I had been reading shares recommendation article from many
bloggers. They taught us how to study, choose and value a company. I read many
good companies’ researches from them. In fact, there are many good fundamental
companies in Malaysia market. Somehow, I rarely read any articles pointing out
a weakness of a not performing company or a profit making company with its
price not moving up.
Today, I would like to share about how to point out a
weakness of a company. I will use AYS Ventures Berhad (5021) as an example.
AYS’s business activities can be divided into two divisions:
- Trading of steel products and all types of construction materials
- Manufacturing of panels, purlin and wire and steel products
Par Value (RM) : 0.50
|
PE ratio :11.83
|
Price (RM) : 0.22
|
Return of equity (%) :
8.41
|
NTA (RM) : 0.56
|
Div. yield (%) :
4.55
|
From the perspective of PE and D/Y, AYS is pretty attractive
even though its ROE is slightly lower. In addition, its current price is lower
than par value and NTA. By just looking at these indicators, I believe most of
the investors will think that AYS is undervalued.
By looking at the quarter result, AYS is a profit making
company even though it made losses on FY15Q3. It seems like AYS is doing pretty
well on the latest quarter. However, things might not be the same as what we
thought.
Why a good profit making company with good indicator is
always in downtrend? Three years ago, AYS was once at the price of RM0.60 but
now it only RM0.22!
Firstly, in the last quarter of FY15, AYS’s net profit had
taken into account of fair value adjustment of investment properties of
RM3.398m! That’s mean after deduct the fair value adjustment, AYS whole year
net profit will only left RM3.66m. Its PE will suppose to be 22.93! AYS is
actually doing badly compared to FY14; its net profit had reduced 70%! FYI,
fair value adjustment is a method of revalue the asset and adjusts its price
according. The gain in value of the asset will treat as other income in
P&L. If a person just look at the figure without goes through the
explanation, he/she will easily fall into trap.
Secondly, the steel price is the major factors for AYS’s business.
The depressed steel price is the main reason why it performed weaker in FY15
compared to FY14. In other words, steel price is directly proportional to AYS
net profit if other factors are the same.
Thirdly,
Year
|
2013
|
2014
|
2015
|
Net borrowings,RM'000
|
219,625
|
216,326
|
249,344
|
Free cash flow, RM'000
|
57,569
|
51,892
|
49,040
|
Net cash, RM’000
|
(162,056)
|
(164,434)
|
(200,304)
|
One doesn’t need to be expert to analyze a company’s
financial statement. We just need to simplify the data into something
understand just like the table above. AYS net debt is increasing from year to
year and now it was up to RM200m! It was a very huge amount for a company. FYI,
AYS’s market capitalization is only around RM85m, which is 2x lesser than its
debt! It is very risky to invest in such a high debt company.
Lastly, the company FY15’s net profit is only RM3.66m after
deducting fair value adjustment, but AYS’s total director remuneration is
RM6.28m. It means that AYS net profit suppose to be RM9.94m before deduct
remuneration and 63% of it had been paid up as remuneration. The Group Managing Director is collecting
RM3.35m of remuneration a year! It was hilarious!
Have a look with the following Managing Director’s
remuneration. Any of the company is performing better than AYS and their remuneration is 3x lower than AYS.
HOMERITZ à
RM600,000
HEVEA à
RM750,000
PERSTIM à
RM850,000
TASEK à
RM1,000,000
PADINI à
RM1,200,000
So, can I conclude that AYS’s director only care for their
own welfare?
For all the reason above, personally I think AYS is not able
to attract investor’s attention.
Feel free to comment and correct me if I am wrong, or you
can leave me an email at richeho_92@hotmail.com
Just for sharing.
I will be writing some stock analysis report to earn some pocket money.
I will be writing 5 stock analysis reports and 1 comparison of same industry company report a month for a fee of MYR120/month. It will be a simple, easy to read and understandable report. It had included fundamental and also technical analysis.
For full sample report of HOMERITZ, you may download and have a look, as below:
You may also refer some of my articles as below:
1. Export-Oriented Company Not Necessarily Benefit From Weakening Of MYR --> Tongher
2. How to Spot Unfavourable Factors of a Company? --> AYS
3. Consistently Profit Making Company Not Necessarily Is Good --> London Biscuit
4. The Art Of Investing – How To Survive During Market Downturn
In addition, you may request to carry out a research on a specific company that you wish to know, for a fee of MYR25/report. For those who subscribe monthly, there will be no extra charges.
For those who are interested, you may contact me at richeho_92@hotmail.com or 016-9392726. Or you may leave your email below, so that I can contact you.
Thanks!
thanks for sharing. please keep it up! :)
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