15 July 2011

SAPIND (7811) - SAPURA INDUSTRIAL BHD - Fundamental Analysis 3 - Intrinsic Value

After knowing the Business strategy, Segments and Prospect of SAPIND (7811) in first Fundamental Analysis and its financial condition plus profitability in the second Fundamental Analysis, in this post, I will going to show how to make a good deal.



Again, EPS (Earning per Share) improved after the lost in 2007 from 7sen (2008) to 28.21sen (2011). Overall, raw material to inventory ratio and finished product to inventory ratio are quite good. Moreover, it is worth to highlight that the clear inventory period was improved significantly from 2005 (121 days) to 2011 (38 days only). This indicator is very important for investors to figure out whether the products of the company is good and attractive in the market. The lower the clear inventory period, the better the sales and inventory control. Besides, we can also use this indicator to predict the future of the company. For example, the clear inventory period was extremely high during 2006 and 2005, that were, 166 days and 121 days, respectively. In order words, it need to take at least 4 months (4x30) to clear its inventory in 2005; and more than 5 months (5x30) to clear its inventory in 2006.
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Discussion:
The high inventory turnover makes me feel the SAPIND products were good in the market. Overall, I am quite satisfied this performance of SAPIND.

To evaluate its intrinsic value, we should firstly make sure we understand the business of the campany briefly, and then make sure it has a good financial condition and profitability. After that, investigating whether its market price is undervalued, fair or over-valued with some assumption.

Here are my assumption to SAPIND in the fiscal year 2012:
1. Maintain its 2011 performance (Of course, it is better it will improve further)
2. At least 50% dividend payout. (Note: 2011 SAPIND got 100% dividend payout)
3. The financial condition and profitability do not change as 2011. (Of course, it would be better if both of them are improved further)
(Note: the assumptions will determine its fair value, when the performance is better than the assumptions, the fair value should be increase and vice versa.)

First method to calculate is fair value - Based on its dividend:
In 2011 fiscal year, EPS of SAPIND was 28.22 sen. If 50% will be used as dividend, it is equivalent to 14 sen per share.

In order words, with market price of RM1.70 to own a share of SAPIND, the DY (dividend yield) is equivalent to 8.2%. If our target is to have at least 6% return, then the fair value of SAPIND should be RM2.33, that is, 0.14/2.33 = 6%.

Second method to calculate is fair value - Based on its PE:
Maybe you will say that SAPIND business is not as high demand as other like TopGlove, let's give it PE of 8. With estimated EPS of 28sen, the fair value should be 8x28sen = RM2.24, which is quite similar with the first method.
When is the time to sell SAPIND?
Based on Cold Eyes' advice, there are three conditions for us to sell our shares:
1. When the company fundamental condition is not good anymore
2. When the market price is irrational expensive (Extremely over-valued).
3. When there is another better investment.

Lastly, for your information, I am one of the shareholders of SAPIND. I invest it because I believe my analysis with the reasonable assumptions. I am not able to predict the performance of SAPIND in 2012. As long as the assumption is applicable, I will hold it until it is over-valued. That's all for today. More fascinating articles and sharing will be updated from time to time in Xaivier Blog. So, you are welcome to subscribe our feed, look at our sitemap or simply visit our Homepage.

Written by: Xaivier Chia

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6 comments:

doinfinity said...
This comment has been removed by the author.
jack said...

Hi Xaivier, may I know your opinion on SAPIND at its recent drop after ex-devidend? Thanks.

Xaivier Chia said...

In the short term, market price will be affected by the EQ of investors, e.g. fear and greed.

Based on its previos market price of SAPIND, it is hard to imagine that SAPIND will soar over RM2.00. But if you study SAPIND carefully, you will think SAPIND is too good to be true as I stated in my analysis above.

SAPIND 2011Q1 earned net profit of 7.20sen compared to 2010Q1 of 6.39sen. As long as SAPIND maintain or improve its business performance. I will hold it unless I found better investment.

Since around 70% or 50,000,000 shares of total shares are hold by 30 major shareholders, technically, we can see it is simply small portion of people cheap sell SAPIND. Can you calculate total how many shares were sold these days (from its top price (RM1.7++) to now)?

In January 2009, market price of SAPIND was only RM0.30, if we buy and hold SAPIND until today, all our capital in SAPIND is returned through DIVIDEND!!! Yes, just through dividend, it is possible to get 100% return from stock market within 2.5years, and then, all shares is FOC (Free-of-charge). So, can you imagine it? Without doing any transaction, all our capital will be returned via DIVIDEND. This is a goal that I hope I will achieve soon.

I have no idea the market price of SAPIND in the future. But I do believe that smart investors always try hard to allocate their money in profitable places. If SAPIND is really a good investment, someday in the future, it will be recognised by the market. When this happens, the market price of SAPIND is no longer cheap, just like DXN, AIRASIA, DRBHCOM, VIS etc. Three of them make me regret (Since I did buy them when their volumes were low and prices were so cheap) but also make me more confidence my future investment.

Best wishes.

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Note: Do you see Bill Gate trades his own company's shares frequently to be rich guy in the world?

jack said...

Xaivier, thanks for your view. If buyer does not have a strong mind or own view, may follow the fear and selling the units they have.

Xaivier Chia said...

Hi Jack,

Yes. Therefore, we must know what we have bought via sufficient analysis and study based on reliable data (e.g. audited annual report and quarter report). And review them from time to time when new data is available.

Next, according to Cold Eyes senior, there are three conditions that we can consider to sell our shares:

1. Over-valued.
2. Better deal is available
3. The condition / performance of the company become / will become bad.

If we still fear the market price will drop, then we can sell half of them to get back our capital first.

Best wishes.

Jim said...

Hi Xaivier,
Can you comment on the SAPIND as of today's 0.87. Looking at it now after 4 years. Appreciate your analysis and comment.

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