Does TGUAN pass my screen?

Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
#1
Fundamental analysis is a time-consuming exercise.  We all screen for companies so that we spend time on those that have a good chance to be an investment opportunity once we complete the fundamental analysis.

I use a simple back-of-envelop valuation approach for screening brick-and-mortar companies. I used Value = Book Value X (ROE/10)

Where:
  • ROE is the past 10 years average ROE to smooth out the yearly fluctuations due to business cycle,
  • The 10 % represent the average cost of capital. It is a rule of thumb base on my history of valuing Bursa companies.

For the intrinsic value to be above the Book Value we should have a ROE that is greater than 10%. That is why I focus on ROE as a good screening metric.

In the case of Thong Guan, its average ROE over the past 10 years was 10.93%. Its current Book Value is RM 2.13 per share

My quick and dirty value is that:

Value = 2.13 X (10.93 / 10) = 2.13 X 1.1 = RM 2.34

Its current market price is RM 2.06 per share giving a margin of safety = (2.34 -2.06 ) / 2.06 = 14%.

It is a quick and dirty valuation than can be done in a few minutes but it does indicate that this is a candidate worth digging deeper into.

I of course have detailed analysis of other packaging companies such as New Toyo (NO8) and Canone.  So I also compare their ROE as shown below. You can see that TGUAN did better than New Toyo and over the past few years did even better than Canone.

[Image: TGUAN-vs-New-Toyo.png]

Again, it gives me confidence that if I spend time doing a fundamental analysis of TGUAN, I would not be wasting my time. Most of the time, the actual cost of capital would be lower than 10%. Any the actual valuation is based on free cash flows rather than earnings.

I of course have the advantage of a panel of 100 over companies that I have covered consistently over the past 20 years and have a good reference source. I have shared some of them eg New Toyo. You will have of course to build your own data base.

But this quick and dirty valuation is a useful screen to ensure that you have a more than fighting chance of finding a company with a good margin of safety when you do the detailed analysis.
Reply


Forum Jump:


Users browsing this thread: 2 Guest(s)