|
Company
|
Earnings
|
Fundamental
|
Relative Valuation
|
Risk
|
Price Momentum
|
Average
|
|
Century
|
5
|
7
|
4
|
8
|
2
|
5
|
|
Complete
|
-
|
3
|
6
|
6
|
9
|
7
|
|
Freight
|
3
|
9
|
10
|
10
|
4
|
9
|
|
Tasco
|
4
|
10
|
10
|
5
|
5
|
8
|
|
Tiong Nam
|
10
|
2
|
10
|
9
|
2
|
7
|
The AlphaIndicator shows that Freight has the highest average score of 9, follow by Tasco at average score of 8, Complete and Tiong Nam tied at 7 and Century scored 5.
As standard procedure, all five companies will go thru Beneish M-Score test (Read more here). The following table shows the results of all five companies. The results indicate that all five companies passed the Beneish M-Score test, thus the potential financial manipulation is not significant.
|
Company
|
Beneish M-Score
|
|
|
2017 or latest
|
2016 or latest
|
|
|
Century
|
-2.53
|
-3.07
|
|
Complete
|
-3.11
|
-3.23
|
|
Freight
|
-2.43
|
-2.86
|
|
Tasco
|
-2.36
|
-2.74
|
|
Tiong Nam
|
-2.28
|
-2.60
|
As stated in the previous article (Read more here), the future of logistic sector would be fuelled by two major factors, One Belt One Road (OBOR) and E-Commerce. As such, the company must have the financial strength to expand their business thru significant capital expenditure (CAPEX). The cash level and the capital structure of the company are important to determine the ability of the company to fund future expansion. The following table shows some financial ratios that help to gauge the financial strength of these five companies.
|
|
Century
|
Complete
|
Freight
|
Tasco
|
Tiong Nam
|
|
D/E Ratio
|
0.23
|
0.13
|
0.32
|
0.14
|
1.11
|
|
Interest Coverage Ratio
|
7.06
|
12.75
|
8.08
|
25.66
|
4.62
|
|
Net operating cash flow to Debt ratio
|
0.42
|
1.30
|
0.36
|
0.83
|
(0.02)
|
|
Cash flow per share (sen)
|
10.01
|
17.00
|
26.29
|
27.96
|
30.60
|
|
Current ratio
|
2.39
|
2.16
|
2.33
|
2.12
|
1.50
|
|
Altman’s Z-Score
|
3.49
|
3.03
|
2.95
|
4.00
|
1.59
|
Source: Dynaquest Sdn. Bhd. STOCKBASE platform. See “Notes” at the end of this article for Copyrights details.
Amongst the five companies, the financial strength of Tiong Nam is least favourable. High D/E ratio, coupled with negative net operating cash flow to debt ratio indicate that their ability to raise more fund for CAPEX is challenging. Furthermore, Tiong Nam’s Altman’s Z-Score (Read more here) of 1.59 is below the “Distress Zone” benchmark of 1.81. The following table shows the Altman’s Z-Score interpretation.
|
Altman’s Z-Score
|
Interpretation
|
|
2.99 < Z
|
Safe
|
|
1.81 < Z < 2.99
|
Grey
|
|
Z < 1.81
|
Distress
|
Meanwhile, Tasco financial strength ratios (calculated based on audited full year results) indicate that its ability to fund future expansion is strong. As such, Tasco has embarked on series of expansion exercises via acquisition and development in 2017 (Read more here). A closer look into their unaudited quarterly Balance Sheet showed that the debt level has increased starting in Sep’2017 due to acquisition of 100% equity interest, representing 2,000,000 ordinary shares in Gold Cold Transport Sdn Bhd ("GCT") for a cash consideration RM185,616,671 (Read more here). This in line with the expectation of this analysis where companies are expected to expand their business amid strong logistic and E-commerce industry growth.
The next step is to value the above companies using an appropriate valuation method. As the logistic industry is undergoing major transition and expansion, management might reduce the dividend pay-out in favour of CAPEX to expedite growth, thus the conventional method such as Dividend Discount Model (DDM) (Read more here) may not be appropriate. Hence, the Monte Carlo valuation model based on P/E ratio, using three years projection is recommended. The following assumptions are needed as input into the Monte Carlo simulation model. Total 3000 samples were used for each company.
|
Company
|
PE range*
|
Lowest EPS from 2018 – 21 (sen)^
|
Highest EPS from 2018 -21
|
Average EPS growth (%)
|
|
Century
|
11 – 17
|
4.2
|
CAGR 11%
|
6%
|
|
Complete
|
8 – 14
|
6.0^^
|
CAGR 11%
|
6%
|
|
Freight
|
7 – 13
|
13.3
|
CAGR 11%
|
6%
|
|
Tasco
|
7 – 15
|
17.0
|
CAGR 11%
|
6%
|
|
Tiong Nam
|
8 – 12
|
7.2
|
CAGR 11%
|
6%
|
* Info from Dynaquest Sdn. Bhd. STOCKBASE platform (See “Notes” at the end of this article for Copyrights details)
^ Info from AlphaIndicator
^^ Based on 2017 proforma diluted EPS from BursaMarketPlace
The following charts are the forecasted price range of Century, Complete, Freight, Tasco and Tiong Nam based on the Monte Carlo method.
One advantage of the Monte Carlo simulation is the ability to provide a range of potential returns. As such, a reward to risk analysis could be made by the following formula.
Reward to Risk ratio (RRR) = Average 3y return/ Minimum return
The concept of RRR is similar to Calmar Ratio (Read more here). Amongst all five companies, Freight has the highest score at 1.53, follow by Tasco and Complete at 0.51 and 0.18 respectively. Meanwhile, Century and Tiong Nam’s RRR are negative. A negative RRR means the current price is higher than the forecasted price. The following chart shows the RRR for these five companies based on their respective closing price on 23-Mar-2018.
This part II analysis is based on publicly available/ subscribed data, using mainly quantitative approach. Qualitative method such as supply chain analysis, product mix, and new product development quality and capability are not covered.
Part III analysis will cover the stocks categorized under the “Express delivery service” class as stated in Part I analysis (Read more here). Stay connected!
Disclaimer: The above analysis does not imply any buy or sell recommendation. The author disclaims all liabilities arising from any use of the information contained in this article.
Disclosure: The author may have interest in the stocks of the companies in this article.
Notes: The data are the property of Dynaquest Sdn. Bhd. It is subject to Intellectual Property Rights and T&C. Do not reproduce without the consent from Dynaquest Sdn. Bhd. (The author has signed a “Data Sharing Agreement” with Dynaquest Sdn. Bhd., based on a “Data Sharing Fee”, to use the data from Dynaquest Sdn. Bhd.’s STOCKBASE platform in this blog. The content of this blog in no way represents the views or opinions of Dynaquest Sdn. Bhd.)
^^ Based on 2017 proforma diluted EPS from BursaMarketPlace
The following charts are the forecasted price range of Century, Complete, Freight, Tasco and Tiong Nam based on the Monte Carlo method.
Reward to Risk ratio (RRR) = Average 3y return/ Minimum return
The concept of RRR is similar to Calmar Ratio (Read more here). Amongst all five companies, Freight has the highest score at 1.53, follow by Tasco and Complete at 0.51 and 0.18 respectively. Meanwhile, Century and Tiong Nam’s RRR are negative. A negative RRR means the current price is higher than the forecasted price. The following chart shows the RRR for these five companies based on their respective closing price on 23-Mar-2018.
This part II analysis is based on publicly available/ subscribed data, using mainly quantitative approach. Qualitative method such as supply chain analysis, product mix, and new product development quality and capability are not covered.
Part III analysis will cover the stocks categorized under the “Express delivery service” class as stated in Part I analysis (Read more here). Stay connected!
Disclaimer: The above analysis does not imply any buy or sell recommendation. The author disclaims all liabilities arising from any use of the information contained in this article.
Disclosure: The author may have interest in the stocks of the companies in this article.
Notes: The data are the property of Dynaquest Sdn. Bhd. It is subject to Intellectual Property Rights and T&C. Do not reproduce without the consent from Dynaquest Sdn. Bhd. (The author has signed a “Data Sharing Agreement” with Dynaquest Sdn. Bhd., based on a “Data Sharing Fee”, to use the data from Dynaquest Sdn. Bhd.’s STOCKBASE platform in this blog. The content of this blog in no way represents the views or opinions of Dynaquest Sdn. Bhd.)
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