I posted an earlier tweet last week (read this), whereby I was quoting CB Industrial Product (CBIP) as a ‘directionless‘ stock (even with solid fundamentals). I believe that the tweet is erroneous (perhaps from a longer time frame perspective).
As shown below, CBIP has been on a relatively stable uptrend (instead of being ‘directionless’) since 2009:
Fundamentals Are Relatively Solid
CBIP is currently in net cash position:
CBIP has been consistent in maintaining double-digit return on equity:
Not too excessive (in fact, declining) P/E and P/B:
Analysts have a higher average target price of RM2.306 for CBIP:
Some recent buying support by the insiders:
As per management, in spite of current challenging environment, Management expects the Company to achieve satisfactory results (FYE2017):
Since CBIP appears to command solid fundamentals, what would be the indicative valuation range?
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As long as earnings remain relatively stable across the financial quarters, it would be relatively easier for one to value a company. As shown below, the CBIP’s quarterly results appear to be rather consistent across the quarters (with exceptionally high seasonal earnings for the last quarter of the financial year).
Taking a simple average historical quarter PAT of the last 18 quarters (since 2013), an average quarter PAT of approximately RM23.6 million (annualised: approx RM94.5 million) was derived. Given the relatively low beta nature of this stock, we assume 10% to be reflective of its required equity rate of return.
Based on the above high-level desktop analysis (assuming perpetuity growth rate to be in the range of 2.0% – 3.0%), a possible indicative equity value range of between RM2.30 and RM2.66 is derived. This indicative range represents a potential margin of safety of between 13.2% and 24.8%.
In my previous postings, I did consider CBIP as a potential candidate for possible swing trading opportunities. I was wrong again in this aspect. Given its relatively solid fundamentals, one may consider CBIP as a potential value stock, rather than classifying it as a momentum stock.
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