Harimau Plastic_v3 (2)

8/13/2019 Harimau Plastic_v3 (2)

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History

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Objectives Conduct an investment analysis of Harimau Plastics

Determine a fair valuation price (at the end year of 2004) pershare

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Ratio Analysis

FY-97 FY-98 FY-99 FY-00 FY-01 FY-02 FY-03 FY-04

Short term Solvency Ratios:

Current ratio 4.13 4.05 5.25 4.26 4.62 4.50 4.91 4.59Quick ratio 1.46 2.36 3.03 1.91 1.93 1.85 2.26 1.90Cash ratio 0.01 1.44 2.04 0.71 0.52 0.44 0.84 0.44

Asset Utilization ratios:

Total asset turnover 0.56 0.46 0.39 0.57 0.77 0.86 0.90 1.10Inventory ratio 0.42 0.32 0.25 0.34 0.46 0.56 0.57 0.66Receivable turnover (days) 91 69 72 83 87 88 88 90Payable turnover (days) 81 103 104 107 101 95 98 102

Long term solvency ratio:

Total debt ratio 0.74 0.85 0.93 0.86 0.73 0.61 0.49 0.28Debt to Equity ratio 3.00 4.50 6.75 8.25 9.80 9.15 8.65 6.65

Times interest 0.40 0.39 0.43 1.54 3.21 3.58 5.446 13.33

Profitability ratio: Gross profit margin 25% 30% 35% 40% 40% 35% 37% 40% Net profit margin -9% -15% -11% 6% 16% 14% 17% 24% Return on Asset -5% -7% -4% 3% 12% 12% 15% 27%

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Ratio Analysis The solvency and profitability ratios shown

gradually improvement from year 1997 year2004

Total debt ratio improved from 0.74 in year1997 to 0.28 in year 2004 due to improvedprofit in year 2004.

Total asset turnover improved from 0.56 inyear 1997 to 1.10 in year 2004 due to majorrevenue growth in year 2004

Profit margin improved from -5% in year 1997to 27% in year 2004 7


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Growth %FY-97 FY-98 FY-99 FY-00 FY-01 FY-02 FY-03 FY-04

Revenue Growth 9% 14% 96% 90% 24% 24% 65%

Net Profit Growth -75% 12% 203% 395% 9% 49% 143%

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CAPM

Calculate the cost of equity using CAPM Rm = Rf + Beta (Rm Rf) Beta based on leading industrial packaging

manufacturers beta 1.03

Assumed Harimau Plastics risk is higher thanthe leading industrial manufacturer by 50% interm of financial & management stability

Beta 1.03 *1.5 = 1.545 Rf - 3.71% based on the 10-year Malaysian

Government Bond yields Rm - Expected market return of 11.55% from

Bloomberg9


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WACCD E

D+E D+E

Kd = InterestTotal Debt

= 5326650

= 8% net of tax

Ke = Rf + Beta Rm-Rf = 3.71+ 1.545 11.55 - 3.71= 15.82%

WACC = 6650 + 12,878 6650 + 12,878= 0.0272 + 0.1043= 0.1315= 13.15%

0.158212,878

+X Kd X Ke

6650 X 0.08 + X

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FCFF

Actual (RM'000) Forecast (RM'000)

Growth 70% 3% 293% 152% 4% 34% 113% 30% 20% 10%

FY-97 FY-98 FY-99 FY-00 FY-01 FY-02 FY-03 FY-04 FY-05 FY-06 FY-07

EBIT 138 235 241 948 2,389 2,483 3,333 7,090 9,217 11,060 12,166Less:Taxation - - - - - - (50) (75) (98) (117) (129)

EBIT (Net ofTax) 138 235 241 948 2,389 2,483 3,283 7,015 9,120 10,943 12,038

Add:Depreciation 155 304 515 702 851 897 853 860 1,118 1,342 1,476

Less: CAPEX -2,585 (1,120) (1,611) (1,500) (1,090) (650) - -50 (65) (78) (86) Less:IncreaseNWC -1,213 -318 -834 -1,033 -2,957 -1,387 -3,024 -5,292 (6,880) (8,256) (9,081)

FCFF (3,505) (899) (1,689) (883) (807) 1,343 1,112 2,533 3,293 3,951 4,347

Less: Interest -345 -600 -563 -616 -744 -693 -612 -532 -692 -830 -913

FCFE -3,850 -1,499 -2,252 -1,499 -1,551 650 500 2,001 2,601 3,122 3,434

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Net Tangible Asset

Net Tangible Asset in 2004= Total Asset Total Liability Total Intangible Asset= 23,994,000 11,117,000 0

= 12,877,000

Net Tangible Asset/share in 2004= Net Tangible Asset in 2004 /Number of shares

= 12,877,000/1,000,000= RM12.88

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Computation of Weight

Company Price as at31/12/2004 (RM) Number ofShares MarketCapitalisation (RM) Weight

ADVPKG 1.32 41008500 54131220 0.42DAIBOCI 0.627 75902000 47590554 0.37

PPHB 0.49 54949000 26925010 0.21Total 128646784 1.00

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Price-to-Earnings Multiple

Company Price as at31/12/2004 (RM) EPS(Sen) P/E Weight P/E *WeightADVPKG 1.32 5.93 22.26 0.42 9.35

DAIBOCI 0.627 3.8 16.5 0.37 6.11PPHB 0.49 0.92 53.26 0.21 11.18

P/E Industry 26.64

Since EPS of Harimau Plastics Sdn. Bhd. is RM 6.483, thususing P/E multiple technique, the value of Harimaus ordinary share is as follows:

RM6.483 * 26.64 = RM 172.71

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Price-to-Cash Flow Multiple

Using price-to-cash flow multiple technique, the value ofHarimaus ordinary share is as below:

Price = 7950000 * 6.57 / 1000000 = RM52.23

Company

Market

Capitalisation(RM)

EBITDA(RM) Weight

Market

Capitalization/EBITDA *WeightADVPKG 54131220 4769304 0.42 4.77

DAIBOCI 47590554 13040000 0.37 1.35PPHB 26925010 12625000 0.21 0.45

MC/EBITDA Industry 6.57

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Price-to-Sales Multiple

Using price-to-sales multiple technique, the value of

Harimaus ordinary share is as below:

Price = 26500000* 1.17 / 1000000 = RM31.05

Company MarketCapitalisation(RM)

Sales (RM) Weight MarketCapitalization/Sales *Weight

ADVPKG 54131220 22564161 0.42 1.01

DAIBOCI 47590554 16067700

00.37 0.11

PPHB 26925010 119450000 0.21 0.05MC/Sales Industry 1.17

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Price-to-Book Value Multiple

Using price-to-book value multiple technique, the value ofHarimaus ordinary share is as below:

Price = 12878000 * 0.69/ 1000000 = RM8.89

Company MarketCapitalisation(RM)

Book Value(RM) Weight

MarketCapitalization/BookValue * Weight

ADVPKG 54131220 48614613 0.42 0.47DAIBOCI 47590554 100487000 0.37 0.18

PPHB 26925010 147451000 0.21 0.04MC/Book Value Industry 0.69

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Evaluation of Exercise Price

Technique Share Price (RM)

Discounted Cash Flow 34.05

P/Earnings Multiple 172.71

P/Cash Flow Multiple 52.23

P/Sales Multiple 31.05

P/Book Value Multiple 8.89

Average 59.78

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Valuation in terms of Price per Share

Discounted Cash Flow: RM 34.05 might be overpriced becauseHarimau Plastics Sdn. Bhd. is relatively new in the industry, thereforethe risks of forecast error is also relatively high. Besides, the exit ofthose key persons may also have impacts on the further profitability ofthe company.

Relative valuation: Using various multiples to value the company istoo simplistic because the multiple represents a snapshot at aparticular point in time (31/12/04), it fails to capture the dynamic andever-evolving nature of business and competition. This might result inpossibly erroneous valuation.

Net tangible asset per share: Best representative of companys valueat that particular point of time (date of report), but since it uses bookvalue of the asset, it is susceptible to accounting policies adopted bycompany. 20


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Recommendation

It is because if Harimau Sdn. Bhd. were to sell in chunk toanother company, the total value will be RM57,675,000which is comparable to market value of its competitors:ADVPKG RM54,131,220, DAIBOCI RM47,590,554, PPHBRM 26,925,010.

If Harimau Sdn. Bhd. were to be listed, it can reduce itsshares face value to RM0.10 (thus increase total sharenumbers to 10,000,000) to yield price per share ofRM5.7675 21


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Thank You

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Harimau Plastic_v3 (2)

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