cold stormy night. By year end, fund managers that need tp square the books for this turbulent year may have to opt for coutners like Apollo due to the yield given. Anything below RM5.00 is a safe bet.

Food for thought: Slow and steady wins the race. Fingers cross.

May good fortune come your way!

Disclaimer: This is not a recommendation to trade. It is merely the expression of the author's personal opinion and shall not be held responsbile for potential gains or losses executed by readers.

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