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Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.

Wednesday, January 7, 2015

Homeritz: FY2014 annual report update

Homeritz just released its FY2014 annual report last week. So I take time to update my data base and also update in my blog here. 

I guess everyone knows how good the company is. 
Revenue increased 12.6% and net profit increased 33% compared to FY2013. 

3 years of positive and improving free cash flow
FCF/invested capital is more than 30% for the last 3 years, even recorded 54% in FY2014. That is awesome. The cash generability is just too good. 

Net cash position all this while
Cash conversion cycle less than 100 days
ROE ~23
ROIC ~45

What more can I say? 


In terms of valuation, PE of 9.4 may not sound like a good entry point. I think Homeritz has the highest PE among the industry. Didn't really find the info

However, but using enterprise value multiple valuation which include its debt, excess cash, minorities and using operation profit as denominator, the earning yield is still 16%, which far exceed the WACC of 10.9% I calculated. 

Due to its strong cash flow, FCF yield is good at 11.3% currently. 

P/B ratio is 2.1 which I think is unsuitable to use to evaluate manufacturing companies.  




Base on AR2014, more than 99% of the group's sales were from exports. Weakening of RM against USD may do them a favour, but I think the group also purchase the raw material in USD too. 

There was a new customer who contributed more than 10% of the group revenue. So the 3 customers contributed around 36% of the group revenue. 



Base on the foreign currency risk sensitivity analysis as displayed in AR2014 which focus on the effect of currency changes on the group financial assets & liabilities, the 5% strengthening of USD against RM will increase their PAT by around RM779k. 




Both Fong Siling and Koon Yew Yin also in the boat. Somemore, using margin account. 

Looking back, the share price once dropped to somewhere around RM0.68 during October sell-down which provided a good opportunity to accumulate such a good and stable counter. 

But I didn't make the buy call. 
It's always easier to look back on the history share price and think "what if .."

Homework not done properly. Mental and emotion also not ready. It's not easy to buy when there is a sell down. Experience needed :)

4 comments:

  1. May i knw how to calculate the roic?

    ReplyDelete
    Replies
    1. ROIC = Operating Profit * ( 1 - tax rate ) / Invested Capital

      Where there is 2 calculation for invested capital

      First formula = Total equity + total borrowings - Non-operating assets (Goodwill, etc) - Investment in Associates/JV - Excess cash

      Second formula = Fixed assets ( PPE, investment properties, etc) + Net working capital (Inventory + trade receivables - trade payables )

      Both formula give similar numbers for invested capital.

      Hope it helps.

      Delete
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