On 14/08/2016, we have posted a research on Kim Hin with a target price of RM 2.06. This article aims to show the investors, with the aid of Bloomberg data, the relative valuation of Kim Hin against the overall market.
Currently, the EV/EBITDA and P/E are trading at 4.2x and 13.57x. With an increase in borrowing, it raises the enterprise value by 0.6x which is not significant.
Bench-marking its P/E ratio against KLCI. Previously the gap was wider but has narrowed down significantly. With the growth prospects, we could potentially see an expansion in P/E multiples going forward.
P/CF is also at a discount of c. 35% to KLCI. We would expect the recent cash flow to be weaker due to the heightened capital expenditure as it pushes the P/CF multiple higher. However, we do not know which cash flow item Bloomberg looks at so we cannot comment further. Our cash flow would have considered the capital expenditure (Capex) whereas Bloomberg may be use the Cash Flow from Operations (which does not take into account the capex).
Huge deviation from the average P/B multiples. Currently it is at 0.47x against 1.73x (KLCI). It does not automatically means it is undervalued.The general market usually assume the value should trade closer to the equity value (i.e. Close to 1.0x) which may not necessary be true. White horse is currently trading at 0.6x, Seacera Group is trading at 0.3x and Yi-Lai is trading at 0.6x (source from Bloomberg).
Historical financial showed that the firm has improved gradually. We expect that its expansion plan will contribute positively to its top and bottom lines as it expands into foreign countries such as Vietnam. We also expect that the Vietnam division will start to contribute to the bottom line by end of 2017 as it has shows improvement in operating efficiency.
Lastly, the peers identified by Bloomberg. We have try to sort the peers domiciled in Malaysia and surprisingly the list is empty. Hence, these companies might provide little value for comparison purposes (due to geographical and operational differences).
- The P/B although suggests that the KLCI in general is trading at 1.7x but our identified peers are trading less than 0.7x hence we believe it might not be valuing it close to P/B 1.0x in foreseeable time.
- The leverage does not materially impact the valuation hence we will continue to monitor the borrowings that could potentially erode the cash flow.
- The valuation multiples that we looked at are at discounts to the KLCI.
The information provided by Bloomberg have not been verified by us hence we assume the data is correct. Our research report can be found by clicking on this link. It is worth pointed out that the above relative valuations are measured against the general market rather than the specific industry (Ceramic tiles manufacturers for instance) hence it could be materially different. The above only serves as an information purpose with no attempt to value the company.
Kind Regards and Happy Trading,
Disclaimer: the views above are opinions based on facts and subjective judgements. We do not take any responsibility for any actions rely on the information discussed.