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@The Alchemist wrote:Firstly Earnings,
1. Please note my comments on this forum on another thread recently which I have copied for your easy reference. Pls go through this again and let me know what exactly don’t you get or understand from this analysis ?
2. " it appears that some are under impression that Buki especially is overvalued on a P/E basis. IMHO that BUKI is trading at 8-10 times forward earnings when you take the following under consideration :
Last Annual Reported Earnings = Rs 32 per share (FY 2010/2011)
Add to that Rs 18 for their Consolidation Policy of not accounting for their GoodHope Asia - 35 % share of profit (refer page 4 of Buki Annual Report 2010/2011 Para in Red)
Add to that Accounting Change for Fair Value of Biological Assets = Rs 17 ( refer page 75 Note i of Buki Annual Report 2010/2011 for calculation)
Add to that currency impact of Rupee Devaluation + Ringitt Appreciation to the Dollar) totally add 20 % to EPS- FY 2012/2013
Add to that Palm Oil prices appreciating in 2012 so far by 10-15 %
Add to that Palm oil output increasing by at least 20 % in FY 2012/2013 as per maturity profile immature Land in Annual Report.
When you make these adjustments, you will note that Buki EPS is actually close to Rs 100 per share and it is trading at 8-9 times forward earnings. This is compared to a JKH trading at 20 times earnings."
3. Buki 9 months FY 2011/2012 reported EPS was Rs 20.71. when compared to current price of Rs 870, how on earth do you get an P/E of 135 ?
4. Cars 9 months FY 2011/2012 reported EPS was Rs 14.32. when compared to current price of Rs 460, how on earth did you get P/E of 81 times. Very seriously, time to brush up on the math !
5. Also please learn to read & analyse notes to the Accounts in Annual Report and Financial Statements re Consolidation Policy & Fair value Accounting and make these changes accordingly.
Secondly Assets
Cars – Net Book Value = Rs 125.54
Buki – Net Book Value = Rs 140.00
Now pause and think for a moment. For Carsons, Book value of usd 1 into 192 million shares outstanding so therefore can Carsons be worth only USD 192 million ? For starters, lets forget about their Brewery sector, Investment sector, Real estate sector, Leisure sector assets. Lets only focus on the Palm Oil sector Assets i.e. Good Hope Asia Holdings , GHAHL (unlisted company). Carsons owns directly & Indirectly 65 % of this company, This company has Net Assets worth over USD 1.5 Billion as per the following calculation :
Take the 60,000 Hectares Palm oil developed land at value conservertively @ usd 20,000 / per hectare. (google and search on internet developed palm oil land value in Kalimantan). Unfortunately they cannot revalue the land due to very high Revaluation Tax in Indonesia. They said so about 5 years back in their annual report so they cannot disclose real market value in the Financial Statements.
If you go by the income method (another way of valuing this land), PT Agro Indomas, 20,000 Hectares made USD 46.23 Million NPAT on Turnover of USD 120.30 Million (Pls refer Selinsing Annual Report 2010/2011 Page 2). This works out to approx USD 2500 NPAT per Hectare. At USD 20,000 Land Value per Hectare, ROI is 12.5 % Payback is 8 years, so market value of usd 20,000 / Hectare is Justifiable. .
Therefore Indonesian Palm Oil Plantation Assets worth Approx usd 1.2 Billion.
Then take the Malaysian Palm oil Assets, 1000 Hectares in Selangor (Kuala Lumpur is in Selongor ! ) and balance approx 500 Hectares Selinsing in Perak near Penang. These have serious commercial land value. Just imagine having 2500 ACRES land in District of Colombo. Add to that Downstream Operations including 3 companies acquired last year having the largest Palm oil refinery in the world. check out their website www.Premiumveg.com
I value the Malaysian palm oil Plantation Assets at USD 300-400 million. Hint Pls refer Good Hope plantations Annual Report FY 2010/2011 page 45 note 10 pt iii
The Debt is absorbed by Indonesian Mill Assets, Malaysian Refining Assets and Cash (they generate approx USD 75 Million Cash Profits per year. Check the Segmental info in Annual Report and Cash Flow Statement. Also Check Carsons Annual Report FY 2010/2011 Page 3 Financial Highlight section - Cash Earnings Per Share is Rs 66.80
So therefore Good Hope Asia Holdings Net Plantation Assets total USD 1.5 Billion.
Just imagine, Good Hope Asia have Net Assets of Rs 1.5 Billion. Does any company in Sri-Lanka have that type of asset base ? just for comparison JKH current Market Capitalization is USD 1.2 Billion
As Carsons owns 65 % of this USD 1.5 Billion company GHAHL, ( btw this company made over usd 60 million dollars last year and will make over 80 million FY 2011/2012. In fact Only the fully mature 20,000 hectare PT Agro Indomas made usd 46.23 million pls refer Selinsing FY 201/2012 Annual Report page 2.), this means that Carsons Palm Oil assets could be over USD 1 Billion. Now divide by 192 million shares. you will get usd 5.20 or Rupees 675 Per Share only Palm oil assets mind you! now add the rest i.e. Brewery, Investment, Real Estate and Leisure sector Assets. I haven’t done this due to time constraints but could be further Rs 175 per share.
Therefore Carsons Net Asset Value is Approx Rs 850 Per share (not Rs 100 as you mention) and share is trading at Rs 460 almost Half its Asset Value.
Oh and remember Buki owns 35 % of this GHAHL and also 45 % or 92 million Carsons shares. So it cannot be worth only USD 110 million according to the Net Book value (Rs 140 * 102 miillion shares). More like 35 % into USD 1.5 biilion + 92 Million shares into Rs 850 divided by Buki issued shares of 102 mill = Rs 1400 Per share.
Enough said about Book Values and Asset values.
Not only have you got your facts, figures and math wrong, but you are advising people to avoid these 2 fundamentally sound shares and arguably the cheapest P/E Blue Chips in the market which are trading at adjusted future single digit Earnings Multiples and at 50 % of Adjusted Asset / Book Values, in order to bring down the market P/E ?
That my friend is akin to cutting your nose to spite your face.
Very interesting analysis to give a different insight to PE and NAV valuation. It is interesting to note that BUKi has come down form Rs 1600 peak to rs 850. Cars from rs 700 peak to Rs 460.
I considered this still overvalued before. But by looking much deeper as per your analysis I acknowledge there are other ways of valuation and maybe this is atleast trading closer to fair value due to pyramid hidden asserts. No doubt about CARS reputation. Also am not sure how much more this share will drop due to its illiquid nature and strength.
So I give you credit for that.
But comparatively I still find better discounted shares in the market than CARS/BUKI. Thats my opinion only.
BTW their investment trusts are also getting attractive CINV and GUAR. LION is trading with future growth hope.
