Highlights / Stock Picks of the Day - Kumpulan Fima Bhd (KFIMA) – Take Profit
Author: kiasutrader | Publish date: Tue, 27 May 10:19
KFIMA recently announced an uninspiring 4Q14 financial result - the
Group’s net profit plunged 55% YoY to RM6.6m. KFIMA’s share price was
down by 3 sen (-1.29%) to close at RM2.29 yesterday. From a technical
chart perspective, KFIMA has been on a downtrend since reaching a high
of RM2.45 two months ago. MACD indicator has also started to dip,
lending a hand to the bearish bias. Besides, key indicators like
Stochastic and RSI are also negative, reinforcing the near-term bearish
trend. We believe the share price could fall further during the
near-term amid the poor results announced recently. Thus, we are placing
a ‘Take Profit’ gesture on this stock and may relook into it when the
share price looks attractive again. Source: Kenanga
"If you look carefully, almost all Old Money secrets can be traced to a single source: a longer-term outlook." -- Bill Bonner
This is the immediate report from an investment bank about Kumpulan Fima. Let us just forget its mumbo jumbo on MACD, RSI, Stochastic and all other bombastic names but focus on the business. We invest in a stock to participate in part of its business, ok?
First of all, is there much profit to take as suggested by Kenanga? Kumpulan Fima definitely provide a long-term investor a very good return over the last 5 years in the order of more than 25% CAGR. Since last year, the return is still above the broad market but there is nothing to shout about compared to many other not-so-good stocks. I doubt many people have bought it long ago and can really “take profit” as advised.
Secondly what do you mean by “may relook into it when the share price looks attractive again?” You mean the present price is expensive? But compared to what? What is your value of the business of Kumpulan Fima from your valuation? What is your price-value relationship of Kumpulan Fima? Do you have any?
“the Group’s net profit plunged 55% YoY to RM6.6m”. Are you talking about a quarter compared to another quarter? Year to year, its profit dropped less than 10%, not more than 55%. Revenue wise it actually increased by another 3.7%. But again most people invest base on quarter to quarter, unlike some long-term value investors who invest base on a time horizon of 5 years or even 10 years. Can’t really blame them, can we? Yeah, some people expect continuous unabated growth in profit, year after year, no bumps at all. Wonder they can show us one company like that in Bursa here.
But just what is the drop of profit that warrants an immediate sell call? Looking at its core business in security printing and palm oil, there is generally a steady growth in revenue and profit as shown in their recent quarter result in the appendix here. Bulking is still good though revenue and profit dropped by about 10% last year. Oh yeah, the drop in profit, the main culprit is the sardine business in Fiji. It made a loss of 5.2m last quarter, or 14.3m last year. It is bad for this business. But it is the only problem child, right now.
But what is so bad and serious about Kfima’s whole business with the revenue and profit of its core business still steady and growing? Can’t the sardine business be improved? If not, can’t Kfima just cut this losing business out? What would be its value then?
With the seemingly poor result last year, the return on invested capital of Kfima has dropped to 13.2%. Nothing to shout about. But to me for a company which has been making increasing profit for the last 10 years, except a slight drop for the most recent year, a company with abundant cash flow and free cash flows, and a squeaky clean balance sheet, this ROIC indicates that it is an excellent company to invest in.
Moreover, at a price of RM2.20 now, the PE ratio of 10 (with abundant excess cash) and an enterprise value of just about 5 times earnings before interest and tax, or an earning yield of 20%, Kumpulan Fima is cheap and safe to invest in.
My opinion on Kumpulan Fima is also expressed in the link below:
http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/34118.jsp
K C Chong (27/5/14)
Appendix
March 2014
Author: kiasutrader | Publish date: Tue, 27 May 10:19
"If you look carefully, almost all Old Money secrets can be traced to a single source: a longer-term outlook." -- Bill Bonner
This is the immediate report from an investment bank about Kumpulan Fima. Let us just forget its mumbo jumbo on MACD, RSI, Stochastic and all other bombastic names but focus on the business. We invest in a stock to participate in part of its business, ok?
First of all, is there much profit to take as suggested by Kenanga? Kumpulan Fima definitely provide a long-term investor a very good return over the last 5 years in the order of more than 25% CAGR. Since last year, the return is still above the broad market but there is nothing to shout about compared to many other not-so-good stocks. I doubt many people have bought it long ago and can really “take profit” as advised.
Secondly what do you mean by “may relook into it when the share price looks attractive again?” You mean the present price is expensive? But compared to what? What is your value of the business of Kumpulan Fima from your valuation? What is your price-value relationship of Kumpulan Fima? Do you have any?
“the Group’s net profit plunged 55% YoY to RM6.6m”. Are you talking about a quarter compared to another quarter? Year to year, its profit dropped less than 10%, not more than 55%. Revenue wise it actually increased by another 3.7%. But again most people invest base on quarter to quarter, unlike some long-term value investors who invest base on a time horizon of 5 years or even 10 years. Can’t really blame them, can we? Yeah, some people expect continuous unabated growth in profit, year after year, no bumps at all. Wonder they can show us one company like that in Bursa here.
But just what is the drop of profit that warrants an immediate sell call? Looking at its core business in security printing and palm oil, there is generally a steady growth in revenue and profit as shown in their recent quarter result in the appendix here. Bulking is still good though revenue and profit dropped by about 10% last year. Oh yeah, the drop in profit, the main culprit is the sardine business in Fiji. It made a loss of 5.2m last quarter, or 14.3m last year. It is bad for this business. But it is the only problem child, right now.
But what is so bad and serious about Kfima’s whole business with the revenue and profit of its core business still steady and growing? Can’t the sardine business be improved? If not, can’t Kfima just cut this losing business out? What would be its value then?
With the seemingly poor result last year, the return on invested capital of Kfima has dropped to 13.2%. Nothing to shout about. But to me for a company which has been making increasing profit for the last 10 years, except a slight drop for the most recent year, a company with abundant cash flow and free cash flows, and a squeaky clean balance sheet, this ROIC indicates that it is an excellent company to invest in.
Moreover, at a price of RM2.20 now, the PE ratio of 10 (with abundant excess cash) and an enterprise value of just about 5 times earnings before interest and tax, or an earning yield of 20%, Kumpulan Fima is cheap and safe to invest in.
My opinion on Kumpulan Fima is also expressed in the link below:
http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/34118.jsp
K C Chong (27/5/14)
Appendix
March 2014
|
Segmental results |
|||||||
|
Individual quarter |
Cumulative Quarter |
||||||
|
Current year |
last year |
Current year |
last year |
||||
|
31/03/2014 |
31/03/2013 |
31/03/2014 |
31/03/2013 |
||||
|
Revenue |
Change |
Change |
|||||
|
Manufacturing |
58024 |
46233 |
26% |
241486 |
201869 |
19.6% |
|
|
Plantation |
42885 |
30044 |
43% |
110480 |
106316 |
3.9% |
|
|
Bulking |
16778 |
19492 |
-14% |
63784 |
74027 |
-13.8% |
|
|
Food |
17480 |
25792 |
-32% |
83530 |
99631 |
-16.2% |
|
|
Others |
9905 |
12157 |
-19% |
23897 |
44305 |
-46.1% |
|
|
145072 |
133718 |
8.5% |
523177 |
526148 |
-0.6% |
||
|
Inter-segment Elimination |
-8560 |
-11120 |
|
-18591 |
-39624 |
|
|
|
136512 |
122598 |
11.3% |
504586 |
486524 |
3.7% |
||
|
Profit before tax |
|||||||
|
Manufacturing |
9237 |
9659 |
-4.4% |
63392 |
53145 |
19.3% |
|
|
Plantation |
10767 |
9071 |
18.7% |
29399 |
30555 |
-3.8% |
|
|
Bulking |
10186 |
11498 |
-11.4% |
37280 |
42089 |
-11.4% |
|
|
Food |
-5273 |
4568 |
-215.4% |
-3440 |
14316 |
-124.0% |
|
|
Others |
-2324 |
-118 |
1869.5% |
-1414 |
-1523 |
-7.2% |
|
|
22593 |
34678 |
-34.8% |
125217 |
138582 |
-9.6% |
||
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