[KUALA LUMPUR: V.S. Industry Bhd, which saw its net profit surge 147.5% to RM132.74mil in the financial year ended July 31, 2015 (FY15) against RM53.63mil, is optimistic the group will perform well for the next financial year.
For the FY15, the group recorded a revenue of RM1.93bil, an increase of RM221.8mil, or 12.9% compared to thepreceding year. Its pre-tax profit was RM159.7mil, up 280.3% or RM117.7mil over the same period.]
The above is an extract of an article appeared in Star Newspapers in the link below:
Adjusted earnings per share of VS, EPS, surged more than double from 5.91 sen to 12.89 sen for the financial year ended 30th September 2015. It share price also surged a few folds the past one year as shown in the chart below.
Yes, just like they say, a picture paints a thousand words. V.S does behave like a Very Shining Idol, as far as the share price is concerned. $*%&#@, I missed it again!
I have written a number of articles on VS before. They are here:
These articles were written just to share my view on VS, in particular its financial performance. As my views were contrary to the belief of many VS investors, these articles were not well received, and I was literally told to shut up. Read some of the sarcastic remarks below when the share price of VS keeps going up as I was writing those articles:
Posted by shinebright > Sep 7, 2015 02:40 PM | Report Abuse 
Where is that kcchongz! (Disappeared after he was “wrong” in his analysis?)
Posted by Frankiechow > Aug 8, 2015 03:05 PM | Report Abuse
“It looks like KCChongnz is taking a cheap shot on Asdion or Paperplane. Why didn't he say anything few weeks back before Asdion took a dip along with the rest of counters in klse? Is he trying to divert from VS which he was completely wrong?” (Like someone divert the 1MDB issue)
Posted by moneyface88 > Jul 14, 2015 01:14 PM | Report Abuse
“Sifu KC, you were right. V.S was cheap cheap. Now 5.44 already, too expensive to buy liao”
Posted by moneyface88 > Jun 24, 2015 12:06 AM | Report Abuse
“Hello Mr Sifu KC Chong .... from New Zealand ?
Your article very Keng , very analytical. I have learnt a lot reading this article of yours.
Then got worried and sold my V.S Share then share price moved up strongly.
Today Q2 result announced, not what you have expected, you must be disappointed
How much you charge ah to learn something from you ?
Please tell me so that I can subscribe to your tips”
But I never talk about price, whether it would go up or not. Those guys should be thankful to me instead of taking swipes at me as its share price keeps on going up as I wrote and they have become super rich as a result of my articles, shouldn’t they?
Oh Moneyface, for your information, I never give tips. I have no tips. So there is no subscription for tips. I do teach the fundamentals of investing though.
I even have lost some friends who are diehards in VS, just because I am writing something different from what they believe in and they held a lot of VS shares and are all laughing to the banks. But why do I still writing about VS again here?
Readers who are long enough in i3investor would know I like to write, and share my thoughts about investing. It doesn’t matter if I am right or wrong, does it? Some don’t mind my sharing. For example, read the comments below:
Posted by chonghai > Jun 3, 2015 06:41 PM | Report Abuse
“Kcchongnz, I own VS share. I believe I never attack or insult your analysis, partly because I am still trying to comprehend your analysis. I bought VS for the recently surge in revenue due to keurig. No matter what is your analysis, I will be holding on my VS for 6 more months, because I believe the jump in revenue could be different from before. However, I still really appreciate your analysis because that allow me to have a good understanding of VS. Thank you very much. “
Posted by duitKWSPkita > Aug 7, 2015 04:34 PM | Report Abuse
“thanks for sharing KC CHONG...
appreciate ur kind time for analysis always.............
KC CHONG, I love FA so I never miss all your FA write up.
KC CHONG, may I request if possible to re-analyze VS's financial performance on next QR report. I like to learn should they have certain improvement in facts and figures after the expansion. No doubt CIMB presents an attractive TP of RM7.10 (almost similar with KYY's) but no harm to do an analysis before & after business growth.
Again, thanks Senior Kc Chong. “
Yes, VS has just published its 2015 financial performance. So to satisfy my friend Duit here, I will share with you what I think about VS 2015 financial performance. Hopefully I can push up the share price of VS further, maybe to RM10 after share split. Your critical comments, with your reasoning are highly appreciated.
Caveat emptor, I will be repeating the same principles again in value investing and it could be boring for some people. If you feel bored, just don’t carry on reading.
Posted by kcstone > Sep 24, 2015 09:34 PM | Report Abuse
“topic repeated dozen of times. only change title. boring. zzz”
VS fiscal financial performance ended 30th September 2015.
[For the FY15, the group recorded a revenue of RM1.93bil, an increase of RM221.8mil, or 12.9% compared to the preceding year. Its pre-tax profit was RM159.7mil, up 280.3% or RM117.7mil over the same period.]
The statement is self-explanatory. Earnings growth of VS is nothing short of phenomenon!
As usual, I place more emphasis on return on capital. You know some people ridiculed me about I being too “theoretical”, rather looking at how the “results” speak. Of course “results” here they mean share price movement. Well everyone is different, including me. You don’t have to follow me.
Due to the surge in earnings, return on equity (ROE) of VS has also surged from the norm of about 7% in the past few years to 12.8% now. Well done VS! Well, this ROE is probably matching its cost of equity, nothing that great to me. But I am more interested in return on invested capital, or ROIC. Why? I would like you to read about my thought on this in this link here which I explain a little why I prefer ROIC over ROE:
ROIC of VS also surged from 6.7% last year to 12.1% in 2015. This is indeed a great feat. ROIC is definitely higher than its cost of capitals as it has 42% of its total capital in debts. Well done again VS! Its share price will sure surge ahead, won’t it?
The spoiler
I hope VSers can cool down here before carry on reading. This is just me. I value cash from operations more than earnings. You don’t have to be like me. But please bear with me my preference too. If you dislike what I have been writing about cash flows all this while, just shut off, and just don’t read further.
Very rarely we read about cash flows analysis in publication, or any analyst report. Hardly anybody talks about cash flows in i3investor, for example. I am a little weird. I treasure cash, cash is king for me as shown in my article below.
My own experience in Bursa affirms me that; cash flows is very important as you can read from many of my articles published in i3investor, one of them here:
Even for my own portfolio established in January which has done very well, the only two losers in return are with poor cash flows (Pantech and Kimlun) and the outperformers are all with excellent cash flows.
In my last article on VS when I was using the trailing twelve months results of VS for analysis, I mentioned that “For the last four quarters, its cash flow has improved tremendously with a total free cash flow of RM15.4m.” So I would expect VS cash flows from operations would improve and free cash flows (FCF) to at least positive when the final results is announced. Alas, this is what I got from its annual results 2015 just announced as shown in Table 1 below.
Table 1: Cash flows of VS
CFFO of just 11.4m amounts to only 9.1% of Net Income, and barely covers its interest payment, despite a huge depreciation add back to CFFO of RM63m! FCF is again in the negative territory of a whopping RM53m because of another huge capital expense of RM64.3m, up from RM52.4m last year!
But isn’t it normal when a company expands fast, it needs to stock up more inventories and give more credits to customers, and buy more property, plant and equipment? Sure, but when is beginning and the end of all these will be?
Over the last 7 years, VS earned RM309m in net profit, but “lost” RM4 in cash. So the company got to issues more shares and continues borrowing money from the banks with total borrowings increased from RM178m in 2009 to RM412m now. Where is the beef?
Without internally generated fund, or FCF, a company needs to continue to borrow to fund its operations, and even borrow to pay dividends, and hence makes the company more risky in times of economic downturn, loss of major client. Without FCF, the company needs to continue to issue more shares to do the same, and as a result diluting its EPS.
Market Valuations
Never mind. All the above so called analysis are just “theory” only. The results, they mean the share price movement speaks the loudest as VS’s share price continues to rise. In investing, the past has no relevance, only the future matters, and they can predict the future very well. VS’s earnings will continue to grow at the same rate; it is growth, growth, and growth which is most important, not value. No worry, VS at RM1.38, or a PE ratio of just 12 times earnings is damn cheap, is it?
Compared to its historical PE ratio, I am not sure if it is cheap it has been all the time trading at single PE ratio as shown in Table 2 below as extracted from Dynaquest’s Stock Performance Guide.
| Table 2: PE range | |||
Year
|
Low
|
High
|
Average
|
2010
|
5.8
|
11.1
|
8.5
|
2011
|
4.8
|
8.8
|
6.8
|
2012
|
7.5
|
8.9
|
8.2
|
2013
|
4.6
|
5.6
|
5.1
|
2014
|
4.8
|
9.1
|
7.0
|
And also a comment here which sounds logical.
Posted by soojinhou > May 20, 2015 11:06 AM | Report Abuse
“No matter how good VS is, they are ultimately just a contract manufacturer. The biggest of them all, hon hai, is valued at pe slightly more than 10. Using that as a benchmark, VS is more or less fully valued at the current price (about RM4.00).”
Well this time may be different. It certainly shows the difference looking at its price now. Soo Jin Hou and I (not me but Dynaquest) were dead wrong! VS should be trading at PE of more than 20, the same as Globtronics.
Again let us talk about some more “theory” here. VS at RM1.38 has a market capitalization of RM1.59b. With a total book value of debt of RM412m, and a market value of minority interest of RM415m, and a cash and investment totalling RM256m, I think we should look at its enterprise value, rather than just the market capitalization. I have written an article here to share my thought about this here.
VS at RM1.38 is selling at an enterprise value of RM2.164b, or 12.3 times its operating profit, or Ebit. Is that cheap?
I remember Warren Buffett mentioned before that he is only willing to pay an enterprise value of 7 times Ebit for a normal company. So it appears that VS is a highly exceptional company in Warren Buffett’s book. Or Warren Buffett was dead wrong too. Well Warren made mistakes before also.
The price of VS twice its book value also shows that VS is an exceptional company,
My conclusion
VS surely have done very well in terms of profit and profit growth, but reasonable in term of return on capital. The Achilles heel is its cash flows, the persistent negative FCF the last four years. Price wise, it doesn’t appear cheap to me. But don’t take my word, I have been “wrong” on VS all the time.
So with my article above, I hope VS share price continues to fly.
“Theory has no use in investing”. But for those who think it may work and wish to learn more, which I also have shown it has always work, and works at its own, whether in US or here as shown in the many articles I have written in i3invesor, please contact me for an online investing course which has just started now at
Sigh, it is hard to find people willing to learn about fundamentals investing nowadays.
KC
No comments:
Post a Comment