Thursday, January 4, 2007

Just purchased another valuable gem on SGX - Asiatic Group

Some of the things I like about this company includes:

- The founders (aka boss) are still substantial shareholders...

- Core business deals in in Fire Protection and Power Supply which is of recurring and / or maintenance nature, ie. need to be replaced after serveral years...

- Has an interesting and futuristic division on the Fitbone Technique (cosmetic & orthopedic surgery).

- It has been profitable for the last 5 years and its NTA has been increasing steadily over last 5 years.

- It has entered into green-field power plant projects with the aim of developing a new recurring incomestream. In June 2005, its wholly-owned subsidiary, Colben System Pte Ltd (“Colben”), signed a 10-year power purchase agreement with Electricite Du Cambodge (“EDC”), a state-owned utilities company, to develop two power generation projects (a 5MW plant in Sihanoukville and a 10MW plant in Phnom Penh) under a build-own-operate arrangement. The plants are scheduled to start operations towards the end of 2006.

The 1 thing I do not like about this company is that there was a drop in revenue in 2006, compare to 2005. This is due largely to the fall in sales from its Controlled Power Supply division, which had benefited from the completion of a number of major projects in the previous year.

Overall, I still like it! So, I bought in today at $0.19, I belive the intrinsic value to be $0.28... :)

More statistical details tomorrow or maybe the day after... watch this space! :)

Best of luck to your investing!

Warm regards, Fu Chin

P/S: As always, this is not a recommendation to buy or sell anything and investors should always do their own analyses when considering investing decisions.

8 comments:

wei han said...

Fu Chin,

I am keen in your computation of the intrinsic value. I could study from your concept and thereafter utilise it and share the results of the research.

Lim Fu Chin said...

Hi Wei Han,

Thanks for the interesting query.

There are many ways to calculate the intrinsic value of stocks.

I am pretty sure mine is not the most accurate / appropriate way... :) So, please use with care.

In essence, I look at 3 parts:
(a) Net Tangible Assets, it is the value of total assets minus intangible assets and total liabilities (NTA & EPS are commonly available in company financial statements)
(b) Earning Per Share, how much profit the company made for each share of the company (I multiple it by 5 for the next 5 years)
(c) My personal level of confidence of the company increasing its NTA and EPS.

The formula of the maximum price that I would purchase at is (a) X (b) X (c).

Of course, I ignore some other factors like potential growth, etc. Instead, I consider it as part of the (c) item.

Its a good question, I will probably tidy it up a bit more, run thru some other knowledgeable investors and put it up as a separate article...

Thanks again for the query and happy investing! :)

Warm regards,
Fu Chin
Value Investment Blog:
URL: http://valueinvestmentonsgx.blogspot.com/

weihan said...

Thank you for sharing this with me. One question, how did u derive your personal level of confidence and by wat integer does it usually take? By a multiple of 0.1 or 10?
Thanks again

Lim Fu Chin said...

Hi Wei Han,

Thanks for the reply and further questions! :)

Regarding the personal level of confidence, different people take different approaches???

For example, I am only confident if I know what the business is about.

For instance, during my Army time, I had to check and ensure that all the 20-odd fire extinguishers are serviced regularly and replaced, if need to.

Thus, it seems like a good type of recurring business, for Asiatic Group's safety equipment division.

If you see another comment posted by Ken Chee (Click here for link), he mentioned about talking to the management, competitors, suppliers, ex-staff, customers, etc, directly. This is definitely a good approach as well.

So, personal level of confidence seems to depend on personal experience and area of expertise? What do you think? :)

Well, my confidence is expressed as a percentage or ratio, if I am extremely happy about the company and the market condition is like now (seems like most stocks are expensive now!), I may go up to 100% or 1.0. In most cases, I give at least 20% safety margin, i.e. 80% or 0.8.

This means if I find (a) X (b) is $1, I will only pay maximum $0.80 for it (most of the time).

Thanks again for the queries and happy investing! :)

Warm regards,
Fu Chin
Value Investment Blog:
URL: http://valueinvestmentonsgx.blogspot.com/

Anonymous said...

Oh...I got it now. Thank you very much. In fact ur level of confidence is pretty much like Ben Graham's margin of safety.

Thank you for sharing your vast knowledge with me.

Fu Chin said...

Hi Anonymous,

Now that you reminded me, I have yet to complete this Ben Graham's investing 'bible' - The Intelligent Investor, great book!

Definitely, need to find some time to finish it up... *gulp*


Have fun investing! :)

Warm regards,
Fu Chin
Value Investment Blog:
URL: www.valueinvestmentonsgx.blogspot.com

parenthood said...

Hi Fu Chin,

I tried to calculate the intrinsic value for Huan Hsin, based on its full yr financial report 2005: EPS=5.89 cts, NAV=75.53 cts. However, the figure was not realistic. Perhaps I may have use it wrongly. Please advise. Thanks.

Aaron

Lim Fu Chin said...

Hi Aaron,

Thanks for the question.

Based on the Earning Per Share of 5.89 cents and multiplying by 5 years, it would be $0.2945.

As you mentioned, the Net Asset Value is $0.7553 cents.

Thus, the Intrinsic Value in this case would be the EPS + NAV, which is $1.0498.

It seems that the last closing price is $0.565.

Although it is at a discount, I do not really understand its business and I am not very sure whether the profits (EPS) is sustainable in the long run.

Without looking further into its current ratio, debt/equity ratio, I am not very sure if I would want consider purchasing at this price.

Thanks for the queries and happy investing! :)

Warm regards,
Fu Chin
Value Investment Blog:
URL: http://valueinvestmentonsgx.blogspot.com/

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